Euro-MPs called Tuesday for the EU’s Emissions Trading System to be reformed and its scope enlarged, in order to incentivise industries to reduce their emissions and invest in low-carbon technologies. The ETS is at the core of European climate policy and is an incentive for economic actors to reduce their emissions and invest in low-carbon technologies. MEPs support the Commission’s ambition of reducing emissions in the ETS sectors by 61% by 2030, compared to 2005, but are looking for a number of changes.
They want the annual reduction of emission allowances to increase annually by 0,1 percentage points compared to the previous year until 2030, starting from 4,2% in the year following the entry into force of this amendment. MEPs also propose to include municipal waste incineration in the ETS from 2026. To incentivise best-performers and innovation, MEPs want to introduce a ‘bonus-malus’ system from 2025 so that the most efficient installations in a sector get additional free allowances. Those who do not implement the recommendations of the energy audits or certified energy systems or do not establish a decarbonisation plan for their installations, will lose some or even all of their free allowances.
The ETS would now be extended to maritime transport. MEPs want to cover 100 % of emissions from intra-European routes as of 2024 and 50 % of emissions from extra-European routes from and to the EU as of 2024 until end of 2026. From 2027 emissions from all trips should be covered 100 % with possible derogations for non-EU countries where coverage could be reduced to 50 % subject to certain conditions. MEPs also want other GHG emissions than CO2 to be included, such as methane nitrous oxides. 75 % of the revenues generated from the auctioning of maritime allowances shall be put into an Ocean Fund to support the transition to an energy efficient and climate resilient EU maritime sector.
Free allowances in the ETS should be phased out from 2026, say MEPs, and disappear by 2030 when Parliament wants the Carbon Border Adjustment Mechanism (CBAM) to be fully operational – five years earlier than foreseen by the Commission. The free allowances should be reduced to 90 % in 2025, 80 % in 2026, 70 % in 2027, 50% in 2028, 25% in 2029 and 0 % in 2030. A separate new emissions trading system for fuel distribution for commercial road transport and buildings shall be established on 1 January 2025.
To prevent citizens having to bear additional energy costs, private buildings and private transport should not be included in the new ETS before 2029 and only subject to a thorough assessment by the Commission followed by a new legislative proposal to be agreed by Council and Parliament. MEPs also propose to insert a price cap of 50 EUR so that if the average price of allowances in ETS II exceeds this cap prior to 1 January 2030, 10 million allowances should be released from the Market Stability Reserve. Revenues from the auctioning of 150 million allowances under the ETS II shall be made available for the Social Climate Fund to address the challenges for low-income families.
The ETS will generate revenues to be used to support the green transition through support to technologies that contribute to energy and resource savings and pollution reductions. MEPs remind that a well-defined share of the auctioning revenue of the ETS should be used as an own resource to finance the EU budget as a general income. Both EU and member states must spend all of their ETS (I + II) revenues on climate action but cannot be used to support nuclear energy-related activities and technologies.
MEPs support the Commission’s proposal on the Modernisation Fund to improve energy efficiency and modernise the energy systems in less wealthy member states. The Fund could also finance cross-border projects with low-growth border regions that would otherwise not be eligible for funding. They also insist that only member states that have adopted legally binding targets for achieving climate neutrality by 2050 and measures for the phase out of all fossil fuels should be eligible. In addition, access to the Modernisation Fund should also be conditional on the respect for the Rule of Law.
MEPs also significantly increased the size of the Innovation Fund (to be renamed to Climate Investment Fund) which supports innovation in technologies that contribute significantly to the decarbonisation of the ETS sectors. The report is scheduled for a vote at the plenary session 6-9 June after which the Parliament will be ready to start negotiations with member states.
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