Liam Gilliver/Euronews
Proposed reforms to the bloc’s emission trading system (ETS) have been described as a “gift to polluters”.
The European Union has unveiled a controversial shake-up of its flagship climate policy that could put the brakes on cuts to greenhouse gas emissions.
Since launching in 2005, the bloc’s emissions trading system (ETS) has generated more than €270 billion in revenue. This has been invested in innovation, industrial decarbonisation and the modernisation of Europe’s energy system. It has also helped Europe cut emissions by 50 per cent in the sectors it covers.
However, last week (17 July) the commission argued that the “geopolitical and economic context” has changed, putting EU industry under “increased pressure”. As a result, it has proposed relaxing rules to allow businesses more time to reduce their carbon output.
How does the ETS work?
The ETS requires Europe’s industries and power plants to buy a permit, or allowance, for every tonne of carbon dioxide they emit, to incentivise the transition to cleaner technologies.
Companies are allowed to buy extra permits or trade them, while some businesses are given permits free of charge to help them compete with overseas firms that do not have to pay for so-called ‘carbon costs’.
The ETS limits the number of permits that can be purchased or given out each year to make sure that emissions continue to fall.
However, as part of the new proposals, the bloc has recommended giving out free permits until 2038. Under the old rules, these were supposed to be axed in 2034 and replaced by a carbon border charge on imports.
The bloc has also said it would offer 80 per cent of free permits up front to companies with plans to invest in decarbonisation. The remaining 20 per cent will be given once those investments have actually been made.
“The EU ETS has proven that carbon pricing works,” says Wopke Hoekstra, commissioner for Climate, Net Zero and Clean Growth.
“It has cut emissions, strengthened Europe’s energy security and mobilised investment across our economy. [The] proposal on the ETS review brings together three key goals: climate action, competitiveness, and independence.”
‘A Trojan horse’
However, the ETS review has already garnered heavy backlash from climate experts, who warn that the proposal rewards “delay instead of decarbonisation”.
Linda Kalcker, executive director at Strategic Perspectives, a pan-European climate think tank, describes the reform as a “Trojan horse”.
“It looks like a gift for companies to delay their emission reductions while in reality this puts them at a competitive disadvantage with Chinese companies that accelerate,” she says. “One more time, political pressure trumps economic and market realities.”
Kalcher argues that as a result, reaching the EU’s emissions target for 2040 – which calls on member states to reduce their net greenhouse gas emissions by 90 per cent compared to pre-industrial levels – might become “unnecessarily expensive” , while also putting innovation investments at risk.
Has Europe weakened the ETS?
Chiara Martinelli, director of Climate Action Network (CAN) Europe, says that every extra tonne of CO2 allowed under the ETS makes Europe’s climate challenge “harder and more expensive”.
“Weakening the ETS now is a gift to polluters that have prioritised shareholder payouts instead of investing in cleaner production at the expense of citizens, future generations and those companies which already invested in climate-friendly solutions,” Marinelli adds.
The bloc has also attracted backlash for rewarding companies simply for having an approved decarbonisation plan – with NGO Mission Possible Partnership (MPP) arguing that the “conditionality is the wrong way around” and should be more closely tied to “real investments”.
A ‘half-hearted step’ towards taxing international flights
One of the biggest changes to the ETS is that for the first time, the Commission has put a carbon price on flights departing the EU.
However, this won’t kick in until 2029 and only applies to flights within a radius of 5,000km. This means a flight from Paris to Dubai would be covered by the carbon market but a flight from Paris to New York would not.
Transport & Environment (T&E) says the move still leaves 47 per cent of European aviation exempt from carbon pricing – arguing that the move can only be considered a “first step”. If all departing flights were included in the scope of the carbon market, the EU would have welcomed an estimated €4.2 billion in additional revenues.
“Due to industry pressure, only a proportion of journeys will be covered and the longest, most polluting flights will remain exempt,” says Diane Vitry of T&E.
“This must only be a starting point. The ball is now in the member states’ court. They must, at the very least, support this commitment while pushing to gradually expand the coverage before the next review. Aviation must pay for all its emissions, just like any other sector of the economy.”
T&E adds that it welcomes the proposals to allocate 110 million ETS allowances to support clean shipping fuels and propulsion technologies. This will provide funds for Europe’s shipping industry to invest in green, scalable e-fuels and battery-powered vessels.
