Weakening the EU Emissions Trading System (ETS) to ease pressure on industry would erode investment certainty, rather than aid competitiveness, with the possibility already causing capital markets and financiers to hesitate in partaking in decarbonisation investment, according to a coalition of over 100 companies and investors.
Instead, the upcoming ETS reform must ensure revenues from ETS are re-deployed by Member States to improve the bankability of decarbonisation projects in industrial sectors, says the coalition, which includes decarbonisation first movers SSAB, Outokumpu, Hydnum, Stegra and GravitHy.
“Revenues need to be channelled towards accelerating industrial electrification by enhancing access to low-carbon energy and supporting breakthrough technologies that reinforce the EU’s industrial base and its strategic autonomy,” it writes in an open letter seen by Kallanish to European Commission President Ursula von der Leyen and European Council President Antonio Costa.
Calls have been growing from EU industry in recent months for a delay to the phaseout of free ETS emissions, to alleviate the cost burden of blast furnace steelmakers, with Italian steel association Federacciai, voestalpine and Trinecke Zelezarny among the proponents. The phaseout began from 1 January, simultaneously with the phase-in of CBAM.
These calls are a “misdiagnosis of the problem”, instead of “focusing on the structural causes of economic erosion – higher energy prices set by fossil fuels, unfair competition stemming from global overcapacity in certain sectors, insufficient integration of the single market,” the coalition notes.
Weakening ETS would “privilege incumbency over transformation, penalise first movers that built business cases and invested in decarbonisation, and leave the EU without a serious gameplan to compete in new industries,” it adds.
The upcoming ETS revision represents an opportunity for improvement but the trajectory must remain. “Regulatory stability and clarity on the long-term outlook will be critical to unlocking investments in Europe,” the letter states.
Critical will be the continued deployment of abundant, firm and affordable clean power, paired with long term investments in grids, flexibility, efficiency and storage to enable electrification at scale. Consideration should be given to using Member States ETS revenues to support long-term clean industrial Power Purchase Agreements (PPAs) to provide sufficient predictability for decarbonisation investments, the letter notes.
Also important will be ensuring CBAM functions effectively and, where justified, is extended to prevent carbon leakage in the value chain and additional sectors. ETS revenues, the Innovation Fund and Modernisation Fund should also be effectively disbursed towards scaling up clean technologies.
The coalition urges the European Council to adopt a clear statement at its 19-20 March meeting that removes “any ambiguity about Europe’s path towards energy security, competitiveness and decarbonisation”.
