An in-depth review of the ‘ETS’ (CO2 emissions trading system) to give European businesses more help in decarbonising, while at the same time working on adapting the Carbon Border Adjustment Mechanism (CBAM) to avoid further penalising European importers... Meeting in Brussels on Thursday 26 February to share their solutions for boosting the competitiveness of European industry, the EU27 Ministers responsible for Competitiveness lingered at length on the handicap of energy costs in relation to American and Chinese competitors.
The vast majority of MEPs called for an overhaul of these two tools at a time when the Cyprus Presidency of the EU Council had invited them to make an initial assessment of the emergency plans published by the Commission for the metals and steel, automotive and chemical industries.
This is timely: the subject had already been discussed at length by the European leaders meeting informally at Alden Biesen (see EUROPE 13807/2), and the Commission Vice-President responsible for Prosperity and Industrial Strategy, Stéphane Séjourné, confirmed on Thursday the Commission’s plans to revise the ETS so that “it is not perceived simply as a taxation tool”, but can become “a real tool for decarbonisation”.
The revenue generated by the ETS should be used more for investment in decarbonisation, with the investment potential estimated at €360 billion, for example to invest in “steam crackers” (used in petrochemicals), added the European official.
The day before, the Alliance of Industry-Friendly Countries, which brings together a dozen member countries, had also worked on the necessary overhaul of the ETS and the CBAM, albeit to varying degrees.
So while countries led by Poland explicitly want “a review of the timetable for phasing out free allowances and reference values, continued compensation for indirect carbon costs, measures to prevent carbon leakage, including for exports from sectors covered by the CBAM, and possible specific arrangements for production for defence purposes”, as they put it in a working paper (see EUROPE 13816/13), others have been more cautious.
In a statement issued after the meeting of the Alliance, which brings together Germany, France, Austria, Croatia, the Czech Republic, Italy, Luxembourg, Portugal, Romania, Slovakia, Slovenia, Spain and Poland, the tone is more measured.
These countries stress that industrial emissions must be reduced in the most cost-effective way possible. “With this in mind, the next review of the Emissions Trading System (ETS) should seek to support the competitiveness of European industry and stimulate investment in innovative technologies”.
Predictability and regulatory stability are essential to avoid market volatility and preserve the smooth functioning of the ETS, “the next review should ensure an effective price signal, stability, predictability and sufficient market liquidity” as well as a pragmatic and investment-friendly approach to “free allocations” of CO2 allowances.
However, tongues loosened during the meeting. While France, through its Minister Delegate, Sébastien Martin, refuses to “blow up” the entire ETS and abandon the targets, as does Spain, the Italian Minister, Adolfo Urso, has accused it of all the wrongs and called for a postponement of the planned end of ‘free’ allowances.
“We are all aware that the Emissions Trading System in its current form is nothing more than a tax, a charge imposed on energy-intensive businesses that are no longer competitive. We all know that it needs a major overhaul, as does the CBAM”.
And to best achieve this, the ETS must be suspended pending a comprehensive, integrated and effective reform, said the Minister on his arrival in Brussels. “The ETS is currently having a perverse effect, encouraging financial speculation and forcing emissions to be relocated to other continents”.
Poland’s Secretary of State, Michał Baranowski, once again called for a freeze on the planned end of free emission allowances and the need to lower carbon costs in the EU. He also noted a degree of consensus on extending the scope of CBAM to certain downstream products. In any case, these tools need to be “better aligned” “with the needs of the industry”, which needs to be relieved “immediately”.
The German representative, Economics Minister Katherina Reiche, also called for an overhaul of the ETS. “The targets proposed by the Commission are unattainable for our chemical industry”, she said as she arrived.
And CBAM in its current form does not protect European industry. “The allocation of free allowances must therefore remain possible” as long as CBAM is not more efficient.
As a reminder, the CBAM, or carbon tax on imports, has applied since January to products located downstream in the production chain of the sectors already concerned, which are mainly materials such as aluminium, cement, fertilisers, electricity and hydrogen, and extremely polluting to produce.
But European industries and importers are denouncing a double penalty with the price of CO2 becoming more expensive on the European carbon market as a result of the planned end of free quotas.
Calls for further easing in the automotive sector. Italy and Germany also argued strongly in favour of further flexibility for the automotive sector, and reiterated their call for the withdrawal of the Commission’s proposal on the greening of company fleets.
A number of countries had already expressed their dissatisfaction on this subject in December (see EUROPE 13767/10). Adolfo Urso reiterated his call for technological neutrality to be incorporated into all legislation and for alternative fuels and biofuels to be recognised.
Here again, the EU27 are not quite on the same wavelength, with France keen to retain the electrification framework and reward European production and ‘made in the EU’. On the other hand, some flexibility is welcome for the ‘CO2’ trajectories for light commercial vehicles.
New action plans. Stéphane Séjourné also raised the question of the relevance of new action plans for industrial sectors that are in less difficulty but can still be supported, such as the maritime, aeronautical and rail sectors.
At the start of the session, he also reminded the Member States of their responsibilities, giving the impression that, with regard to the negotiations underway with the European Parliament on new rules for CO2 emission standards for cars and on the future clause to protect European steel, they paradoxically did not seem to be “driven by a sense of urgency”. (Original version in French by Solenn Paulic)