 |  |
|---|---|
| Emissions Reduction Targets: The emissions reduction target would increase by 18%, to require 61% emissions reductions by 2030 compared to 2005 levels. This would be done by raising the linear reduction factor from 2.2% to 4.2% per year, and a one-off reduction (re-basing) of the emissions cap; the new linear reduction factor will have the same effect as if it were applied from 2021. | Emissions Reduction Targets: The EP report further increases the ambition level compared to the Commission proposal. The annual reduction of emission allowances should increase by 0.1% annually compared to the previous year, until 2030, starting from 4.2% in the year following the entry into force of the amendment to the ETS. This would yield emissions reductions of 67% by 2030 compared to 2005 levels. |
| Extension of the ETS to the Maritime Sector: Carbon dioxide emissions from ships with gross tonnages over 5000 would be covered. 100% of voyages within the EU (intra-EU),, emissions from ships at berth in EU ports, as well as 50% of emissions from voyages starting or ending outside the EU would be covered. Surrendering of obligations would be gradually increased in the first 3 years: 20% of verified emissions reported for 2023; 45% of those reported for 2024; 70% of those reported for 2025; and 100% of those reported for 2026 and each year following. The rules on allowances, auctioning, and revenues from auctioning would apply to maritime transport activities in the same manner as to other activities covered by the ETS. | Extension of the ETS to the Maritime Sector: All greenhouse gas emissions should be covered—such as methane and nitrous oxides—as well as carbon dioxide. Ships with gross tonnages over 400 should be covered from 1st January 2027. 100% of emissions from intra-EU voyages should be covered from 2024, and 50% of extra-EU routes should be covered from and to the EU from 2024–2026. From 2027, emissions from all trips should be 100% covered (with possible derogations for non-EU countries where coverage could be reduced to 50% subject to certain conditions). Adding a more specific stipulation as to how revenues should be used—75% of the revenues generated from the auctioning of maritime allocations would be put into an Ocean Fund to support the transition to an energy efficient and climate resilient EU maritime sector. |
| Introduction of a new and separate ETS (ETS II) to cover emissions from fuels used in road transport and buildings: This would cover carbon dioxide release for the consumption of fuels used for combustion in the buildings and road transport sectors, but not the release for consumption of fuels for which the emission factor is zero. Fuel suppliers would be regulated, rather than households and car drivers—an upstream system. Suppliers would only be able to carry out activities if they had a greenhouse emissions permit and would be responsible for monitoring and reporting the quantity of fuels they place on the market, surrendering emissions allowances every year depending on the carbon intensity of their fuels. Suppliers would have to report their emissions for 2024 and 2025. Allowances would be auctioned from 2026, with no free allocation. 150 million allowances would be auctioned—and all revenues from would be made available to the Innovation Fund—to stimulate a green transition and address transitional and social challenges from carbon pricing in the new sectors. Member states would be required to use part of their auction revenues to address social aspects of emissions trading (Social Climate Fund). This would be financed using an amount equivalent to 25% of the expected revenues of emissions trading for building and road transport fuels. A cap on emissions would be published by the Commission—operative from 2026–and decrease each year to yield emissions reductions of 43% by 2030 compared to 2005 levels. | Introduction of a new and separate ETS (ETS II) to cover emissions from fuels used in road transport and buildings: To prevent citizens from bearing additional energy costs, private buildings and private transport should not be included in the new ETS before 2029, and only then, subject to a detailed evaluation by the Commission followed by a new legislative proposal to be agreed by the Council and Parliament. Allowances would be auctioned from 2025, with no free allocation. Revenues from the auctioning of 150 million allowances under the ETS II shall be made available for the Social Climate Fund to address challenges for low-income families. The cap would be operative from 2025. |
| Inclusion of Municipal Waste Incineration: There is no proposal from the Commission. | Inclusion of Municipal Waste Incineration: Municipal waste incineration should be included in the ETS from 2026. |
| Changes to the rules on free allocation of allowances: For the first years of operation of the CBAM regulation, products covered under CBAM would benefit from free allocation in reduced amounts. This free allocation would be phased out by 10% per year: 90% in 2026 and reduced 10% per year to reach 0% by the tenth year. Free allocation of emission allowances would be made conditional on decarbonisation efforts and investments in energy efficiency, in order to encourage the uptake of low-carbon technologies. | Changes to the rules on free allocation of allowances: Free allowances in the ETS should be phased out from 2026 and disappear completely by 2030, when the European Parliament wants the CBAM to be fully operational—5 years earlier than was foreseen by the Commission. Free allowances should be reduced to 90% in 2025; 80% in 2026; 70% in 2027; 50% in 2028; 25% in 2029; and 0% in 2030. A bonus-malus system should be introduced from 2025, so that the most efficient installations in a sector will get extra free allocations, and those who do not implement the recommendations of energy audits or do not establish a decarbonisation plan for their installations will lose some or all their free allowances. |
| Changes to the use of ETS auction revenues Member states would be required to use all of the revenues generated from the auctioning of allowances, to the extent they are not attributed to the EU budget, for climate-related purposes such as to support the sustainable renovation of low-income households. This is an increase from the requirement to use 50% of revenues for such purposes in the current legislation. | Changes to the use of ETS auction revenues: Both EU and member states must spend all their ETS (including ETS II) revenues on climate action, but these revenues cannot be used to support nuclear energy-related activities and technologies |
| The Modernisation and Innovation Funds: Investments from the fund would have to be consistent with the European Green Deal and the European Climate Law, with no support allowed to energy generation facilities that use fossil fuels. The percentage of the Modernisation Fund that needs to be invested in priority investments would be increased from 70% to 80%, which would give more prominence to renewable sources, energy efficiency investments, and support of households to address energy poverty. | The Modernisation Fund and the Innovation Fund (Climate Investment Fund): Significantly increased the size of the Innovation Fund (to be renamed the Climate Investment Fund), which supports innovation in technologies that contribute significantly to the decarbonisation of ETS sectors. The Fund could also be used to finance cross-border projects with low-growth border regions that would otherwise not be eligible for funding. Only member states that have adopted legally binding targets for achieving climate neutrality by 2050 and measures for the phase out of all fossil fuels should be eligible. Access to the Modernisation Fund should also be conditional on respect for the Rule of Law. The Modernisation and Climate Investment Funds could not be used to finance nuclear-related activities. |
| Encouraging the uptake of Carbon Capture and Utilisation: Surrender obligations would not arise for emissions of carbon dioxide that end up permanently chemically bound in a product, so that they do not enter the atmosphere under normal use. | Encouraging the uptake of Carbon Capture and Utilisation: Carbon dioxide must also not enter the atmosphere under disposal. The Commission would have to present a report by the end of 2029 to the Parliament and Council, examining whether all greenhouse gas emissions from the activities covered by the Directive are effectively accounted for, and whether the double counting of emissions has been avoided. The Commission would further have to present a report by the start of 2025 examining a transparent, comparable, and reliable methodology for how to account for emissions of greenhouse gases considered to have been captured and utilised, possibly accompanied by a legislative proposal to amend the Directive to include a life-cycle assessment approach. |
Commentary:
Overall, the European Parliament’s report makes ambitious changes (amendments) to the European Commission’s proposal to reform the European Union’s Emissions Trading Scheme (EU ETS).
These include the tacit increase of the emissions reduction target, from 61% (in the Commission’s proposal), to 67% by 2030, compared to 2005 levels [1]. Whilst the WWF considers that a higher target of 70% emissions reductions would be needed to come closer to the 1.5°C goal of the Paris Agreement, this is certainly a positive step towards more meaningful and robust climate action [2]. However, it is notable that the amendment to the emissions reduction target passed by a margin of only 46:41 (with 1 abstention), with the largest party in the European Parliament —the European People’s Party—opposing the amendment [3,4]. This may signal that the amendment will face difficulties in passing when it comes to the plenary vote in June.
Other areas of increased ambition regard the proposed extension of the EU ETS to the Maritime Sector, with the European Parliament’s report seeking to require surrendering 100% of emissions allowances for 2023 emissions (rather than 2026 emissions as proposed by the Commission), extending the coverage of the EU ETS to all greenhouse gas emissions (rather than solely carbon dioxide as proposed by the Commission), and covering ships with gross tonnages over 400 from 2027 (the Commission proposal is limited to ships with gross tonnages over 5000). These changes are welcomed by the NGO, Transport & Environment, who commented that a ‘climate-ambitious carbon market that works for industry and for the climate’ had been proposed [5].
Despite recommending that allowances be auctioned from 2025 (a year earlier than the Commission’s proposal), the European Parliament’s report limits the scope of the new and separate EU ETS (EU ETS II) through its stipulation that private buildings and private transport should not be included in the new EU ETS before 2029. Peter Liese—the rapporteur for the Environment, Public Health, and Food Safety (ENVI) Committee—expressed disappointment at this watering down of the proposal, wishing for a broader approach, whilst acknowledging that it was positive that the EU ETS II was still ‘alive and kicking’ [1].
There have been suggestions of a ‘modest’ chance of the European Parliament approving these amendments in its plenary vote in June, and that resistance from the EU member states is more likely[1].
References:
[1] Kate Abnett, EU lawmakers vote for more ambitious carbon market overhaul, Reuters, Available at: https://www.reuters.com/markets/commodities/eu-lawmakers-vote-more-ambitious-carbon-market-overhaul-2022-05-17/ [accessed 23rd May 2022][2] Naida Hakirevic Prevljak, EU Parliament votes for EU ETS reform to combat climate change, Offshore Energy, Available at: https://www.offshore-energy.biz/eu-parliament-votes-for-eu-ets-reform-to-combat-climate-change/ [accessed 23rd May 2022]
[3] Result of roll-call votes of 16 and 17 May 2022, Committee on Environment, Food Safety and Public Health, Available at: https://www.europarl.europa.eu/cmsdata/248646/2022-05%2016-17%20roll-call%20votes.pdf [accessed 23rd May 2022]
[4] MEPs by Member State and political group, European Parliament, Available at: https://www.europarl.europa.eu/meps/en/search/table [accessed 23rd May 2022]
[5] Gary Howard, European Parliament brings EU ETS closer to shipping, Seatrade Maritime News, Available at: https://www.seatrade-maritime.com/regulation/european-parliament-brings-eu-ets-closer-shipping [accessed 23rd May 2022]
Tell us what you think!