EU environment MEP floats options for faster ETS cap cuts, reduced auction share

Published 20:35 on April 26, 2016  /  Last updated at 18:26 on April 27, 2016  /  EMEA, EU ETS  /  No Comments

Senior EU lawmakers will consider whether to impose faster ETS emission reduction cuts by deepening annual cap reductions as part of suggestions set out by Ian Duncan, the senior lawmaker steering carbon market reforms through the European Parliament’s environment committee.

Senior EU lawmakers will consider whether to impose faster ETS emission reduction cuts by deepening annual cap reductions as part of suggestions set out by Ian Duncan, the senior lawmaker steering carbon market reforms through the European Parliament’s environment committee.

Duncan also floated whether to cut the share of auctionable allowances and introduce a mid-term review, forming part of options for 12 proposals seen by Carbon Pulse that were circulated Tuesday among the MEPs co-ordinating the positions of their political groups in the environment committee (ENVI).

These MEPs have around 10 days to discuss the ideas with their party colleagues and give suggestions to Duncan in time for his drafting of a full ENVI committee report by May 20.

Among the options put forward for the proposals were:

  • Set a Linear Reduction Factor (LRF) of 2.2% as the Commission has proposed, or deepen it to 2.4% or 2.6% to put it in line with the lower or upper end, respectively, of the EU’s overall 2050 emissions goal of a 80-95% cut.
  • Maintain the share of auctioned EUAs at the Commission’s proposed 57% level, or cut it to 52%, in turn boosting the share of free EUAs given to industry deemed vulnerable to carbon leakage.
  • Go with the Commission proposal to set rules for the entire 2021-2030 trading period, or include a 2025 review that could enable changes to reflect a deeper overall emission target following a 2023 global stocktake under the Paris Agreement.

Among Duncan’s other suggestions were options to raid the pot of auctionable allowances to give more free EUAs to industry whenever the Cross-Sectoral Correction Factor would otherwise be triggered, and to earmark some of those units for sale to raise cash for the Innovation Fund, rather than solely using those from the share set aside for free allocations.

He also suggested an option to use more tiers to determine the rate of annual reductions to the benchmark calculations for how many free EUAs are handed out to each industrial sector.  This would set the minimum annual benchmark reduction at 0.2% and the maximum at 2%, wider than the Commission’s proposed 0.5%-1.5% range.

GREEN DISMAY

The initial reaction among some environment campaigners was one of dismay.

Sanjeev Kumar of NGO Change Partnership said while a deeper LRF would lead to more climate ambition, it was clear that such a proposal would be rejected by EU member states. He said that without suggesting other, faster-acting measures alongside it such as withdrawing more of the market’s massive surplus, the move would be too easy for opponents to shoot down.

Kumar added that the 2025 review clause would likely come too late for the EU to be able to deepen its 2030 goal.

“To do anything to change the 2030 goals, a review would be needed in 2023.  Starting a review in 2025 would close the door on the 1.5C target,” he said, referring to the aspirational temperature goal in the Paris Agreement.

Kumar pointed out that the other measures to give away more free allowances would weaken the ETS by going against the bloc’s ‘polluter pays’ principle while cutting member states’ auction revenue for use towards other climate policies.

FACTFILE

  • ENVI has joint competence with the industry committee (ITRE) on some issues of the ETS reform bill, and is around 1-1.5 months behind in its scheduled passage through the EU Parliament.
  • Member states and the EU Parliament must agree for the bill to be made law, in a process expected to take until at least Q1-2017.

By Ben Garside – ben@carbon-pulse.com