25 July 2016

  |  CBI Updates Team


What next for the EU Emissions Trading System?

While the UK seeks to redefine its relationship with the EU, the debate on the reform of the EU Emissions Trading System post-2020 continues in the European Parliament.

What next for the EU Emissions Trading System?

Progress is being made in the European Parliament on the long-term reform of the EU Emissions Trading System (EU ETS), Europe’s flagship instrument to reduce its emissions. The Parliamentary Committees which share competence on the reform of the EU ETS – Industry, Research and Energy (ITRE) and Environment, Public Health and Food Safety (ENVI) – have both published reports on the reform, and have held initial debates on them. UK MEP Ian Duncan (ECR) remains the rapporteur for the ENVI committee which has greater control of the portfolio, and has made a range of proposals. 

From a CBI perspective, while Mr Duncan’s draft Report goes in the right direction on a number of issues, there are a number of areas where we would like to see improvements. In particular, British industry is concerned about the arbitrary uprating of the benchmarks. As such, the CBI continues to call for:

  • An updated benchmark data collection exercise ahead of phase IV, which should last the whole phase to reflect economic and technological reality;
  • Production data to be updated more frequently, making allocation much more reflective of actual activity levels, and reducing the risk of over- or under-allocation to installations;
  • Allowances auctioned for the Innovation Fund to come from the auction share, rather than from the allowances allocated to industry. This will contribute to an adequate number of allowances available for industries at risk of carbon leakage and lessen the impact that the system has on their global competitiveness. Mr Duncan’s proposal to finance just half of the Innovation Fund from the auction share of allowances is welcome, but does not go far enough.

The goal of more focussed distribution of free allowances proposed by Mr Duncan is welcome, but a ‘tiered’ approach – where the level of industrial allocation is based on an assessment of carbon leakage risk in each sector – raises a number of concerns that will need to be addressed. 

While the debate continues in the Parliament though the autumn, on the Council side EU Environment Ministers tackled the EU ETS covering a number of issues such as the level of ambition, the allowance split, the carbon leakage list and the compensation for indirect ETS costs. The new Slovak EU Presidency has placed the reform of the EU ETS high on its priority list and hopes to reach an agreement in the Council by the end of its term, but a number of member states are still to settle on their position. There is a risk that this could be delayed as discussions around “Brexit” take centre stage in the Council. 

Please contact Elsa (elsa.venturini@cbi.org.uk) or Barney (barnaby.wharton@cbi.org.uk) if you would like to discuss the reform of the EU ETS and possible implications of the EU Referendum results on the system.