What’s the situation?
On Tuesday, 27 June, representatives of the European Parliament, the Council and the Commission met for their second trilogue meeting to discuss diverging positions on the reform of the EU Emissions Trading Scheme (ETS). There has been little progress as discussions mainly focused on addressing outcomes of technical working group meetings and more controversial topics are most likely tackled at the next trilogue around 10 July.
The meeting can be considered the first actual three-party session under the new rapporteur Julie Girling (ECR). Past trilogues were repeatedly cancelled or postponed as they interfered with the former rapporteur’s UK election campaigning leading to a lack of progress on negotiations since February.
In yesterday’s meeting no deal was struck. Both sides merely presented their positions, including items not reflected in the general approach of the Council such as aviation and shipping coverage. The most contentious issues are grouped in the so-called “triangle” of issues:
1. Ambition and a well-functioning ETS
The most ambitious proposal comes from the Council and concerns the cancellation of allowances under the Market Stability Reserve (MSR), a sort of bank which will absorb allowances from the glut. The ministers have put forward a mechanism to permanently delete a certain amount of allowances stored in this reserve each year. The Parliament on the other hand has proposed an ad-hoc retirement of 800 million allowances. Both institutions agree on doubling the intake rate of the MSR for its first years of operation.
The Parliament has proposed to allow member states to unilaterally cancel allowances. This amendment ensures that more ambitious countries can implement additional measures without further inflating the ETS allowance surplus. Policy makers must not use a weak ETS to justify inaction on other climate policies. They should rather make sure that national and EU-level climate policy jointly deliver on the Paris Agreement objectives.
2. Effective protection against the risk of carbon leakage
The Parliament holds a regrettable position on free allocation. MEPs have adopted a potential lowering of the share of auctioned allowances by up to 5% and an extension of free allocation to emitters of waste gases, which would mostly benefit European steel industry.
3. Funds/low carbon support mechanisms
The Parliament is supporting emission performance standards (EPS) to prevent any ETS funding from going into coal infrastructure. This criterion applies both to transitional allocation of free allowances to electricity providers in low-income countries (Art. 10c) as well as to beneficiaries of the Modernisation Fund. At the same time, the institutions have to agree on provisions related to the governance of the Modernisation Fund and whether the European Investment Bank (EIB) takes a central role in its supervision.
In addition, the Parliament has suggested to establish a Just Transition Fund to finance social support schemes for regions transitioning from coal to low-carbon infrastructure.
For a more detailed overview of each institution’s position, please see our website (European Parliament and Council).
By Klaus Röhrig