Plans approved to make EU:ETS deliver more savings

Serious attempts are being made to make the 12-year-old European emissions trading scheme (EU:ETS) deliver greater overall savings.

Whether these improvements can be achieved before April 2019 when - as now seems likely - all UK firms will cease involvement in the scheme, owing to completion of the Brexit process.

After fierce debate, the European Parliament has approved plans to reduce the number of carbon credits (emission allowances) by 2.2 per cent each year. It also wants to double the capacity of the 2019 market stability reserve (MSR) to absorb the excess of allowances on the market.

Trading prices have recently dipped to the historic low of just €5. MEPs approved the European Commission’s proposal to increase the so-called linear reduction factor - the yearly reduction of credits in order to deliver on the carbon curbs - by 2.2 per cent from 2021, as against 1.74 per cent in the existing legislation. This factor should be kept under review with a view to increasing it to 2.4 per cent by 2024 at the earliest.

In addition, the MSR’s capacity will be doubled to absorb the acknowledged enormous excess of credits on the market. When triggered, it would absorb up to 24 per cent of the excess of credits in each auctioning year, for the first four years.

Parliamentarians agreed that 800m allowances should be removed from the MSR as of 1 January 2021. Two funds will be set up and financed by auctioning ETS allowances. A modernisation fund will help to upgrade energy systems in lower-income member states and an innovation fund will provide financial support for renewable energy, carbon capture and storage, and low-carbon innovation projects.

In addition, the aviation sector should receive 10 per cent fewer allowances than its 2014-2016 average, in order to bring its efforts in line with other sectors. Revenues from auctioning allowances in this sector will be used for climate action in the EU and third countries. Fears have been expressed that, unchecked, aviation could be responsible for over 50 per cent of Europe-wide emissions within 20 years.

In the absence of a comparable system operating for shipping under the International Maritime Organisation (IMO), the Parliament proposed setting up a “maritime climate fund” to compensate for maritime emissions, improve energy efficiency, facilitate investment in innovative technologies and reduce CO2 emissions from the sector.

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