The EU's plan for a new carbon market
The European Commission announced on Friday that it would be making major changes to the EU’s emissions trading system. This is Europe’s largest climate policy. It will allow industries to emit more CO2 for longer while providing greater financial support to those who invest in clean technology.
What you should know
SPEED OF CO2 CUTTING
The European Union ETS requires power plants and heavy industry to purchase a permit per?metric ton CO2 that they emit. It also caps the number of permits issued each year in order to ensure?emissions?decrease gradually.
The Commission proposed a slowdown in the rate of decline. It lowered the "linear-reduction factor" from 4,3% to 3,7% by 2031, and to 1,7% in 2030. This will slow down the rate that companies must reduce their emissions.
If supply changes dramatically, the proposal would reduce the "market stability reserve's" ability to add or remove permits from the ETS by half, to 12% from today's 24%.
The two changes will allow industries to continue to emit CO2 in the future, as more permits are available.
In order to reduce the effort required of domestic industries, the EU will purchase international carbon offset credits that cover 2% the required emissions reductions by ETS sectors. The changes to the ETS will slow it down, but the Commission says they are necessary to ensure that the system meets the EU climate goal of 90 percent reduction in net emissions by 2040. Around 40% of EU emissions are covered by the ETS.
Gratis Permits
The Commission proposed extending the free CO2 permits for heavy industries, such as steel and cement, until 2038 rather than 2034.
But the?free permits' are not free. The Commission wants them to be conditional, giving 80% up front to companies who plan to "invest" in decarbonisation. The remaining 20% would be given to companies only after they have made the investments.
These conditions will not apply to the 10% most energy-efficient industrial installations as a reward for firms that invest in reducing CO2.
The EU has proposed to give more free permits than is currently planned by reducing "benchmark rate" which reduces these handouts every year from 2,5% today to 2% in 2030.
The Commission announced that a separate fast-tracked plan will soften the benchmarks from 2026 to 2030 and give industries additional free permits in the amount of EUR6 billion ($6.86billion) as well.
Funding
Since 2013, the ETS has generated EUR260 Billion in revenue. 80% of this revenue went to the national budgets, and according to EU estimates, only 5% was invested in industry.
The Commission has proposed that the government spends at least 50% on their domestic industries of future ETS revenue. This is likely to be opposed by finance ministries, who use these proceeds to fill national budget deficits.
As a "booster fund" for clean tech investments, the EU will also reserve 400 million carbon permits - worth approximately EUR30 billion - until 2030.
A fund that uses ETS revenue to invest in clean energy projects in the EU's most impoverished member countries will continue beyond 2030. 280 million CO2 permit?s are earmarked for it.
PLANES and SHIPS
The Commission has proposed that the ETS be expanded to include emissions from flights leaving Europe to destinations up to 5,107 miles (3,107 kilometers) away. This would cover trips to Dubai, Istanbul and the U.S., but exclude those to China or the U.S.
ETS is currently only applicable to flights within Europe.
The EU has also proposed that emissions from ships with a gross tonnage of 400 kilograms or less be added to the ETS. This is down from 5,000 tonnage at present.
Emissions resulting from waste incineration are also expected to be gradually added to the ETS, between 2031 and 2034. The ETS will not be implemented until 2035, if the country meets certain conditions. These include having a carbon tax or meeting EU recycling targets.
Next Steps
The EU and the European parliament will negotiate the final rules and propose their own modifications. This process could take up to a year.
(source: Reuters)
