14.12.2016, 18:36
Major parties agree more robust ETS reform
OREANDA-NEWS. The European Parliament's two biggest parties have struck a deal on EU emissions trading scheme (EU ETS) reform whereby the removal rate of surplus allowances by the market stability reserve (MSR) will be increased.
The European People's Party (EPP) and the Socialists and Democrats (S&Ds) finally reached a compromise last night after having been caught in a stalemate for weeks partly owing to a broader dispute over which party should next hold the parliamentary presidency.
The deal comes just in time for a vote by parliament's environment committee on the proposed amendment of the EU ETS directive scheduled for tomorrow.
The EPP and the S&D, along with the European Conservatives and Reformists (ECR), have agreed a compromise whereby the MSR's intake rate will be increased in the first four years of its operation.
Under their proposal, 16pc of surplus allowances will be placed in the MSR in 2019, which is the first year of operation, followed by 24pc each year - starting from 1 September - until 2022.
The compromise also proposes that 800mn allowances should be cancelled from the MSR on 1 January 2021. This represents a notable increase from a proposed 300mn cancellation amount that was adopted by the industry and energy committee (ITRE) in October.
But the linear reduction factor (LRF) - the annual rate at which the EU ETS allowance quota tightens will not increase from the 2.2pc originally envisaged by the European Commission. Both S&D and the EPP were previously unwilling to compromise on the LRF, with the S&D having pushed for a higher 2.4pc rate, while the EPP insisted it should be kept at 2.2pc.
Parties further agreed a provision whereby the share of auctioned allowances will decrease by up to 5pc over phase four (2021-30) if more free allowances are needed to protect EU industries at risk of carbon leakage. Where the auction share is not reduced or auctioned, allowances are cut by less than 5pc, then any remaining allowances will be cancelled up to a maximum of 200mn.
MEPs also propose that a system should be established for the cement and clinker sectors, among others, whereby importers will be required to surrender allowances to cover for the carbon content of imported goods. The scheme should be fully compatible with WTO rules and "focus on sectors with a low trade intensity and high emissions intensity such as cement," they say.
"Once this mechanism is in place, no free allocation shall be given to sectors and subsectors that are deemed to be at risk of carbon leakage but covered by the import inclusion carbon mechanism," the provision says.
The proposed measure represents a compromise in response to the S&D's demand that the cement sector should be excluded from the list of energy intensive, trade-exposed industries that are eligible for free allowances.
The compromise proposed "makes the outlook for 2019 onwards much more bullish than it otherwise would be," said UK consultancy Energy Aspects analyst, Trevor Sikorski. But there is still a long way to go before it is adopted as legislation, he warned.
The agreement makes no mention of a rebasing of the EU ETS phase 4 cap to bring it in line with actual emissions towards the end of phase 3 (2013-20).
Several environmental lobby groups including Sandbag have pointed out that unless the EU ETS cap is rebased, the EU ETS supply glut will persist and excess allowances will continue to accumulate - even with a higher MSR intake rate or a steeper LRF - because actual emissions will be well below the proposed phase 4 cap.
The European People's Party (EPP) and the Socialists and Democrats (S&Ds) finally reached a compromise last night after having been caught in a stalemate for weeks partly owing to a broader dispute over which party should next hold the parliamentary presidency.
The deal comes just in time for a vote by parliament's environment committee on the proposed amendment of the EU ETS directive scheduled for tomorrow.
The EPP and the S&D, along with the European Conservatives and Reformists (ECR), have agreed a compromise whereby the MSR's intake rate will be increased in the first four years of its operation.
Under their proposal, 16pc of surplus allowances will be placed in the MSR in 2019, which is the first year of operation, followed by 24pc each year - starting from 1 September - until 2022.
The compromise also proposes that 800mn allowances should be cancelled from the MSR on 1 January 2021. This represents a notable increase from a proposed 300mn cancellation amount that was adopted by the industry and energy committee (ITRE) in October.
But the linear reduction factor (LRF) - the annual rate at which the EU ETS allowance quota tightens will not increase from the 2.2pc originally envisaged by the European Commission. Both S&D and the EPP were previously unwilling to compromise on the LRF, with the S&D having pushed for a higher 2.4pc rate, while the EPP insisted it should be kept at 2.2pc.
Parties further agreed a provision whereby the share of auctioned allowances will decrease by up to 5pc over phase four (2021-30) if more free allowances are needed to protect EU industries at risk of carbon leakage. Where the auction share is not reduced or auctioned, allowances are cut by less than 5pc, then any remaining allowances will be cancelled up to a maximum of 200mn.
MEPs also propose that a system should be established for the cement and clinker sectors, among others, whereby importers will be required to surrender allowances to cover for the carbon content of imported goods. The scheme should be fully compatible with WTO rules and "focus on sectors with a low trade intensity and high emissions intensity such as cement," they say.
"Once this mechanism is in place, no free allocation shall be given to sectors and subsectors that are deemed to be at risk of carbon leakage but covered by the import inclusion carbon mechanism," the provision says.
The proposed measure represents a compromise in response to the S&D's demand that the cement sector should be excluded from the list of energy intensive, trade-exposed industries that are eligible for free allowances.
The compromise proposed "makes the outlook for 2019 onwards much more bullish than it otherwise would be," said UK consultancy Energy Aspects analyst, Trevor Sikorski. But there is still a long way to go before it is adopted as legislation, he warned.
The agreement makes no mention of a rebasing of the EU ETS phase 4 cap to bring it in line with actual emissions towards the end of phase 3 (2013-20).
Several environmental lobby groups including Sandbag have pointed out that unless the EU ETS cap is rebased, the EU ETS supply glut will persist and excess allowances will continue to accumulate - even with a higher MSR intake rate or a steeper LRF - because actual emissions will be well below the proposed phase 4 cap.
Комментарии