Brussels – The review of the European Union’s emissions trading scheme (ETS) is due to take place between the end of the second quarter and the start of the third quarter of this year. The timeline was outlined by the Commissioner for Climate Action, Wopke Hoekstra, upon his arrival at the EU Environment Council today (17 March) in Brussels. “Our current plan is to ensure that, over the next two months, we focus first and foremost on the stability mechanism and the benchmark,” i.e., the ETS reference parameters, “and that the review takes place at the end of the second quarter or the start of the third quarter,” Hoekstra explained, emphasising that “it is extremely important to have discussions like today’s” in the Council and then “to have input from leaders by the end of this week,” at the Summit, “to gauge not only what is needed, but also when it is needed”. This is the timetable Brussels has in mind, but the Commissioner also made it clear that the timing could change rapidly given “the enormous degree of uncertainty” and the fact that “there are new developments every week, sometimes even every day.”
In view of the political debate on the usefulness of the mechanism, Hoekstra reiterated that “it is of paramount importance to continue with the ETS” because “it is a crucial tool for climate policy,” and not just that. “I fully agree with the experts who say that, even if we were not to do it solely for climate reasons, there would be excellent reasons to do so for the sake of strategic autonomy, because the only way out of the current situation is greater energy independence,” he explained. In other words, “this means greater investment in the grid, more renewable energy, more nuclear power, more storage systems: this is what Europe needs, both for climate reasons, but – in the current timeframe – at least as much for reasons of competitiveness and certainly of independence.”
Conversely, Italy is among the countries at the forefront of calling for a review, even a suspension, of this mechanism, which is effectively based on the “polluter pays” principle. The Minister for the Environment and Energy Security, Gilberto Pichetto Fratin, returned to the subject yesterday, on the sidelines of the EU Energy Council, where he met with the French Minister Delegate for Energy, Maud Bregeon, the Czech Minister for the Environment, Petr Hladik, and the Estonian Minister for Energy and Climate, Andres Sutt. The minister emphasised to his counterparts that Italy is calling for “a review of the ETS system, which would limit its impact on energy prices, reduce the volatility and price of allowances, and curb speculative activity, so that the mechanism can effectively guide the transition.“
Meanwhile, on the sidelines of today’s Environment Council, the group of countries formed in the context of the recent negotiations on the climate law held a ministerial coordination meeting. According to diplomatic sources, the aim was to explore the possibility of coordinating a common approach during discussions on the post-2030 climate framework. At the end of the meeting, however, “there was widespread concern, particularly regarding the impact of the ETS, both on thermal power generation and on industry, on the economies of member states.” And the countries participating in the meeting – Austria, the Czech Republic, Croatia, Greece, Italy, Poland, Romania, Slovakia, and Hungary – “have pledged to propose joint initiatives to tackle this problem.”
Meanwhile, in her letter on competitiveness ahead of Thursday’s European Council meeting, the President of the European Commission, Ursula von der Leyen, stated that the Commission would shortly adopt the ETS benchmarks, “taking into account the concerns expressed by industry.” She added that the Commission “will also present a proposal to increase the capacity of the Market Stability Reserve, so that it can more effectively address excessive price volatility and keep prices under control in the short term,” and that it is “stepping up work on the next revision of the ETS, in particular to define a more realistic decarbonisation pathway beyond 2030.” Furthermore, “it is clear that we must step up support for energy-intensive industries on their path to modernisation and carbon reduction,” and, therefore, “in anticipation of the establishment of the Industrial Decarbonisation Bank, the Commission will work on an accelerated bridging instrument, funded by ETS allowances, with a particular focus on low-income Member States,” wrote von der Leyen. In particular, Hoekstra considers “wise” the proposal to intervene in the Market Stability Reserve to reduce price volatility because “the last thing we want, is price increases and volatility.” But he also stressed that “the greatest volatility the ETS system has ever seen, at least over the last two years, is linked to certain statements made during the Antwerp declaration period” on industry. “This caused the ETS price to plummet and effectively fuelled the volatility we were trying to prevent. So it is up to all of us to ensure there is predictability,” he noted.
First introduced in 2005, the ETS covers emissions from the electricity and heat generation sectors, industrial production, and aviation, which account for around 40 per cent of total greenhouse gas emissions in the EU, and is based on the “cap and trade” principle. The cap refers to the total quantity of greenhouse gases – set by the EU institutions – that may be emitted by the installations and operators concerned. This cap is reduced annually, in line with the EU’s climate target, and is expressed in emission allowances, each of which entitles the holder to emit 1 tonne of CO2 equivalent. These allowances are auctioned and can be traded. The price is determined by the market – rising above 90 euros in January – and, in turn, it gives an incentive to companies to reduce emissions and generates revenue – since 2013, the EU ETS has raised over 175 billion euros – which flows mainly into national budgets and which Member States must use to support investment in renewable energy, energy efficiency improvements, and low-carbon technologies. The system also provides for free allowances – introduced to prevent the risk of companies relocating outside the EU to avoid environmental costs – which the EU has decided to phase out by 2034. Under the system, companies must monitor and report their emissions annually and surrender a sufficient number of allowances to fully offset their annual emissions. Heavy penalties are imposed for failure to comply with these requirements. Finally, although allowances are mainly sold at auction, companies can trade allowances among each other as needed: if a plant or operator reduces emissions, the company can sell the surplus allowances or hold them for future use.
English version by the Translation Service of Withub
