The European Union wants to give its industry greater flexibility in the forthcoming reform of the Emissions Trading Scheme (EU ETS), encouraging increased investment in the decarbonisation of production. Officials are seeking to strike a balance between helping industrialists and supporting those who are transitioning more quickly to low-carbon technologies.
Bloomberg reported on the likely changes, which are due to be announced on 17 July.
The main factor behind the review of carbon market rules is widespread concern about the EU industry’s ability to remain competitive amid high costs for emissions and energy.
Journalists spoke to an anonymous EU official who revealed several details of the forthcoming transformation of the EU ETS.
- Bonus allowances. Starting in 2027, a carbon market fund containing 400 million free allowances is expected to be launched. It will operate for three years and provide preferential permits to companies on a first-come, first-served basis. This fund is also called the EU ETS “investment booster.”
- After 2030, an additional 400 million allowances will become available, accessible through a competitive bidding mechanism for contracts for difference. These mechanisms are used to reduce price volatility.
- Extension of the Modernisation Fund.
- Reprofiling the Innovation Fund to support first-in-sector clean technology projects, allocating 200 million allowances for this purpose.
- Slowing the pace of emissions reduction. This will allow the issuance of free allowances to continue even after 2039, although previously a zero limit was to be in effect from that point. In sectors covered by the Carbon Border Adjustment Mechanism (CBAM), the withdrawal of free allowances will be more gradual.
- Dependence on eco-investments. Provisionally, the allocation of free allowances will be influenced by companies' investments in decarbonisation.
- Review of benchmark indicators. These values determine the number of free carbon emission permits. According to the unnamed official, reserve benchmarks for heating and fuel, which are critical for many energy-intensive companies, will be adjusted. Theoretically, this could lead to an additional $6.8 billion in free allowances.
- The role of carbon capture and carbon credits. The European Commission is expected to clarify whether companies will be allowed to offset part of their emissions using these instruments. It is likely that the carbon credit share will be reduced to 2%, although when the EU announced its 90% emissions reduction target, a 5% figure was mentioned.
EcoPolitic previously reported that the European People's Party is lobbying for easing tax and climate pressures on industry. In particular, this involves limiting the pace of CO2 emission reductions. The draft document advocates that the reduction rate should be at least 1% lower.
