The post-2020 Innovation Fund should be increased by earmarking 550 million EUAs from auctions, up from the 450 million proposed by the Commission, according to Fredrick Federley, the senior lawmaker steering emissions market reforms through the European Parliament’s industry committee (ITRE).

The additional 100 million should be ringfenced for clean technology projects from industry only and raised from the pot of unallocated EUAs from the current trading phase currently destined to be withheld in the MSR, he told Carbon Pulse.

“It aims to strike a balance.  While the ETS should drive all sectors in a low carbon direction, there are some that are almost at the technical limit of that without making further huge investments that aren’t economically viable,” he said.

The Commission proposal envisages raising up to €10 billion from 400 million EUAs in Phase 4 (2021-2030), assuming a €25 average price per allowance, but it suggested supplementing that with 50 million unallocated EUAs to support projects before 2021.

Federley said it also would be possible for the additional 100 million units he is proposing to be sold before 2021. He added that he would not specify the exact timeframe for the sales, but will include a provision that they must avoid a negative impact on the carbon market.

FUNDING GOALS

The funding is intended to help the EU meet its long-term decarbonisation objectives by awarding cash to pilot projects that show promise in driving deep emission cuts in their sectors.

It follows on from the so-called NER300, which earmarked 300 million allowances sold from the New Entrants Reserve of the EU ETS’ Phase 3 (2013-20).  The NER300 was designed to support first-of-a-kind investments in renewable energy and CCS.

The proposed post-2020 Innovation Fund will broaden that to also include projects for low-carbon innovation in energy-intensive industry, following pressure from lawmakers and companies in those sectors, which stressed the lack of viable abatement options compared to the power sector.

Federley proposed to stick to the Commission’s line that the fund could cover up to 60% of a new project’s costs, but he said he would scrap the current geographical rules that entitle each member state to fund a project.

“The idea is that if a project is driving CO2 reduction, and it’s new, it doesn’t matter where it is.  In theory, all of the funding to go to projects in Spain for example,” he said.

OTHER ELEMENTS

The final details of Federley’s proposal are still being ironed out before he send it for legal checking and translation.  It is intended to form the basis of debate in ITRE.

The proposal covers the areas of joint competence that the committee has on the bill with the environment committee (ENVI) – namely carbon leakage protection, the Innovation and Modernisation Funds, and transitional free allocations to energy sector in poorer states.  ITRE will also give opinions on other elements.

Federley reaffirmed remarks he made last week that his proposal would adopt a more tiered approach to free allocation, but said the details were still being worked out and could be finalised on Friday.

AUCTION POT

On the issue of whether to change the 57:43 percentage split between auctioned and freely-allocated allowances, Federley said he was more open.

“It is not (ITRE’s) competence. I’m not proposing to change that ratio but I’m open to direction from colleagues if there is a strong movement to change that,” he said.

Increasing the proportion of allowances for free allocation would appease some industries that have been calling for a more generous share, despite this ratio being agreed by EU leaders in the overarching 2030 climate and energy framework.

Maintaining this auction share has been deemed a key element by some environmental campaigners and governments as it upholds a core ETS aim to incentivise companies to invest in cleaner technologies.

FACTFILE

• ITRE has joint competence with ENVI on some issues of the bill, and is around 1-1.5 months ahead in its scheduled passage.
• ITRE will debate Federley’s proposal on May 23, with the deadline for MEPs to make amendments on May 31 and to consider those amendments on July 12.
• The lawmakers will then consider compromises in September, to be followed by an October vote.
• 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.

Read our briefing on the proposed EU ETS Innovation Fund

By Ben Garside – ben@carbon-pulse.com