The Green Brief: No done deal on EU carbon market reform

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Lawmakers in the European Parliament’s environment committee voted on a major overhaul of the EU’s carbon market last week, but it’s a long and possibly bumpy road to EU legislators shaking hands on the final deal.

The reform of the EU’s emissions trading scheme (ETS) agreed by lawmakers includes ditching free permits to pollute by 2030 and speeding up the introduction of a carbon border levy to protect EU industries against imports of cheaper goods from countries with less stringent carbon pricing policies.

In a nutshell, lawmakers agreed to:

  • Start phasing out free allowances from 2026, with these completely gone by 2030. By that time, the EU’s new carbon border adjustment mechanism (CBAM) should be fully operational – five years earlier than initially proposed by the European Commission.
  • Introduce a bonus-malus system by 2025 that would reward the best-performing companies and push the worst performers to improve on their emissions reductions.
  • Leave out private consumers from a new ETS covering transport and heating fuels, which will only apply to commercial entities.

The vote in the European Parliament’s environment committee – passed with 62 votes in favour, 20 against and five abstentions – shows the determination of MEPs to strengthen the EU’s climate ambition despite the economic disruption brought by Russia’s war in Ukraine.

But the environment committee’s views don’t necessarily reflect those of the full Parliament, which will hold a decisive vote on the reform during a plenary session on 6-9 June.

For the reform to pass, some believe concessions will have to be made to win the support of lawmakers on the right of the hemicycle.

“The ambition of the ETS1 has been strengthened through various channels, which means that we have reached a significantly higher level of ambition than the Commission’s proposal,” said Pascal Canfin, a centrist French MEP who chairs the environment committee.

“We are entirely open to finding a compromise in plenary that is higher than the Commission’s proposal but possibly a little lower than the one we found in the parliamentary committee,” he told EURACTIV in an interview.

“And the ‘rebasing’ of the ETS is part of this global debate on the level of ambition of the ETS1 on which there can still be adjustments,” Canfin added, referring to a system whereby the number of carbon allowances distributed until 2030 are gradually decreased to reflect the EU’s higher climate ambition.

The centre-right European People’s Party (EPP) will surely be receptive to Canfin’s call for compromise. Peter Liese, the German Christian Democrat MEP leading negotiations on the ETS reform, warned against over-ambition on climate policy because of the war in Ukraine.

“We should consider a different distribution of the ambitions from now to 2030 […] because we have the problem that we desperately need to replace Russian gas,” said Liese.

“For a limited time – I always say two or three years – we may have to use more coal to compensate for Russian gas,” he told a press briefing earlier this month. If we increase ambition in ETS1 too much, that will increase the price of electricity,” he warned, adding that “electricity is the fuel of the green transition”.

Other parties in the European Parliament are less interested in re-opening the deal. Michael Bloss, a German MEP representing the Greens in the ETS negotiations, said he was “very happy” with the environment committee vote, especially the earlier phase out of free ETS allowances.

“We hope to keep as much of it as possible in plenary,” he told EURACTIV.

Bloss acknowledged talks have already started between political groups ahead of the plenary vote which will decide the Parliament’s position on the reform before final talks with EU countries.

But he showed no willingness to budge on the reform’s ambition. “The EPP’s only objective is to water down the European Commission proposal. So why should we be ready to compromise?” he asked.

According to Bloss, there is no reason to give ground to the EPP, which has become impossible to please due to its internal divisions on climate policy. “Part of the EPP can be on board. But we will never have the whole EPP support the climate package,” he said.

Meanwhile, the Socialists and Democrats negotiator Jytte Guteland told EURACTIV that, ahead of the plenary, it will be crucial to secure a high ambition for the industry and pressure the transport and buildings sector to transition.

“But the transition must be just and we achieved that with a more narrow ETS2 [a carbon price for road transport and buildings] that also secures the funding of the Social Climate Fund. I believe we should refrain from making larger changes as this can threaten the very delicate balance achieved in the environment committee,” she added.

Clashes around nuclear

The clash between the EPP and the Greens over the ambition of the reform is not the only issue that could derail the vote.

According to Canfin, another looming threat is nuclear energy. In the environment committee, a majority of MEPs – mostly left-wing parties – voted to exclude nuclear from funding available under the ETS, whether from national revenues or those coming from the EU’s innovation fund.

Clashes over nuclear are already taking place around a separate Commission proposal to include it in the EU’s green list of investments and will come to a head in Parliament in July.

Canfin does not want a repeat of that in the carbon market reform, telling EURACTIV: “Let us not pollute the reform of the carbon market with nuclear power.” 

“I hope that the Socialists and the EPP will be reasonable not to hold hostage the reform of the carbon market on a subject already dealt with elsewhere,” he added, calling on the plenary to reject the anti-nuclear amendments voted by the Parliament’s environment committee.

– Frédéric Simon


This week’s top stories

More stories:


News from the capitals

MADRID. Spain well prepared to weather Russian gas shortage, says Sanchez. Spain is ready to cope with the impact of Russian gas shortages Prime Minister Pedro Sánchez told the Davos summit as part of a joint and coordinated “Mediterranean front” together with Italy, Portugal and Greece. Read more

BUCHAREST. Romania eyes deepening nuclear ties with US. Romania, the only European country with North American nuclear technology, wants to develop its strategic partnership with the US, said Prime Minister Nicolae Ciucă after meeting with US Department of Energy Deputy Secretary David M. Turk at the Victoria Palace in Bucharest. Read more. 

ROME | SOFIA. Italy and Bulgaria to push common EU gas price. Italian Prime Minister Mario Draghi and his Bulgarian counterpart, Kiril Petkov, agreed to propose a common EU gas price after meeting at Palazzo Chigi on Monday. Read more

VILNIUS. Lithuania now fully independent of Russian energy. Lithuania on Sunday dropped Russian energy imports, including oil, natural gas and electricity, making it completely free of Russian energy supplies. Read more

SOFIA. Putin would have been happy if Bulgaria ‘caved’ to paying in roubles. Putin would have been happy if Bulgaria ‘caved’ to paying in roubles. Russian President Vladimir Putin would have been pleased if Bulgaria had accepted the Russian gas supplies to be paid in roubles as it would have made Bulgaria the first EU member state to succumb to Russia’s blackmail, Prime Minister Kiril Petkov said. Read more. 

BELGRADE | BUDAPEST. Serbia, Hungary confirm strategic partnership. The leaders of Hungary and Serbia reaffirmed their strategic partnership over the weekend after being re-elected last month, with Serbian President Aleksandar Vučić saying they had agreed that Serbia could store some of its energy on the territory of its northern EU neighbour. Read more.

HELSINKI. Russia cutting gas supply to Finland not linked to NATO bid. Russia’s decision to stop selling gas to Finland is not related to the country’s decision to apply for NATO membership, parliament Speaker Matti Vanhanen from the Center party said on Saturday. Read more.


News in brief

Russia using energy supply as blackmail, says EU Commission. The decision by Gazprom to stop delivering gas to Bulgaria, Poland and Finland is Russia using its energy supplies “as an instrument of blackmail”, according to an EU Commission spokesperson.

“Despite the willingness of EU companies to continue paying for gas in line with agreed contracts, Russia has shown once again how unreliable it is as a gas supplier,” they told EURACTIV.

However, the cut off does not put Finland’s or the EU’s energy security at risk, they added. “The Commission and Member States have been preparing for many months for disruptions from Russia, and reinforcing the resilience of the EU energy system. Our system is designed to ensure reverse gas flows when needed, and solidarity between Member States. On top of its increasing LNG import capacity, Finland can also rely on a strong regional energy cooperation with the Baltic Member States,” the spokesperson told EURACTIV.

Read more about Finland’s gas cut off here and more about plans by EU countries to ensure better preparation for cut offs here. (Kira Taylor | EURACTIV.com)

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European Commission launches consultations on rules for renewable hydrogen. The EU executive has started two feedback processes on sets of rules for renewable hydrogen. The first covers renewable fuels of non-biological origin and sets the criteria for what counts as renewable hydrogen. The other is a methodology for calculating the life cycle emissions of renewable hydrogen and recycled carbon fuels. The feedback period lasts four months, ending on 17 June. Read more here and read about the draft additionality delegated act here.

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Australia votes in new PM in turning point for climate policy. Labor’s leader Anthony Albanese beat the incumbent Scott Morrison to become Australia’s new prime minister on Saturday (May 21) in a move many saw as reflecting a desire for more impactful climate action. During the elections, Labor proposed raising the country’s 2030 emission reduction target to 43% as opposed to the 26-28% promised by Morrison’s conservative coalition. 

Australia has been severely impacted by climate change, including extreme weather events and natural disasters in recent years. Morrison’s government has been strongly criticised for its lack of action. The scales may have tipped, though, with Labor voted in and the Greens recording their best election result to date. 

However, Australia is highly reliant on coal and is a major supplier of fossil fuels. It was the main exporter of coal in 2021. Albanese’s promise to ‘end the climate wars’ is accompanied by an assurance to the mining industry that it won’t be left at a disadvantage in the hope that the market will phase out coal with no major intervention. It won’t be easy for the new PM to find a compromise that safeguards both the climate and the interests of emission-intensive industries.

You can read more about Australia’s election from the BBC news website here and here. (Valentina Romano | EURACTIV.com)


Opinions


Upcoming events

31 MAY. Media partnership – Accelerating renewable energies in Europe: How to ensure a win-win for climate and biodiversity? This event will examine how REPowerEU plans could be implemented in ways that ensure a ‘win-win’ for both climate and biodiversity. Join the attaché for énergie of the Government of the Grand Duchy of Luxembourg Jérémie Zeitoun, the project leader of the European Commission Knowledge Centre for Biodiversity Global Conservation and Development Gregoire Dubois and more. Programme and registration here. (Organised by The Nature Conservancy in partnership with EURACTIV)

9 JUNE. Media partnership – The revision of the EU’s packaging and packaging waste rules. The upcoming revision of the EU’s packaging and packaging waste law offers an opportunity for sustainable packaging solutions to advance the EU’s climate neutrality and circular economy objectives. Join Emiliano Micalizio of Ramboll, Elsa Agante of Euroconsumers and Ronan Breen of Delivery Platforms Europe/ Deliveroo Europe to find out more. Programme and registration here. (Organised by the European Paper Packaging Alliance in partnership with EURACTIV)

13 JUNE. How to achieve a socially just EU renovation wave? Renovating public and private buildings has been singled out in the European Green Deal as a key initiative to drive energy efficiency in the sector. Join this EURACTIV Hybrid Conference to discuss how a socially just renovation wave can be achieved, with Adela Tesarova, Head of Unit for Consumers at the European Commission’s energy department, Professor Stefan Bouzarovski from the University of Manchester, the managing director and senior researcher at the Institute for European Energy and Climate Policy (IEECP) Vlasis Oikonomou and more. Programme and registration here. (Supported by IEECP)

14 JUNE. Green ICT – How can the digital sector accelerate the green transition? Join this EURACTIV – GIGAEurope Digital Debate to discuss how, through collective action and multi-stakeholder approaches, we can enable a green and digital transition that works for all. Speakers include Daniel Mes from Executive Vice-President Frans Timmermans’ cabinet, Ilias Iakovidis, the adviser for Digital Aspects of Green Transformation at DG CONNECT and more. Programme and registration here.

14 JUNE. Does Germany need a new forest policy? Potential and problems of the forest strategy 2050. Germany is one of the most densely forested countries in Europe with forests making up almost 30% of the total area. Former agricultural minister Julia Klöckner put the 2050 forest strategy in place, which included the economic use of wood. With the new German government in place, must it revamp the forest strategy? Join MEP Ulrike Müller, Stefanie Schmidt from the European Commission’s environment department and more to discuss further. Programme and registration here. The event will be in German. (Supported by Life Terra)

15 JUNE. Mind the gap – can biofuels play a strategic role in reaching EU energy and food security? Join this EURACTIV Hybrid Conference to discuss how the EU can maintain its commitment to achieving its Fit for 55 climate and energy goals in an uncertain geopolitical situation and the evolving role of low-carbon renewable fuels in achieving EU climate and energy goals? Programme and registration here. (Supported by ePURE).


On our radar

25-27 MAY. Meeting of G7 climate and energy ministers.

30-31 MAY. European Council.

30 MAY – 5 JUNE. EU Green Week 2022. 

6-9 JUNE. The European Parliament will debate and vote on eight of the key Fit for 55 files. Read the full agenda here.

7 JUNE. Joint Communication on international ocean governance.

15 JUNE. 2022 Strategic Foresight Report.

22 JUNE. Nature protection package (tbc):

  • Sustainable use of pesticides – revision of the EU rules
  • Protecting biodiversity: nature restoration targets 

27 JUNE. Energy Council.

28 JUNE. Environment Council.

5 JULY. New design requirements and consumer rights for electronics (tbc).

20 JULY. Circular Economy Package 2:

  • Policy framework for bio-based, biodegradable and compostable plastics
  • Review of the Packaging and packaging waste directive to reinforce the essential requirements for packaging and establish EU level packaging waste prevention measures and targets
  • Review of the Urban Wastewater Treatment directive
  • Proposal for a Regulation on substantiating environmental claims using the Product/ Organisation Environmental Footprint methods (green claims)

20 JULY. Development of post-Euro 6/VI emission standards for cars, vans, lorries and buses

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