Positive announcement on changed trading rules for emission allowances

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EU The European Parliament voted on changes to the EU Emission Trading System for 2021 to 2030. The proposal includes an increase of emission allowances allocated free to industry, representing a victory for this globally competitive industry.

Linda Flink

Linda Flink, Energy and Climate Expert at the Confederation of Swedish Enterprise. 

Foto: Ernst Henry Photography

A divided parliament voted in the end to support the proposal for continuing the EU Emission Trading System. This proposal thereby becomes the negotiating position of the EUP in the upcoming final negotiations with the European Council and the EU Commission.

The Emission Trading System (EU ETS) is a complex programme with many interacting details. This made coming to agreement among the parliamentary political groups a long, complicated process.

“It is positive that parliament has now taken its position, and that the proposal that gained the majority is balanced. It clearly identifies the necessity for continued protection of globally competitive industry in Europe,” commented Linda Flink Energy and Climate Expert at the Confederation of Swedish Enterprise.

Part of these efforts involves ensuring that the emission allowances freely allocated to the globally competitive industry are sufficient. The Commission's proposal, which provided the basis for negotiations, involved auctioning a fixed percentage of the emission allowances. The remaining emission allowances would be allocated to industry for free. This is intended to ensure international competitiveness until countries outside the EU implement equivalent policy instruments.

Industrial producers have expressed their concern that the proposed share of free emission allowances would be too small. The European Parliament therefore added a conditional flexibility, to allow shifting up to five per cent of the emission allowances from the auction portion to the free allocation in case a shortage arises. 

“Adding this flexibility is perhaps the most important element in the EP's agreement, from the perspective of industry. It provides a strong signal about the important of protecting European industry,” noted Ms. Flink. 

Industrial stakeholders have largely viewed the agreement positively, though their ‘wish list’ was originally longer. Still there are concerns.

“It is alarming to see large political groups in the European Parliament arguing for climate duties as being viable. While the threat of such a policy instrument has now been avoided, the door has been left open for these in future, which would still be unfortunate,” she concludes.

One of the major controversies during the negotiations involved the size of emissions reduction that the system should address. The original proposal, agreed to by the European Council in 2014, set emissions reduction to 2.2% annually. This rate of reduction is included in the commitment to cut emissions 40% compared to 1990 by 2003, as the EU reported to its contribution to the Paris Agreement.

Some EU parliamentarians argued during the negotiations to increase this rate of reduction, thereby raising the EU climate ambitions. Ms. Flink points out that the EU ETS is one of several policy instruments that combined will contribute to the EU meeting stated climate objectives.

“It was good the European Parliament chose to remain within the 2.2% annual rate of emission reduction from previously. Not least as this sends an important signal confirming the necessity for a holistic view covering EU energy and climate policies,” she said, continuing, “Climate policy involves more components than the EU ETS alone, and these are best managed comprehensively. What's more, we have still not seen raised climate ambition levels from other signatories to the Paris Agreements

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