EU countries stall over carbon market reform

After more than a year of negotiations, EU member states have come up short in their efforts to find common ground on a carbon market reform seen as necessary if the ambitions of the Paris Agreement on climate change are to be met. EURACTIV France reports.

Meeting at the final ministerial council chaired by the outgoing Slovak presidency yesterday (19 December), environment ministers appeared at odds over the planned reform of the Emissions Trading Scheme, the EU’s main tool to fight climate change and reward clean energy.

Negotiations kicked off more than a year ago but despite a big push by the presidency, there has been a “lack of political will” around the European Commission’s initial proposal, said László Sólymos, the Slovak Environment Minister who chaired the meeting.

Battle lines forming as EU holds first debate on ETS reform

EXCLUSIVE / France, the UK, the Czech Republic and Slovakia are backing a more targeted approach for heavy industries, at risk of closing down or relocating abroad, due to increased pressure to reduce global warming emissions.

Polish opposition

“Everyone agrees that carbon prices must go up,” Climate Commissioner Miguel Arias Cañete said at the beginning of the meeting in an attempt to find a consensus.

That turned out to be somewhat of an optimistic comment though, when Poland’s environment minister retorted that the price of CO2 “should not be influenced by the stability reserve”, the EU Commission’s proposed tool to manage the amount of carbon permits on the market and keep prices high.

“We still need to discuss this,” said Jan Szyszko, Poland’s environment minister.

Warsaw warned that EU member states “have not understood the spirit of the Paris Agreement”, saying each country should be allowed to go their own way with their own national legislation on climate change.

The other member states were less vehement in their criticism but rallied against the Commission’s plan nonetheless.

Call for simplicity

EU countries seem to converge on their rejection of the Commission’s proposed “cross-sectoral correction factor (CSCF)”, a mechanism that would distribute free allocations to the top 10% of industry performers in terms of CO2 reductions.

The Commission’s proposal was generally seen as too complicated, with a majority of member states arguing for more straightforward market regulation instruments.

“We must avoid using this system and strengthen the carbon market with simple tools,” said Dutch minister Sharon Dijksma. “If we fall behind with a market that does not work, we are going to harm our children and our grandchildren,” she said.

Other market reform proposals, including the total number of allowances that should be auctioned off, as well as the method for calculating the total number of allowances, are still being debated.

French environment minister Ségolène Royale, who unlike her German counterpart Barbara Hendricks rarely attends these meetings, sent representative Alexis Duterte in her stead, who said that “it is not normal to persevere with a system that distributes too many and too generous free allowances”. 

“It is a triangle,” Cañete replied. “We must take measures to strengthen the carbon market,” he argued, but also protect against the risk of industry delocalisation associated with CO2 constraints and put in place a modernisation fund that will assist with the decarbonisation of the economy.

The Climate and Energy Commissioner challenged EU countries to reach a consensus, and pointed to a vote in the European Parliament’s environment committee last week. “If an agreement can be reached in the European Parliament, then the member states can find one too,” the Spaniard argued.

Parliament demands deeper cuts to industrial emissions

Lawmakers in the European Parliament’s environment committee this week backed more ambitious carbon market reforms than those tabled by the European Commission. Convincing the plenary, and above all the member states themselves, to follow suit may prove more of a challenge, however. EURACTIV France reports.

Theoretical ambition

If member states broadly agree to strengthen the stability reserve, by putting aside more allowances, they remain divided over the pace at which it should be done.

Germany, France, the Netherlands and Sweden back the Parliament’s current position of a 2.4% reduction per year, with 57% of allowances auctioned. But other member states, particularly in Eastern Europe, want a slower reduction rate and lower number of allowances to be auctioned – a proposal heartily backed by the steel lobby Eurofer.

Given the persisting differences between member states despite long negotiations, it seems unlikely that the more ambitious countries will be able to convince the proposal’s detractors without making further concessions.

Those could include an increase in carbon market funds that would ultimately benefit countries that are less advanced in the energy transition.