Major party calls for more free EU ETS allowances

OREANDA-NEWS. September 30, 2016. European People's Party (EPP) wants more free EU emissions trading scheme (EU ETS) allowances handed to energy-intensive firms in phase 4 (2021-30) of the scheme, lead EPP member Peter Liese said today.

The EPP is concerned that energy intensive firms, such as steel, chemicals and cement manufacturers, may move outside the EU to avoid EU ETS-related costs, Liese said. So the party would like to see a 5pc increase in free allowances and a corresponding reduction in the auctioning share, the EPP's shadow rapporteur for post-2020 EU ETS reform said during a debate by the European Parliament's environment committee.

The 10pc most efficient installations should be rewarded rather than penalised and encouraged to pursue further low-carbon innovation, Liese said. So the EPP welcomes the growing support it sees among EU member states for an increase of at least 1-1.5pc in free allowances — even if some countries such as Germany are yet to adopt a formal position on the legislative proposal, he said.

More allowances should be set aside for the proposed modernisation fund to make more money available for upgrading the power infrastructure of poorer central and eastern European countries, Liese said.

The European Commission proposed that 57pc of total EU ETS allowances should be auctioned from 2021 onwards, equivalent to the current phase's auction share and in line with conclusions reached by the EU Council of member states in October 2014.

The EPP tabled several amendments that propose a smaller, 52pc auctioning share to make more allowances available for free allocation, industrial innovation and power infrastructure modernisation.

By contrast, the other major party in the European parliament, the Socialists and Democrats (S&D), are broadly in favour of a 57pc auctioning share — and for this to increase gradually so that all EU ETS allowances are auctioned after 2030.

At the same time, the aviation sector should contribute a fairer share towards meeting the EU's 2030 greenhouse gas (GHG) reduction target, in line with other EU ETS sectors, while environmentally friendly transport modes such as rail must receive more support, Liese said.

Only 15pc of aviation allowances are auctioned, whereas the EPP has proposed that this should be increased to 50pc from 2021 onwards. The S&D also tabled an amendment proposing that half of all aviation allowances should be auctioned in phase 4.

Dutch Green member of parliament (MEP) Bass Eickhout said the EU ETS — one of the EU's most important tools to meet its pledges under the Paris climate deal — was "non-functioning" and current reform proposals represented a "mere tinkering at the edges" that will do nothing to address a supply glut that will amount to 2.5bn by 2020.

The commission's only proposed improvement is to increase the linear reduction factor — the annual reduction rate in total EU ETS allowances— to 2.2pc from 1.74pc in the current phase, Eickhout said. But that amounts to an overall reduction of only 400mn until 2030, while at the same time it is proposed that an equivalent amount — 250mn allowances from the market stability reserve (MSR) and 150mn unallocated allowances — should be placed in the new entrants reserve, which translates into no environmental gain, he pointed out.

Europe of Freedom and Direct Democracy Group (EFDD) member Eleonora Evi agreed with Eickhout that current EU ETS reform proposals were inadequate. From the EFDD's perspective, free allowances should be reduced to a minimum and even a linear reduction factor of 2.4pc "would not be enough," she said.

S&D member Ivo Belet said there was cross-party support for a harmonised, EU-wide approach to full compensation of indirect EU ETS costs, but that EU member states should still be allowed to provide supplementary compensation on a voluntary basis.

Parties also broadly concur that the GHG emissions reduction impact of overlapping EU policies, such as measures to improve energy efficiency and encourage renewables, need to be taken into account when deciding post-2020 EU ETS legislation, Belet said.