Poorer EU countries will be given profits from the sale of carbon emissions allowances to modernise their energy infrastructure, in return for backing a binding 40% greenhouse gas reduction target last October.
The new Modernisation Fund is part of a series of reforms to the Emissions Trading System (ETS) announced today (15 July) in Brussels.
The reforms, which include a second fund to boost innovation in renewables and carbon capture and storage, must be backed by the European Parliament and Council of Ministers before becoming law and coming into effect between 2021 and 2030.
The countries that will benefit from the new fund are Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia. All had a GDP per capita of less than 60% the EU average in 2013.
In October, EU leaders agreed on a binding target of greenhouse gas cuts of at least 40% compared to 1990 levels.
“Today we take a decisive step to enshrine the EU’s target of at least 40% emissions cuts by 2030 into law,” said Climate and Energy Commissioner Miguel Arias Cañete on Wednesday.
Poorer countries argued in October that making the emissions cuts would harm the competitiveness of their emitting industries. EURACTIV understands they were guaranteed EU money to invest in efficiency and the modernisation of their energy systems, in return for backing the 40%.
The ETS is the world’s biggest scheme for trading emissions allowances. Regulated businesses measure and report their carbon emissions, handing in one allowance for each tonne they release.
Companies can trade allowances as an incentive for them to reduce their emissions. Countries can also sell permits to the market.
310 million allowances worth €7.75 billion will be put into the fund. 220 million allowances will be provided by the member states, including the 18 who do not benefit from it.
A future ETS Directive will put in place a governance framework, which will be made up of an investment portal and a management committee, and involve member states, the European Investment Bank and the Commission.
Countries will submit potential projects after organising competitive bidding processes among industry for the modernisation money.
Free carbon allocations to power plants in lower-income EU countries will also be extended to the 2021 trading period as part of the price of support. There will be stricter transparency requirements than previously.
Today’s announcement showed that the EU was backing its decisions with policy, ahead of November’s UN Climate Change Conference in Paris, Cañete said.
The conference’s goal is to secure a binding worldwide agreement to limit global warming to below two degrees, compared to pre-industrial levels.
Similar horse-trading between developed and developing countries in Paris over compensation for cuts is expected.
The Commission has called on member states to use some of their revenues from emission trading to help non-EU countries adapt to the impact of climate change. The hardest hit are usually developing countries.
The EU’s executive expects 15.5 billion allowances worth €387.5 billion to be made available during the 2021-2030 trading period. The Commission is working with a figure of €25 per permit.
57% of them will be auctioned by member states, the same as in the previous ETS trading period of 2013-2020. 43% will go to industry in free allocations.
EURACTIV understands keeping the 57% share was also a stipulation of a majority of national governments for their support to the 40% target.
Today’s reforms cut down on the number of allowances, divided into permits for auction by governments and free allowances to industry, available to the market.
They also increase the rate of reduction from 1.74% a year to 2.2% during the 2021-2030 trading period. The Commission estimates this will lead to a cut of greenhouse gas emissions by 43% compared to 2005.
An Innovation Fund will support breakthrough investments in renewable energy, low carbon innovation in energy intensive industries and carbon capture and storage (CCS).
CCS in particular is problematic because it is so expensive. The Commission plans to work with the Chinese government to try and eventually deliver it at scale, Cañete said.
400 million allowances worth €10 billion will be reserved from 2021 for the fund. An additional 50 million unallocated allowances from 2013-2020 will be used to get the fund up and running earlier.
The fund follows an existing programme that used profits from 300 million allowances in 2013-2020 to support low-carbon innovation.
Nuclear power will not be eligible for the fund, which aims to help new technologies hurdle their initially high costs.