Ahead of the review of the EU ETS rules, which the European Commission is due to present on 15 July, major industrialists and some politicians are calling for the mechanism to be relaxed or even scrapped. However, the EU authorities are still hoping, on the contrary, to push through a tightening of the emissions trading system. Among the arguments put forward is that, despite having huge free allowances, companies have still failed to implement decarbonisation measures. At the same time, whilst having the resources to support business in the form of revenue from the EU ETS, governments have spent this money on social services, healthcare and road infrastructure.
This is reported by Euractiv in its article.
The EU ETS has been in operation for 20 years and requires companies to pay for CO2 emissions. In the EU, the price of such allowances hovers around €80, whilst the global average is around €20. Critics argue that this undermines the competitiveness of European industry.
Bureaucrats defend the carbon market
The European Commission is not backing down. Officials from the climate directorate (DG CLIMA) have openly stated they do not intend to “flood the market” with additional free emission permits. In particular, last week journalists received evidence from leaked documents that the EU will not increase the number of free allowances.
Moreover, they want to tie state support even more strictly to companies' actual investments in decarbonization.
Free allowances as bonuses with no obligations
The fundamental mission of the European carbon market is to push industry toward environmental modernization. In practice, however, this has not worked.
Brussels has made concessions to business for years. ETS has generated approximately €260 billion in revenue, while industry has received free allowances worth around €255 billion. The aim in the EU was to prevent production from moving to countries with more lenient environmental policies.
And while industrialists demand an increase in free allowances, the bloc’s authorities are considering how to fix this historical mistake.
“Free permits must be accompanied by much stricter ‘service for service’ conditions, requiring investments in Europe than ever before. Otherwise, we will see the same story,” an EU official said during a press briefing for journalists.
The chemical industry, in particular, has drawn criticism. Despite years of benefits, the sector has yet to demonstrate substantial investment in emission reductions.
ETS revenues – for anything except decarbonization
Now, EU countries “earn” around €40 billion annually from the emissions trading system. Governments have virtually complete discretion over how and on what to spend these funds. Notably, in most cases, they do not go towards decarbonization.
For example, in Italy, out of €18 billion, only €1.6 billion was spent on measures to reduce greenhouse gas emissions in industry. “We do not know what happened to the rest,” – emphasized Chiara Di Mambro from the Ecco think tank.
The non-target use of ETS revenues has become one of the arguments of Eurocrats in the debate over economic pressure on industry. Attention has shifted to the fact that governments, instead of supporting the eco-modernization of their enterprises, are spending funds on roads, social payments, education, or tax reductions.
Зокрема, President of the European Commission Ursula von der Leyen has appealed to EU countries to finally take the initiative to properly use environmental revenues. She also revealed an unpleasant figure – only 5% of countries’ income within the EU ETS is returned to the industry.
Division within the industrial sector
Some companies have been reducing emissions in their operations for years. For them, preserving the ETS is about reliability and fair recognition that their decarbonization efforts were not in vain.
There are also players in European industry who are already planning environmental modernization of production, while the number of free allocations has not yet dropped too low.
These industrialists advocate for the emissions trading system. However, there are also representatives who have no plans for environmental modernization but are simultaneously forced to compete with cheaper and dirtier production from China or the United States.
Whose side will prevail is still unknown; however, everything points to the fact that Eurocrats may be able to preserve or even strengthen the European Emissions Trading System.
EcoPolitic previously prepared an analytical article about the forces supporting and opposing the EU ETS.
Recently, the European Commission published a draft regulation to revise benchmarks – reference indicators of emissions, which, if exceeded, will require industry to pay for CO2 allowances. Most of the indicators were lowered, which sparked an active discussion within the expert community.
