The EU’s Emission Trading Scheme reform took a huge step forward last year when the European Parliament’s Environment Committee voted in favour of MEP Ian Duncan’s report. He talks us through the process and what happens next.
Ian Duncan is an MEP with the European Conservatives and Reformists (ECR) and represents the Scottish Conservative Party at a domestic level.
Once upon a time, not so far away… well the 15 December in Brussels, the Environment Committee of the European Parliament held its final session of 2016.
It was an extraordinary session, in more ways than one, with only one item of business: to vote on the reform of the EU’s Emissions Trading Scheme (ETS).
The vote had been scheduled to take place the week before, but despite my best efforts the distance between the groups was just too great, and so I postponed the vote.
In truth, the distance was still too great 24 hours before the rescheduled vote, but there was magic in the air that Thursday and by a margin of 41 (53 votes for, five against with seven abstentions) the merry legislators passed the report, so beginning the legislative journey of ETS reform.
As we count down the days to the final parliamentary plenary vote (scheduled for 15 February) I thought it might be interesting to explore the ETS in numbers.
The reform takes shape…
The vote took place on 15 December, which was 518 days after the European Commission first published its proposal, 455 days after I was appointed rapporteur, and 197 days since my report was published, 174 days since I tendered my resignation as rapporteur on ETS reform and 162 days since the chair of the ENVI committee turned down my resignation. (Ah, Brexit… It seems just like yesterday…).
Alongside me, negotiating the reform, were seven MEPs (my shadows and I) representing the eight political groups, together with 14 assistants (who knew far more than the eight of us).
We spent over 40 hours in official session and countless more unofficially on the telephone, in various corridors and occasionally in bars (alcohol may have been taken) to distill the 729 amendments laid against my report into a document compromising 17 amendments, spanning 78 pages and over 20,000 words.
The year of our labour saw Brexit, Trump and the entry into force of the Paris Agreement. It also saw actual labour: S&D shadow Jytte Guteland gave birth to a baby boy. He will be five by the time the reform we have begun actually enters into force.
What was agreed
2.4% – The annual rate by which allowances will be removed from the market (equal to the elimination of 528 million tonnes of CO2) from 2021-30.
This figure represents an increase of 0.2% on the Commission proposal, and means an additional 242 million tonnes of CO2 will be removed during the term of the reform, so ensuring the EU meets it ambition of reducing emissions by at least 80% by 2050.
57% – the proportion of allowances to be auctioned by member states (or by the Commission) to provide the money for the Modernisation Fund, the Innovation Fund, and part of the harmonised scheme to compensate for indirect costs.
The ENVI Committee agreed that up to 5% of this share could be transferred to support industry should the number of ‘free allowances’ ever run out (during negotiations it was termed the ‘Duncan mechanism’; I suspect my late mother would have been immensely proud of that fact, even if she didn’t quite understand its significance. I am writing this article on what would have been her 80th birthday).
If the Duncan mechanism is not triggered, or if the full 5% is not needed to compensate industry, up to 200 million additional allowances will be cancelled, so reducing further the surplus of allowances on the market.
100% – the share of revenues from auctioned allowances that member states must use for climate action. At present, member states spend only 80% of the auction revenues on climate projects. Increasing this to 100% will make available a further €120 billion of funding for renewables, energy efficiency and climate mitigation.
1 billion – the number of allowances that will be cancelled during the phase in order to reduce oversupply in the market. Due to the financial crash in 2008 and the related dip in EU industrial production, analysts estimate the market will be oversupplied by roughly 2.5 billion allowances by 2021.
Removing 1 billion of these permits will help restore market balance and deliver a carbon price that incentivises industrial innovation in Europe.
24% – which represents a doubling of the rate of withdrawal of carbon permits from the market, compared to the Commission proposal. The permits will be banked in what is known as the Market Stability Reserve (MSR).
Coupled with the cancellation noted above, this doubling of withdrawal (12 to 24%) will help reduce oversupply in the market and encourage a meaningful carbon price.
100 – the number of sectors that will no longer qualify for free allowances and therefore exit the ‘carbon leakage’ list. The ENVI Committee agreed with the Commission to focus the list on those sectors most at risk of upping sticks and departing the EU, to lands where carbon costs are lower.
0 – the number of new coal fired power plants that can be funded through the ETS funding mechanisms.
MEPs will be asked to endorse the ENVI Committee’s report on 15 February 2017, in a plenary vote. By then it will be only 1,416 days until the actual reform comes into being (and 685 days until the Market Stability Reserve actually starts stabilising the market), and around 5.6 billion tonnes of CO2 will have entered the atmosphere
If MEPs endorse my report, then the Parliament will shortly thereafter (the number of days is anyone’s guess) enter into negotiations with the European Council – termed the trialogue, since it is chaired by the European Commission – and the carbon market reform will have taken another step to becoming law.
Easy as one, two, three…