Revision of the EU emissions trading system (ETS)

Key points:

The Committee is convinced that sustainable reindustrialisation with competitive growth that creates new and better jobs is crucial to Europe, and that in this respect the EU's ETS should constitute a key European policy instrument for combating climate change and for moving towards a carbon-free world economy. In the EESC's view the carbon market needs to be made more stable, flexible and open to all the main global partners. Moreover, proper transition mechanisms must be put in place so as to protect the competitiveness of European industry and offset the risks of investment flight and of exposing European industry to unfair competition from countries with no comparable climate regulations.

The EESC recommends the following as key aspects of the reform:

• abolition of the cross-sectoral correction factor for direct costs;
• harmonised European-level mechanisms to compensate for indirect costs throughout the EU, in order to prevent distortions of competition ;
• rather than penalties, reward schemes for best performers however the results are achieved, including carbon capture and use;
• benchmarks based on solid industrial data, set once only at the beginning of a given period;
• the allocation of free allowances for sectors on the basis of actual as opposed to past production levels;
• the possibility of a fall-back approach in Phase 4 for sectors with no pre-existing benchmarks;
• a looser definition of carbon leakage with up-to-date qualitative risk criteria without introducing threshold values;
• use of part of the Market Stability Reserve to support the phasing out of sectors that have been removed from the carbon leakage list;
• extension of the exemption from the mechanism to plants with emissions below 50 000 t CO2;
• full mainstreaming of the social dimension within the EU ETS in order to support the transfer of industrial and employment processes and skills towards a carbon-free economy;
• examination of how extending reward schemes for best performers to civil society, awarding ETS bonuses to households, communities and official bodies which significantly reduce their own consumption of CO2-generating energy or offset their emissions with green investments.

Background

On 24 October 2014, the European Council agreed on the 2030 framework for climate and energy, including a binding target for reducing greenhouse gas (GHG) emissions of at least 40% in 2030 as compared to 1990. To meet this target, the European Council agreed that the emissions in the EU Emission Trading System should be reduced, compared to 2005, by 43%. The European Commission proposal COM(2015) 337 final amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments translates the 43% greenhouse gas reduction target in the ETS into a cap declining by 2.2% annually from 2021 onwards, corresponding to an additional reduction of around 556 million tonnes or carbon dioxide in the period 2021-2030. Furthermore, the proposal develops rules to address the risk of carbon leakage and establishes several support mechanisms to help the industry and power sectors meet the innovation and investment challenges of the transition to a low-carbon economy, namely a modernisation and an innovation fund.

Relevant EESC Opinions

• NAT/665 Paris Protocol
• TEN/570 Energy Union
• NAT/620 Market-based instruments towards a resource efficient and low carbon economy in the EU
• NAT/636 EU 2030 climate and energy package
• NAT/514 Low Carbon Economy Roadmap 2050
• NAT/535 Monitoring and Reporting Greenhouse Gas Emissions
• NAT/637 EU emission trading scheme
• NAT/626 Emission trading system/ aviation
• NAT/591 ETS in aviation
• CCMI/090 Sustainable Energy Intensive Industries

Relevant links and documents

European Commission Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments

Annex to the Commission Proposal

Slide on EU ETS Revision

Impact Assessment EU ETS Revision

Stakeholder consultation analysis: Emission Trading System (ETS) post-2020 carbon leakage provisions

European Parliament Proceedings of the Workshop on the ETS Market Stability Reserve

World Bank Group and ECOFYS Carbon Pricing Watch 2015