EU relaxes carbon market to ease industry pressure
The European Commission announced a major overhaul of the EU Emissions Trading system on Friday. It will allow industries to emit CO2 for longer periods while providing more financial support to invest in cleaner technologies in Europe.
The ETS is the largest climate change policy of the European Union. The ETS requires power plants, airlines, and shipping firms to purchase permits whenever they emit CO2, while also capping their total emissions.
The EU executive is long preparing to revamp the ETS. It will extend it to future decades, and align it with 2040's climate goal of reducing net emissions by 90 percent.
These plans are also a response to the pressure of industries and countries such as Italy and Poland, who claim that it is a threat to competitiveness.
Brussels is trying to balance these concerns by warnings from Spain that a weakening of the ETS will punish industries who?spent earliy on cutting emissions.
The Commission has proposed reducing the rate of annual decline in the ETS emission cap to 3.7% by 2031, and then to 1.7% by 2036. This is a reduction from the current 4.3%.
FREE PERMITS - MORE PERMITS
To help industries remain competitive, the EU provides free EU CO2 permits to industry. These permits are currently valued at about EUR79 ($90 per metric ton) and help them to stay competitive. The Commission has proposed regulations to give more free permits for longer periods of time, but with conditions.
The EU will give up to 80% of free permits to companies that plan to invest in the decarbonisation of Europe. The remaining 20% would be given to companies once they have made the investments.
The Commission has proposed extending the free permits to 2038 instead of 2034 as planned, for industries such as steel and cement manufacturing.
Since 2013, the ETS has generated EUR260 Billion in revenue. The EU has proposed tighter rules for how governments spend this revenue so that 50% of it is reinvested into decarbonising industries covered by the ETS.
However, governments who use ETS revenues to plug holes in their public finances may not be so supportive. This week, ten countries, including Poland, Italy and Poland, opposed certain parts of EU plans, such as attaching conditions to free permits for industries.
The final ETS revision will be negotiated by EU countries and legislators over the next 12 months.
BACKLASH
The ETS revision, which has been planned for years, comes amid political opposition to Europe's climate agenda despite heatwaves and fires that broke records.
After industry concerns, Brussels has already softened environmental regulations for automobiles and farmers.
Some governments have called on the EU to maintain ambitions on the ETS. This is partly because a weaker ETS could increase pressure on politically sensitive sectors, like farming and forestry.
Since 2005, emissions in sectors covered by the ETS have been cut in half.
The Commission's proposal would expand the ETS so that it covers smaller ships and emissions from flights leaving Europe for destinations as far away as 5,000 km (3107 miles).
This could include emissions from flights that fly to Turkey or the Middle East but exclude those flying to the U.S.
This week, the American Chamber of Commerce warned that extending EU ETS to flights abroad could "potentially provoke retaliatory actions from key international partners".
(source: Reuters)
