ETS reforms seek to balance climate and economy

23rd June 2016

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  • Carbon Trading ,
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Nigel Jennings

Proposed reforms to the EU emissions trading system (ETS) strike the right balance between protecting jobs and the environment, the MEP leading the reforms said this week.

Speaking to the European Parliament’s environment committee, Ian Duncan, Conservative MEP and lead negotiator on reforming the ETS for phase IV, from 2021 to 2030, said: ‘Parliament’s position must be coherent and logical – it must be workable for the industries that it affects and ambitious for the climate it seeks to protect. I want us to deliver a system that is ambitious, fair and keeps us within our carbon budget without penalising the best performers in each sector.’

Duncan has proposed a ‘triple lock’ of ambition to tackle climate change in line with the Paris agreement. This includes possibly increasing the annual emissions reduction rate (the so-called linear reduction factor (LRF)) after the first UN global stocktake in 2023.

In its plans for phase IV, which were published in July 2015, the European Commission set the LRF at 2.2%. Duncan said this was the minimum by which the overall number of allowances should be cut each year. He told the committee: ‘I am not averse to a higher LRF, hence why I believe it should be reviewed in light of our Paris commitments, and I would be happy to accept and even propose an LRF of 2.4%.’

However, he warned that increasing the LRF would not solve the root causes of oversupply and low ETS prices. To deal with these issues, Duncan is proposing to allow the commission to put forward measures to improve the market for allowances by addressing the impact of overlapping policies.

He noted that, by 2020, the energy efficiency and renewables directives alone would have suppressed the market by 700 million allowances. ‘The impact of increasing the LRF to 2.4% is to remove 242 million allowances over a ten-year period, the impact of tackling overlapping EU policies is to remove 700 million allowances immediately,’ he said.

The third element of the triple lock is to allow member states to retire ETS allowances connected with the closure of national electricity capacity.

Other measures include: placing an additional 150 million allowances in the innovation fund; raising the small emitters threshold from 25,000 tonnes of C02 equivalent to 50,000 tonnes; and allowing plants under 5,000 tonnes of CO2 equivalent to opt out of the ETS. Duncan has also proposed a tiered system for the free allocation of allowances, with sectors and subsectors most at risk of carbon leakage, receiving the more free allowances.

Campaign group Sandbag said Duncan’s proposals would act against the environment, condemning the EU to an inadequate response to the size of the challenge and undermining the its promises in the Paris agreement.

The ETS reforms are also being discussed by the parliament’s industry and trade committee, which, in April, published its own draft opinion on the commission’s proposals. The reforms are expected to be finalised next year.


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