EU ETS reforms agreed by European parliament

16th February 2017


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  • Mitigation ,
  • Carbon Trading ,
  • Generation

Author

Todd Holden

MEPs have backed reforms of the EU's emissions trading system, although the proposals have received a mixed response from industry and climate campaigners.

The draft measures were approved by 379 votes to 263, with 57 abstentions. MEPs supported the commission’s plans to reduce the number of carbon credits by 2.2% a year from 2021 to curb emissions. Under existing legislation, they would reduce by 1.74% a year. MEPs decided to keep the number under review with a view to increasing it to 2.4% from 2024.

MEPs agreed to double the capacity of the market stability reserve (MSR) to absorb the excess allowances on the market. An oversupply of free pollution allowances has been blamed for the plummeting price of carbon, leaving major polluters with little incentive to cut greenhouse emissions.

The MSR was agreed in 2015 and will remove surplus allowances when thresholds are breached, absorbing up to 24% of excess credits in each auctioning year, for the first four years. MEPs backed plans to remove 800 million allowances from the MSR on 1 January 2021.

Under the proposals, funds raised by auctioning ETS allowances will be invested in upgrading energy systems in lower-income member states, and provide financial support for renewable energy, carbon capture and storage and low-carbon innovation projects.

Parliament rejected a proposed border adjustment for cement imports, which means that the sector will continue to receive free allowances.

Campaign group Sandbag warned that the cap was out of step with real emissions, which would perpetuate the surplus of allowances in the system. Reducing carbon credits by 2.2% would tighten the cap too slowly to meet the EU’s carbon emissions targets, it said.

Rachel Solomon Williams, managing director at Sandbag, said that if the measures are not changed, the EU ETS would become ‘simply an accounting mechanism’. The carbon price of €5/tonne had not changed since the vote, she pointed out.

WWF Europe also expressed disappointment, pointing out that a proposal to create an import inclusion scheme for industrial sectors with low trade intensity was rejected, which it said would lead to more free pollution permits for sectors not at risk of carbon leakage.

But the steel industry said that the reforms struck a balance between driving carbon prices higher and the needs of steel manufacturers that are competing against plants in other parts of the world that are not subject to the same regulatory controls.

Gareth Stace, director of UK Steel, said: ‘The EU ETS already has significant cost implications for some UK steel companies. Ill-judged reforms risk raising compliance costs still further, undermining the viability of the UK’s remaining steel plants, the thousands of jobs they provide and their potential role in a new, global, post-Brexit economy. They could also push production to other less efficient plants overseas, therefore achieving nothing for the environment.’

MEPs also proposed a ‘just transition fund’, where pooled auction revenues are used to upgrade skills and reallocate labour affected by jobs losses as economies decarbonise.

The draft measures include the aviation receiving 10% fewer allowances than its 2014–16 average, which MEPs said would bring its efforts into line with other sectors.

International shipping will be included in the EU ETS for the first time unless the International Maritime Organisation (IMO) develops a comparable system by 2023. MEPs have proposed a maritime climate fund to compensate for maritime emissions, improve energy efficiency, facilitate investment in technology and reduce CO2 emissions from the sector.

The proposal angered trade body the International Chamber of Shipping (ICS). Its director of policy and external relations Simon Bennett said: ‘This vote for a unilateral, regional measure simply risks polarising debate among IMO member states which have already agreed to develop a strategy for reducing shipping’s CO2 emissions in line with the goals of the Paris Agreement on climate change.

But campaigners on transport emission welcomed the move. Bill Hemmings, aviation and shipping policy director at Transport and Environment, said: ‘This cross-party proposal will end the anomaly of shipping being the only sector in Europe not contributing to the 2030 emissions reduction target. EU governments must follow the parliament’s lead and agree that ship CO2 emissions must be in the EU ETS if the IMO does not act.’

The proposals will now move forward to a meeting of the European council at the end of the month. If member states agree on a common position, parliament, the council and the commission will proceed to decide the final legislation.

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