- New ETS II for buildings and road transport - citizens not to be included before 2029
- Free allowances to be phased out from 2026 and disappear by 2030
- A bonus-malus-system to be introduced from 2025
- Revenues to be used exclusively for climate action in EU and member states
To incentivise industries to further reduce their emissions and invest in low-carbon technologies, the Emissions Trading System should be reformed and its scope enlarged, say MEPs.
On Tuesday, the Committee on Environment, Public Health and Food Safety adopted their report on the revision of the EU Emissions Trading System (ETS) with 62 votes for, 20 against and 5 abstentions.
MEPs believe that the ETS is at the core of the European climate policy and has triggered significant reductions of emissions, as a price on greenhouse gas (GHG) emissions is an incentive for economic actors to reduce their emissions and invest in low-carbon technologies.
Accelerate the decarbonisation of industry through ETS I
MEPs aim to significantly increase the ambition level compared to the Commission proposal. A steeper reduction pathway of the EU ETS should provide a clear direction towards achieving the EU’s emissions reduction target for 2030 and the goal of the Paris Agreement to limit global warming to 1,5 degrees.
MEPs want the annual reduction of emission allowances to increase annually by 0,1 percentage points compared to the previous year until 2030, starting from 4,2 % in the year following the entry into force of this amendment. MEP’s also propose to include municipal waste incineration in the ETS from 2026.
To incentivise best-performers and innovation, MEPs want to introduce a bonus-malus-system from 2025 so that the most efficient installations in a sector will get additional free allowances. Those who do not implement the recommendations of the energy audits or certified energy systems or do not establish a decarbonisation plan for their installations, will lose some or even all of their free allowances.
As requested several times by Parliament, the ETS would now finally be extended to maritime transport. MEPs want to cover 100 % of emissions from intra-European routes as of 2024 and 50 % of emissions from extra-European routes from and to the EU as of 2024 until end of 2026. From 2027 emissions from all trips should be covered 100 % with possible derogations for non-EU countries where coverage could be reduced to 50 % subject to certain conditions. MEPs also want other GHG emissions than CO2 to be included, such as methane nitrous oxides. 75 % of the revenues generated from the auctioning of maritime allowances shall be put into an Ocean Fund to support the transition to an energy efficient and climate resilient EU maritime sector.
Free allowances to disappear by 2030
The free allowances in the ETS should be phased out from 2026 and disappear by 2030 when Parliament wants the Carbon Border Adjustment Mechanism (CBAM) to be fully operational - five years earlier than foreseen by the Commission. The free allowances should be reduced to 90 % in 2025, 80 % in 2026, 70 % in 2027, 50% in 2028, 25% in 2029 and 0 % in 2030.
A new ETS II for commercial buildings and transport
A separate new emissions trading system for fuel distribution for commercial road transport and buildings shall be established on 1 January 2025.
To prevent that citizens have to bear additional energy costs, private buildings and private transport should not be included in the new ETS before 2029 and only subject to a thorough assessment by the Commission followed by a new legislative proposal to be agreed by Council and Parliament. MEPs also propose to insert a price cap of 50 EUR so that if the average price of allowances in ETS II exceeds this cap prior to 1 January 2030, 10 million allowances should be released from the Market Stability Reserve.
Revenues from the auctioning of 150 million allowances under the ETS II shall be made available for the Social Climate Fund to address the challenges for low-income families.
Targeted solidarity and support for new technologies
The ETS will generate revenues to be used to support the green transition through support to technologies that contribute to energy and resource savings and pollution reductions. MEPs remind that a well-defined share of the auctioning revenue of the ETS should be used as an own resource to finance the EU budget as a general income. Both EU and member states must spend all of their ETS (I + II) revenues on climate action but cannot be used to support nuclear energy-related activities and technologies.
MEPs support the Commission’s proposal on the Modernisation Fund to improve energy efficiency and modernise the energy systems in less wealthy member states. The Fund could also finance cross-border projects with low-growth border regions that would otherwise not be eligible for funding. They also insist that only member states that have adopted legally binding targets for achieving climate neutrality by 2050 and measures for the phase out of all fossil fuels should be eligible. In addition, access to the Modernisation Fund should also be conditional on the respect for the Rule of Law.
MEPs also significantly increased the size of the Innovation Fund (to be renamed to Climate Investment Fund) which supports innovation in technologies that contribute significantly to the decarbonisation of the ETS sectors.
After the vote, rapporteur Peter Liese (EPP, DE), said: “This compromise is good for the climate, jobs and people in Europe. We support innovation in industry. Companies that go for climate neutrality will be better off while those that continue to pollute without investing, will have a hard time. I am particular happy, that the important ETS II and the connected Social Climate Fund are out of “intensive care” and even “out of hospital”. Although I would have wished for a broader approach, I am happy that ETS II is alive and kicking.”
The report is scheduled for a vote at the plenary session 6-9 June after which Parliament will be ready to start negotiations with member states.