EU Council Stakes out ETS Position

03.03.2017 -

The EU Council of Ministers has agreed its general approach to the review of the emissions trading system (ETS) as one of the planned steps toward fulfilment of Europe’s commitment to the Paris Agreement on climate change. The EU has pledged to reduce greenhouse gases by at least 40% up to 2030.

According to the member states’ proposal, the cap on emissions should fall by 2.2% annually until at least 2024, compared with 1.74% currently, although the 10% most efficient production facilities could receive free allowances. Additionally, a fund of up to €12 billion would be established to help industry innovate and invest in technology.

The Council’s proposals also focus on strengthening the Market Stability Reserve (MSR), a mechanism planned to be introduced in 2019 to hold excess allowances back from the market during a surplus. The total volume in the MSR is to be limited to the total number of allowances auctioned the previous year, effectively canceling some 3 billion t of surplus emissions.

With the Council having staked out its position, negotiations with the European Parliament are set to begin, with the aim of reaching an agreement on the final text, together with the European Commission. On Feb. 15, the plenary session of the European Parliament (EP) adopted its own draft legislation for revising the ETS.

The overall goal of the EP as well as environmental advocacy groups is to gradually reduce the number of CO2 emissions allowances to make them more expensive and thus provide an incentive for industries to adopt cleaner technologies. As could be expected, industry’s views on certain aspects of the plans diverge.

Chemical producers organized in the European Chemistry Council (CEFIC) have called on the European Parliament to safeguard industry’s ability to invest and innovate and provide its part of the EU innovation fund by quickly assessing the impact of the “unprecedented withdrawal rate now proposed on the future carbon price.” The fund should draw on auction share rather than from free allocation reserves, CEFIC said.

Expressing disappointment with the reduction in certificates, CEFIC pointed out that “never before in the ETS debate has such a cancellation of credits been proposed.” Most important, it maintains, is to expand the auctioning volume flexibility. “The shortage of emission rights between 2021 and 2030 could be best avoided by expanding the auctioning volume flexibility beyond 2% and meeting the proposal of the Parliament for 5%,” it said, adding: “this would act as a strong incentive for industry innovation.”

CEFIC’S proposals call, among other things, for updating benchmarks: To respect and reward good performance, benchmarks should be based on the most recent data on how companies are reducing emissions through their investment in improved technology and efficiency, it said.

In another suggestion, the association said indirect carbon cost compensation should be enabled. This would avoid risk to exposed industries competing in the global marketplace. Finally, CEFIC  said, the threshold for allocation updates should be reduced.