ETS Reform: Steps taken towards an Energy Union

Vice-President Maroš Šefčovič, and Commissioner Miguel Arias Cañete Vice-President Maroš Šefčovič, and Commissioner Miguel Arias Cañete presenting the summer package Credit: European Union, 2015

An agreement on the reform of the EU ETS is key to addressing the persistently low carbon price. Agreement on the Market Stability Reserve offers hope of stabilising the carbon price at a higher level, but complimentary measures may still be necessary to achieve deep decarbonisation” says Jonas Helseth, Director at Bellona Europa, while welcoming adoption of the ETS reform proposal.

The agreed upon ETS reform proposal aims to reinforce the smooth and effective operation of the internal energy market and to provide adequate long-term price signals to induce investments in low-carbon technologies –things the carbon scheme has failed to achieve to date.

Key components of the reform

  • 1 January 2019 was the agreed upon start date for the reform.
  • The surplus allowances temporarily taken out (or ‘backloaded’) from the market last year, would be placed into the MSR rather than returned to the (already flooded) market.
  • The overall quantity of allowances will decline by 2.2% every year starting from 2021.
  • Over the current trading period (2013 to 2020), 57% of the total amount of allowances will be auctioned, while the remaining allowances are available for free allocation. The share of allowances to be auctioned will remain the same after 2020.

Prospects of significant funding available for CCS

The ETS reform proposal holds some promising prospects for the deployment of CCS technology. An Innovation Fund would be established as of 2021 to channel funding towards industrial low carbon technologies and processes in industrial sectors. 400 million allowances amounting to about EUR 10 billion when sold, would be made available for this purpose. This funding would allow for up to 60% of project costs to be covered, representing a 10% improvement in cost coverage from its predecessor, the NER300.

If coupled with the Modernisation Fund, significant and much-needed amounts of EU funding could become available to support CCS deployment. Therefore, the Commission should ensure the compatibility and possibility of accumulating funds from the Innovation and Modernisation Funds” – argues Helseth.

What is more, the reform agreement proposes the creation of a bridge fund by making an additional 50 million unallocated allowances from the MSR available to complement existing NER300 resources for the funding of projects before 2021. Bellona shared its concerns about a potential funding gap in its response to the Commission of last March.

An EU ETS Reform – much need boost to speed and ambition of climate negotiations

Today’s package comes less than six months before the decisive UN Climate Summit, COP 21, in Paris, and therefore sends an important message to the international community, reaffirming the EU’s commitment to climate action. What is more, agreement on a reform of the EU ETS would act to boost the level of ambition of the climate pledges to be submitted by major polluting countries in the lead up to COP 21. India and Australia have announced to unveil their climate pledges next month.

To view the full text of the ETS reform proposal click here.

Bellona Europa