EU lawmakers approve tighter draft law for ETS reform

The EU Parliament’s environmental committee (ENVI) on Thursday (Dec. 15) adopted a draft reform of the European Emission Trading Scheme, after months of tense negotiations guided by the EU rapporteur Ian Duncan.

The ENVI vote was scheduled on December 8, but it was postponed because major parties were divided between more ambitious criteria to push carbon prices up and the need to protect EU energy-intensive industries from the risk of carbon leakage.

The compromise draft law includes a higher rate at which permits should be removed from the market (the linear reduction factor), in order to achieve an emission reduction of 43 percent compared to 2005 in the EU ETS phase 4 (2021-2030). According to Reuters, EU lawmakers opted for a 2.4 percent rate of annual reduction from 2021, instead of the 2.2 percent linear reduction factor originally envisioned in the Commission’s proposal.

Duncan detailed other mechanisms designed to tackle the ETS long-standing oversupply: up to one billion allowances will be cancelled and the Market Stability Reserve (MSR) will withdraw a maximum of 24 percent of allowances from the market each year for the first four years, thus an higher rate compared to the current 12 percent.

“These measures will help deliver an effective carbon price that incentives industry to innovate,” Duncan said. “The top 10 percent best performing factories and other installations will receive all of their allowances free. We have also created a fund of up to 12 billion Euros to help industry innovate and invest in lower technology.”

According to Reuters, the proposal includes shipping in the ETS and exemptions for the steel and fertilizer sectors, while establishing a border carbon adjustment measure for importers of certain goods, such as cement.

According to Carbon Market Watch, the Thursday’s vote enables faster cuts in Europe’s carbon pollution but falls short of putting a halt on free handouts to highly polluting industries. “Reflecting carbon costs in product prices is the objective of the EU ETS, but almost all industries can currently pollute for free. Policymakers proposed to continue this practice of rewarding polluters after 2020, despite evidence that industry have profited by over €25 billion”, Carbon Market Watch said in a press statement. “The only exception is the cement sector where a first step was taken to implement the polluter-pays principle by fixing the rules. In the future, the cement sector will no longer be entitled to receive free pollution permits and importers will also need to start paying for their pollution under an import inclusion scheme”.

The EU’s Environment Ministers will discuss the proposal on December 19 and the EU Parliament plenary is expected to consider it in February 2017.


(Photo credit: European Union 2016 – European Parliament/Flickr)