EU plans slower CO2 cuts, more free permits for industry in carbon market overhaul
Overview of Proposed Changes to the EU Emissions Trading System (ETS)
By Kate Abnett
Background: The EU ETS and Its Role in Climate Policy
BRUSSELS, July 8 (Reuters) - The European Union could allow industry to emit CO2 for longer and give companies more free carbon permits under plans drafted by the bloc to make its emissions trading system more flexible, a European Commission official said on Wednesday.
• The EU ETS is the bloc's main policy for addressing climate change. It forces power plants, industries, shipping firms and airlines to buy permits when they emit CO2, providing a financial incentive to pollute as little as possible.
Details of the Upcoming Overhaul Proposal
• The Commission will propose an overhaul of the ETS on July 17.
• The revision aims to align the ETS with a target passed by the bloc last year to cut overall EU emissions by 90% by 2040, and address some governments' concerns that the scheme hampers European industries' competitiveness.
Extension of Emissions Allowances
• The Commission will propose extending the ETS to let companies keep emitting into the 2040s, said the Commission official, who spoke on condition of anonymity because the plans are not final. In its current form the ETS would effectively cut off emissions in 2039.
Increased Free CO2 Permits for Industry
• It will also propose giving industries more free CO2 permits, reducing their ETS bill, in exchange for them investing in European decarbonisation, the official said.
Permits for Industries Covered by Carbon Border Tax
• This will include finding a way to give free CO2 permits to industries covered by the EU's carbon border tax for longer, something Brussels had previously said would have to stop when the border levy fully applies in 2034.
Changes to Permit Allocation Rules
• The Commission will also propose fast-tracked changes to the rules determining how many free emissions permits the EU gives industries based on heat production and fuel use.
• This plan could grant companies an extra €6 billion ($6.85 billion) in free permits, the official said.
Adjustment of Emissions Reduction Rate
• Other planned changes include lowering the "linear reduction factor" which determines how fast companies in the ETS must cut their emissions each year. Currently, this dictates that emissions fall by 4.3% per year.
Increased Investment Requirements for Member States
• The proposal will also require national governments to spend more of the revenues they collect from the ETS on investing in industries that pay CO2 costs, the official said.
Next Steps and Ongoing Debates
• The proposals are being developed inside the European Commission and could still change. Once published, they must be negotiated and approved by the European Parliament and EU countries, a process that takes months.
Integration of International Carbon Offset Credits
• Among the issues still being debated is how and when to integrate international carbon offset credits into the ETS, the official said.
Support for Poorer EU Nations
• Brussels also plans to extend a fund that uses revenues from selling CO2 permits to help poorer EU nations transition to clean energy, a key demand of nations including Poland.($1 = 0.8763 euros)
(Reporting by Kate Abnett, editing by Inti Landauro and Jan Harvey)
