By Kate Abnett
BRUSSELS, July 17 (Reuters) – The European Commission proposed an overhaul of the EU’s Emissions Trading System on Friday, allowing industries to emit CO2 longer while offering more financial support to invest in clean technologies in Europe.
The ETS is the European Union’s biggest climate change policy. It forces power plants, airlines and shipping firms to buy permits when they emit CO2, and caps their overall emissions.
The long-planned ETS overhaul aims to extend the system into future decades and align it with the EU’s 2040 climate goal to cut net emissions by 90%. It also softens the scheme in response to pressure from industries and countries, including Italy and Poland, which say it undermines competitiveness.
Brussels is attempting to balance those concerns with warnings, including from Spain, that weakening the ETS would punish industries that spent early on cutting emissions.
The Commission proposed cutting the annual rate at which the ETS emissions cap falls to around 3.7% from 2031, and 1.7% from 2036, from 4.3% currently, confirming plans previously reported by Reuters.
It would also set a new requirement for national governments to spend half of their ETS revenue on decarbonising local industries. The ETS has generated €260 billion ($297 billion) in revenue since 2013.
“If we deliver on this plan, it would literally mean hundreds of billions in additional investments on European soil,” EU Climate Commissioner Wopke Hoekstra said.
MORE FREE PERMITS
The EU gives industries some EU CO2 permits for free to help them compete with foreign rivals. The Commission proposal would give industries more free permits for longer — but with new conditions attached.
The EU would give 80% of the free permits upfront to companies with plans to invest in decarbonisation in Europe. Companies would get the remaining 20% once they make those investments.
The proposal would continue free permits until 2038 for sectors including steel and cement manufacturing rather than ending them in 2034, when they were due to be replaced by the EU’s carbon border charge on imports.
That would also delay the full phase-in of the carbon border levy to 2038 from 2034.
Analysts and some companies said the EU weakened the ETS more than expected, although some governments said they would push to weaken it further.
“For the first time, we are seeing a softening of the stance rather than a toughening of it — this is a huge success for Poland. Although we will fight for more,” Polish Climate Minister Paulina Hennig-Kloska said.
EU lawmakers and governments will now negotiate the final rules. Some have indicated they will oppose stricter controls on their ETS spending. Countries, including Italy and the Czech Republic, said this week they would also oppose the new conditions on industries’ free permits.
The price of EU carbon permits increased slightly, with benchmark EU carbon prices up €0.39 at €79.58 per metric ton at 1344 GMT.
Marcus Ferdinand, analyst at carbon market data provider Veyt, said he expected EU carbon prices to be “much lower” in the future under the proposed changes.
“This is clearly a proposal to keep industry alive in Europe,” Ferdinand said, adding that polluting industries were the main winners.
BROADER BACKLASH
The ETS revision reflects political pushback against Europe’s climate ambitions, despite record-breaking heatwaves and wildfires sweeping the continent.
The Commission also set out plans on Friday to double the share of EU energy consumption met by electricity by 2040, a move aimed at cutting the bloc’s reliance on oil and gas and meeting climate goals.
Some governments and companies have urged the EU to uphold ambition on the ETS, to avoid punishing companies that invested early in cutting CO2.
Annika Ramsköld, head of sustainability at Swedish power producer Vattenfall, which generates 90% of its electricity from CO2-free sources, warned slowing Europe’s main climate policy could backfire.
“Regulatory stability is not a nice-to-have; it is what enables the massive investments required for the energy transition,” she said.
The system covers 40% of all EU emissions, and emissions from ETS-covered sectors have halved since 2005.
The Commission proposal would expand the ETS to cover waste incineration from 2031, smaller ships, and emissions from international flights departing Europe for destinations up to 5,000 km (3,107 miles) from the continent’s geographic centre from 2029.
That would capture emissions from flights to hubs in Turkey and the Middle East, but exclude the U.S.
($1 = 0.8744 euros)
(Reporting by Kate Abnett, additional reporting by Marek Strzelecki, Susanna Twidale, Nina Chestney, Simon Jessop, Jason Hovet; Editing by Rod Nickel and Jan Harvey)
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