The Green Brief: The die is cast for ETS reform

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The EU’s emissions trading scheme – which establishes the world’s largest carbon market – is often described as the crown jewel of European climate policy.

The scheme is now set for a revision in order to align it with the EU’s more ambitious climate target for 2030 – a reduction in greenhouse gas emissions of “at least 55%” by the end of the decade. 

The draft of the reform, which was recently leaked to the press, was therefore worth all the attention it got (read our article here). 

So what did it reveal? 

First, the existing scheme, which currently covers the electricity sector and energy consuming industries as well as intra-EU flights, will be extended to cover maritime emissions.

According to the draft, the same rules will apply to maritime as to other sectors in the ETS, including on auctioning, transfer and surrender of allowances as well as penalties for non-compliance.

More controversially, the leak also confirmed the creation of “a separate self-standing” ETS  that will apply as of 2025 to heating and transport fuels.

The extension to road transport and buildings will be contentious to say the least. Poland and senior lawmakers in the European Parliament have publicly criticised it, warning it is likely to hit the poor hardest and cause social unrest similar to the 2018 Yellow Vest movement in France.

But senior EU officials briefing the press earlier this week said the new system will be targeted at fuel suppliers, not households. 

“They will have a new assessment to make: do I buy all those allowances which are getting more expensive every year or do I decarbonise my products so I have to buy less allowances,” the official explained.

More fundamentally, the official argued, including transport and buildings in the ETS will also guarantee meeting an emissions reduction target, something that a tax would not automatically do.

In addition, “at least 50%” of the revenue generated by the new transport and buildings ETS would have to be redistributed to low-income households via a new “climate action social facility,” according to the draft.

How to allocate the revenues would be decided “with a distribution key between member states” and submitted to “conditionality” on how the money is spent – “a bit comparable to what we do at the moment with the recovery fund,” the official said.

This is likely to be a sticking point. Currently, ETS auction revenues go back to the coffers of the EU countries organising the bidding process. If at least half of that money is now diverted to the EU budget and redistributed to poorer households, it could be seen as an unacceptable money grab.

Other crucial details of the reform are still lacking, such as the annual pace of emissions reduction that will be required from industry – the so-called Linear Reduction Factor. The final decision on that is likely to be subject to last-minute political haggling.

The same goes for the EU’s upcoming carbon border adjustment mechanism (CBAM) proposal, which is still hanging in the air. A recent leak only raised more questions than it answered, particularly around exemptions for developing countries.

The leaked ETS reform is still unclear about when the EU’s external carbon border tariff will replace free allowances distributed to industry. This will be crucial to determine whether the measure is compatible with World Trade Organisation rules or not.

The final European Commission proposal, expected on 14 July, will give more clarity on all these points. But it will only be the beginning of the journey as negotiations between the European Parliament and EU countries to adopt laws usually take around two years.

“Let me be very clear: this is going to be bloody hard to do,” the EU’s climate chief told the European Parliament when he presented the EU’s updated climate targets for 2030.

The coming months will show us exactly how hard it will be.

– Frédéric Simon


Top stories


This week’s stories


News from the capitals

VIENNA. Austrian government, opposition agree on new renewable energies law. The ÖVP-Green coalition, together with the Social Democrats in opposition, presented a bill that aims to have the country’s electricity run entirely on renewable energy by 2030. Read more.

LJUBLJANA. Irregularities reported as voting starts in Slovenia referendum. Proponents of a referendum on Slovenia’s Waters Act have sharply criticised the organisation of early voting, alleging voter suppression had taken place. Read more.

PRAGUE. CAP reform criticised by Czech small farmers and environmentalists. The newly reformed Common Agricultural Policy (CAP) has come under fire from the Czech Republic’s small farmers and environmentalists as the trialogue deal revealed there will not be a mandatory cap placed on direct payments. Read more.

BRATISLAVA. Slovakia sends record low volume of waste to landfill in 2020. For the first time in Slovakia’s history, less than half of the municipal waste went to landfills in 2020 while 44% was recycled, the country’s statistics office has announced. Read more.

NICOSIA. Cyprus’ worst forest fire in decades kills four. Cyprus said a deadly forest fire that was the worst to hit the island in decades was close to being brought under control Sunday (4 July) after water bombing by Greek and Israeli aircraft. More.

LJUBLJANA. Commission endorses Slovenia’s recovery plan. The European Commission has endorsed Slovenia’s €2.5 billion national recovery and resilience plan, allowing the country to draw €1.8 billion in grants and €705 million in loans under the Recovery and Resilience Facility (RRF), pending confirmation by member states. The plan earmarks 42.4% for green transition goals and 21.4% for digital goals. Read more.

PRAGUE | WARSAW. Czechs near Turów mine want Commission to join talks with Poland. Czech citizens living near the Polish lignite mine in Turów sent a letter to European Commissioner Virginijus Sinkevicius, asking him to join the ongoing negotiations between Czechia and Poland. Read more.

VILNIUS. Lithuania adopts national climate change agenda. The Lithuanian parliament on Wednesday adopted a National Climate Change Management Agenda with 120 votes in favour and 3 abstentions. The agenda sets short, medium and long-term goals relating to climate change mitigation as well as targets for individual sectors, which use fossil fuels, pollute the atmosphere with CO2 emissions and have the biggest impact on climate change. Main goals include an 85% reduction in greenhouse gas emissions by 2040 and a 100% reduction by 2050, compared to 1990. (Sniegė Balčiūnaitė,


News in brief

New study warns about green hydrogen bottleneck. A new study by Aurora research warns about a potential shortage of green electricity to meet surging demand for hydrogen produced from renewables. It says Europe will be able to produce enough hydrogen to meet demand “only if all forms of renewable and decarbonised electricity are considered”. Restricting the EU’s hydrogen supply to only “additional new-build renewables” risks creating a bottleneck “and may also result in higher costs and a reliance on hydrogen imports,” the study says. 

The study was financed by a consortium of European energy consumers and producers comprising ArcelorMittal, EDF, Fortum and UPM. “Between green additional hydrogen and blue hydrogen, there is a third way that was not yet much explored: hydrogen produced by electrolysis with low carbon electricity. It is cost-effective, it saves emissions and it would limit the EU’s reliance on imports. Why close the door to it when we really need industrial scale use cases and an enabling policy framework for hydrogen economy to prosper?,” said UPM Biofore, one of the sponsors of the study. Full report here. (Frédéric Simon | 


West Balkans need ambitious climate targets, says NGO. Significant emissions reductions are required to avoid worsening environmental, social and financial challenges in the West Balkans, according to a paper by Climate Action Network Europe. The NGO is calling on the region’s leaders to set ambitious climate targets for 2030 and to reach net zero emissions by mid-century.

According to the NGO, the region cannot cut corners on reductions and will need to tackle its heavily polluting energy sector, particularly its outdated and inefficient coal power plants.

“It is of vital importance to seize this moment and set the path towards the necessary ambition in order to be able to reach climate neutrality by 2050 in the Western Balkans, respect the Paris Agreement pledges and most importantly ensure a clean and healthy future,” said Viktor Berishaj, Southeast Europe climate and energy policy coordinator, at Climate Action Network Europe. Read the paper here. (Kira Taylor | 


93% of Europeans think climate change is a serious problem. Over nine out of ten Europeans consider climate change a serious problem, according to a Eurobarometer survey published this week. The survey of 26,669 citizens from across all EU countries and different social and demographic groups found that almost a third considered climate change as the most serious problem facing the world and that 90% believed greenhouse gas emissions should reach net zero by mid-century.

The survey serves as a rallying call for politicians and businesses, said EU Green Deal chief, Frans Timmermans, adding: “Despite the pandemic and the economic hardship Europeans are facing, support for climate action remains high. Europeans recognise the long-term risks posed by the climate and biodiversity crises, and expect industry, governments and the European Union to take action.” Read more. (Kira Taylor |


German scientific advisory body calls for thinking beyond climate neutrality. Heading into COP26, Germany’s global change advisory body has submitted a report to the German cabinet on Tuesday (6 July), calling for the government to include ecosystem restoration and protection as well as atmospheric carbon removals besides existing climate neutrality goals.

The report highlights the carbon sink utility of healthy ecosystems, calling for a secondary focus on sustainable use of marine and land ecosystems, like diversifying agriculture. It also hints that the German government is thinking ahead on atmospheric carbon removal, suggesting that other countries may fail to reach their carbon neutrality targets. Therefore, Germany should consider options to permanently sequester CO2 from the atmosphere, eventually going carbon negative. (Nikolaus J. Kurmayer |


EU set to spend €41.7 billion on gas projects. Under the European Commission’s current methodology for selecting priority energy infrastructure projects, 74 candidate gas projects  worth €41.7 billion could be eligible for EU funding despite evidence showing that Europe needs little more gas infrastructure, according to research by NGOs.

Projects selected for the list of EU projects of common interest can gain access to EU funding and fast-tracked permitting, but the Commission has faced criticism for its selection process. The report warns that the current list includes major fossil gas investments for Greece, Romania and Poland, totalling over €24 billion. Environmentalists fear that these investments risk jeopardising the EU’s climate targets and wasting money on infrastructure that risk becoming stranded assets.

The regulation that governs which energy projects are selected is currently under negotiation, but attempts by some EU governments to keep fossil gas out were overruled by the majority of EU countries. Read the full report here. (Kira Taylor |


Solar power facing administrative barriers. The deadline for EU countries to implement the latest (2018) version of the EU’s renewable energy directive has passed on 1 July, just two weeks before the European Commission is due to announce another revision of the EU’s renewables law. 

But there are still bottlenecks and lengthy administrative processes which need to be overcome to reach the full potential of solar, according to the industry. Administrative issues are a problem across the board for renewable energy, with the wind and geothermal industry also saying more needs to be done to tackle administrative hurdles and reach Europe’s climate goals.

“Implementation is the key word of successful climate politics. While the Fit for 55 Package must set the EU on track to reach climate neutrality by 2050 by setting higher targets for 2030, increased ambition will be required for Member States to fully implement the existing RED II provisions and for the European Commission to effectively monitor the process,” said Walburga Hemetsberger, CEO of SolarPower Europe.




Upcoming events

7 JULY. Media Partnership: charting pathways to enable net zero – what role for hydrogen? With a keynote address from the EU Commissioner for Transport, Adina Valean and chair of the energy committee in the European Parliament, Cristian Busoi, join this debate to look at how hydrogen can help Europe reach its climate goals. Programme and registration here. (Organised by Hydrogen4EU)

22 JULY. #eaGreenEU Twitter chat | Forestry and climate change. Join EURACTIV’s energy and environment journalists for a live discussion on the role of forestry and climate change in the EU. Find more information, including how you can join in, here. (Supported by Life Terra)


On our radar

12 JULY: Third round of negotiations on Aarhus regulation. Negotiators from the European Parliament and EU Council will meet again with the European Commission to discuss the access to justice legislation, with a looming deadline of October 2021 for Europe to improve its implementation of the international agreement.

14 JULY: Fit for 55 package. The Commission is expected to table a huge package of green legislation in July, including a revision of the renewable energy directive, a revision of the emissions trading scheme and our first glimpse at a carbon border adjustment mechanism.

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