An EU lawmaker’s proposal to put aside free pollution permits for industry in case plans to replace them by an external EU carbon tariff fails, has been criticised by his fellow lawmakers in the European Parliament.
Carbon-intensive industries currently receive free allocations under the EU emissions trading scheme (ETS) in order to prevent carbon leakage, where companies move out of Europe to places where it is cheaper to pollute.
But free allocations have long been criticised by environmentalists who say it undermines Europe’s decarbonisation efforts, and calls have grown to eliminate them over time.
So last year, the European Commission put forward a plan to phase out free allocations and replace them with an external tariff on imports of carbon-intensive products, the so-called carbon border adjustment mechanism (CBAM).
Those plans are now being examined in the European Parliament, where a German conservative lawmaker, Peter Liese, is in charge of drafting the assembly’s position on the EU’s proposed carbon market reform.
Presented last week, the draft Liese report adds a layer of protection for carbon-intensive industries currently covered by the free allocation scheme. Liese’s proposal is to establish a reserve to maintain free allocations in case CBAM fails.
“If CBAM works, everything is fine, and we can reduce free allowances,” Liese said at a press briefing last week where he explained his amendments to the European Commission’s proposed ETS reform.
“But we are not sure that it will work. And that’s why we need to have a safeguard,” he said, referring to precedents such as the aviation ETS proposal, which was suspended before it was fully implemented.
According to Liese’s proposal, “the allowances that are taken away from industry if CBAM is implemented should not be cancelled or put elsewhere. They should be put in a reserve, so that if something happens then we still have allowances to protect from carbon leakage”.
But this idea has been criticised by the other lawmakers who will negotiate the ETS reform alongside Liese in the European Parliament.
“I don’t want to have this exemption. I think that it would really be a negative signal to the industry and also to global third countries on CBAM,” said Jytte Guteland, a Swedish lawmaker from the Socialists and Democrats (S&D) political group.
“I think [the free allocations] should be retired. From my side, I don’t think they should go into the system again and that is also to do with the fact that we have too many EU emissions allowances in the system as it is. This is creating too much uncertainty and technical difficulties in the system and gives the wrong signal,” she insisted.
Green lawmaker Michael Bloss also levelled criticism at the idea. “If it’s working, then it’s working. If it’s not, we need to have a different system,” he told journalists.
Emma Wiesner, a Swedish lawmaker from the centrist Renew Europe political group, also has doubts. “We believe in CBAM as a tool and a critical instrument. Rather than building in a mechanism doubting the system, building in a plan B, I think we should focus on plan A and make CBAM workable,” she told EURACTIV.
Industry, too, is sceptical about Liese’s plan designed to protect it. “[The draft] acknowledges the risks associated with the CBAM, but its reserve and review mechanism needs to be reversed,” a spokesperson for the European Steel Association, Eurofer, told EURACTIV.
“Phasing out free allowances and giving them back to industry, should the CBAM prove ineffective, would not be sufficient to fix the damage. On the contrary, the CBAM’s effectiveness should be demonstrated before launching the free allocation phase out,” the spokesperson added.
Other aspects of Liese’s report have gone down well. For instance, the creation of an ocean fund to improve the energy efficiency of ships and promote decarbonisation was welcomed by Guteland and Wiesner.
However, there is a general impression among Members of Parliament and civil society groups that Liese’s draft report falls short on climate ambition.
“He is definitely too slow on phasing out free allocation, too slow on innovation and too slow on CBAM,” Wiesner told EURACTIV.
“This report is a step in the right direction, but I’m not impressed, to be honest. I expected a little bit more, but I see that he is on the right track and bringing many interesting proposals to the table,” she added.
The ETS is one of Europe’s most successful tools in tackling climate change and some feel the reform should be be even more ambitious in order to put the EU on track to reach climate neutrality by 2050.
According to Liese, his draft report is in line with Europe’s goal to cut greenhouse gas emissions by 55% by 2030, a legally-binding target that was enshrined in the EU Climate Law adopted last year.
But others feel like the 55% target should be the very minimum that Europe should aim for.
“Of course, we should respect the climate law. But we need to also see that we had the IPCC report this summer after the climate law was decided, that says the situation is even more severe than the reports before,” Guteland told EURACTIV.
“We never said that the climate law is the end – it’s the minimum,” she added.
The Liese report is still in the very early stages of the legislative procedure and will now be subject to debates and amendments in the European Parliament, where those who want a more radical reform will have a say.
EU countries are also discussing the European Commission’s proposal and will negotiate it with the Parliament once both sides have agreed on their position.
> The draft Liese report can be consulted here.
[Edited by Frédéric Simon]