By Kate Abnett
BRUSSELS, July 17 (Reuters) – The European Commission will propose 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 EU executive has long been preparing to overhaul the ETS, extending it into future decades and aligning it with the EU’s 2040 climate goal to cut net emissions by 90%. But the plans also respond 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 plans to cut the annual rate at which the ETS emissions cap falls to around 3.7% from 2031, down from 4.3% currently, and reduce it further from 2036, EU officials told Reuters on Thursday.
The proposals were still being negotiated and could change before publication. A Commission spokesperson declined to comment.
MORE FREE PERMITS
The EU gives industries some CO2 permits for free to help them stay competitive. An EU CO2 permit currently trades at around €79 ($90) per metric ton.
The Commission will propose continuing this until the end of 2037, rather than ending free permits in 2034, when they were due to be replaced by the EU’s carbon border charge on imports. That would also likely delay the full phase-in of the carbon border levy to end-2037, the officials said.
The Commission also wants to attach conditions to free permits, granting 80% upfront to companies with plans to invest in decarbonisation in Europe. Companies would get the remaining 20% once those investments are made, the officials said.
The proposal would also impose stricter rules on how governments spend their ETS revenue, so that 50% is reinvested in domestic industries.
The ETS has generated €260 billion in revenue since 2013.
But that may face resistance from governments that use ETS revenue to fill holes in public finances. Ten countries, including Poland and Italy, opposed parts of the EU plans this week, including attaching conditions to industries’ free permits.
EU countries and lawmakers will negotiate the final ETS revision over the next year.
BROADER BACKLASH
The long-planned ETS revision comes amid political pushback against Europe’s climate agenda, despite record-breaking heatwaves and wildfires.
Brussels has already weakened environmental rules for cars and farmers after industry concerns.
Some governments have urged the EU to uphold ambition on the ETS, partly because a weaker ETS would increase pressure on politically sensitive sectors, such as farming and forestry, to cut emissions faster. 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 emissions from international flights departing Europe for destinations up to 5,000 kilometres (3,107 miles) away, the officials said.
That could capture emissions from flights to hubs in Turkey and the Middle East, but exclude the United States.
The American Chamber of Commerce this week warned extending the EU ETS to international flights risked “potentially provoking retaliatory measures from key international partners.”
($1 = 0.8740 euros)
(Reporting by Kate AbnettEditing by Rod Nickel)
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