The European Emissions Trading System (ETS) needs to be adapted to ensure the cost of decarbonisation can be borne by industry and security of supply is not jeopardised, according to a Euractiv panel discussion held in Brussels on Wednesday.
“We must not give up the free allocation in ETS to sectors exposed to carbon leakage,” secretary of state at Poland’s climate and environment ministry Krzysztof Bolesta warned during the discussion monitored by Kallanish. “This is the best and proven way to actually protect their competitiveness and make sure that they don’t have a big incentive to leave Europe.”
ETS has received increasing attention in the weeks since the Middle East conflict erupted and lifted global energy prices, further impacting European industry’s already shaky competitiveness. Free allowances have started to be phased out since 1 January and are scheduled to disappear by 2034, unless the European Commission amends the timeline as part of its ETS review, expected in July.
Italian, Austrian and Czech steelmaking representatives have been particularly vocal in recent months about the need to delay the phase-out.
“The linear [free allocation] reduction factor needs to be a bit lowered to give industries more space and time to decarbonise. So, there’s still room in the system towards 2050; we don’t need to close the system in the late 2030s because then companies don’t know what to do,” Bolesta continued.
EU climate policy has converged firmly with industry and security concerns. “It is existential for Europe, not just for protecting the climate, but even maybe more so for economic competitiveness reasons, that we continue this transition,” said director general of DG CLIMA, European Commission Kurt Vandenberghe. “It’s getting fossil out of our system as quickly as possible, but in a cost efficient manner that does not jeopardise our security of supply.”
The ETS revision will be part of an overall revision of the post-2030 framework for EU energy and climate. “The line that we will follow is very clear. We keep the direction, we stay the course, but we make it less prescriptive. It has to be really a big machine to drive investment and innovation, so that we modernise on the energy system, and that we have a renewal of our industry in Europe.”
ETS nevertheless remains crucial as a driving force for energy independence. Only a few months ago, “the narrative was quite different … where it was not so clear this consequence of the over reliance that we have on fossils”, said deputy director & head of policy, Bellona Europa Lina Strandvåg Nagell. “And that seems to be a mistake we’re doing as a society repeatedly, where we make the rules for the good times, and we forget why we were actually doing them in the first place.”
Any revision to the system should not punish the first movers who have already spent big sums on decarbonisation, she added.
The system would benefit from the establishment of an institution to govern the ETS price, “like a central bank … essentially the MSR [Market Stability Reserve] but equipped with some new powers”, suggested Bolesta. Vandenberghe countered saying “the mood is not for creating new institutions of any kind”, but that the rules-based management of the MSR will ensure credible pricing.
The Commission supports the inclusion of international carbon credits in the European climate policy framework, but there will be “strict conditions on the integrity of these credits” to ensure they can be trusted, he added.
There is meanwhile “no hesitation” that nuclear energy “will play a big role” in the EU’s energy mix by 2050, he continued. The Commission will use part of the Innovation Fund to help finance the development of small, modern reactors in Europe. CCUS will also be required, he added.
“We don’t do climate policy for the climate only anymore. It’s really for industry and security. Secondly, there will be no green transition with red finance numbers for business, but it will also be no black numbers for business if there is no green transition,” Vandenberghe concluded.
Author: Adam Smith
