By Kate Abnett
BRUSSELS, July 17 (Reuters) – The European Commission proposed an overhaul of the EU’s Emissions Trading System on Friday, allowing industries to emit CO2 longer while offering more financial support to invest in clean technologies in Europe.
The ETS is the European Union’s biggest climate change policy. It forces power plants, airlines and shipping firms to buy permits when they emit CO2, and caps their overall emissions.
The EU executive has long been preparing to overhaul the ETS, extending it into future decades and aligning it with the EU’s 2040 climate goal to cut net emissions by 90%.
The plans also respond to pressure from industries and countries, including Italy and Poland, which say it undermines competitiveness.
Brussels is attempting to balance those concerns with warnings, including from Spain, that weakening the ETS would punish industries that spent early on cutting emissions.
The Commission proposed cutting the annual rate at which the ETS emissions cap falls to around 3.7% from 2031, and 1.7% from 2036, from 4.3% currently, confirming plans previously reported by Reuters.
MORE FREE PERMITS
The price of EU carbon permits dipped slightly when the plans were announced, with benchmark EU carbon prices down 0.77% at €78.58 per metric ton by 1028 GMT.
The EU gives industries some EU CO2 permits for free to help them stay competitive. The Commission has proposed rules to give industries more free permits for longer, with conditions.
The EU would give 80% of the free permits upfront to companies with plans to invest in decarbonisation in Europe. Companies would get the remaining 20% once those investments are made.
The Commission proposed continuing free permits until 2038 for sectors including steel and cement manufacturing rather than ending them in 2034, when they were due to be replaced by the EU’s carbon border charge on imports.
That would also delay the full phase-in of the carbon border levy to 2038 from 2034.
“If we deliver on this plan, it would literally mean hundreds of billions in additional investments on European soil,” EU climate commissioner Wopke Hoekstra told a news conference.
“Free allocation does not mean free cash,” he added.
The ETS has generated €260 billion in revenue since 2013. The EU proposed stricter rules on how governments spend that revenue, so that 50% is reinvested in decarbonising the industries covered by the ETS.
But that may face resistance from governments that use ETS revenue to fill holes in public finances. Ten countries, including Poland and Italy, opposed parts of the EU plans this week, including attaching conditions to industries’ free permits.
EU countries and lawmakers will negotiate the final ETS revision over the next year.
BROADER BACKLASH
The long-planned ETS revision comes amid political pushback against Europe’s climate agenda, despite record-breaking heatwaves and wildfires.
The Commission also set out plans on Friday to double the share of EU energy consumption met by electricity by 2040, a move aimed at cutting the bloc’s reliance on oil and gas and meeting climate goals.
That is despite the EU weakening other environmental rules in recent months for cars and farmers, after industry concerns.
Some governments have urged the EU to uphold ambition on the ETS, partly because a weaker ETS would increase pressure on politically sensitive sectors, such as farming and forestry, to cut emissions faster.
The system covers 40% of all EU emissions, and emissions from ETS-covered sectors have halved since 2005.
The Commission proposal would expand the ETS to cover waste incineration from 2031, smaller ships, and emissions from international flights departing Europe for destinations up to 5,000 km (3,107 miles) from the continent’s geographic centre from 2029.
That would capture emissions from flights to hubs in Turkey and the Middle East, but exclude the U.S.
The American Chamber of Commerce this week warned extending the EU ETS to international flights risked “potentially provoking retaliatory measures from key international partners”.
($1 = 0.8740 euros)
(Reporting by Kate Abnett; Editing by Rod Nickel and Jan Harvey)
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