What to expect from the EU post-2020 Emissions Trading System

While the main European political groups welcomed the global agreement signed during the 2015 Paris Climate Conference (COP21), they immediately warned that it had to be followed through by concrete measures, not only in Europe but also worldwide.

Having this in mind, Members of the European Parliament (MEPs) immediately called for the EU to step-up its overall climate ambitions.

Nonetheless, the EU is unlikely to change its commitment to 40% overall CO2 reduction by 2030, and equally unlikely to adopt something different to the EU Emissions Trading System (ETS), its flagship instrument to reduce GHG emissions.

In fact, the EU Climate & Energy Commissioner, Miguel Arias Cañete, already stated on several occasions that it will fall upon the next Commission (in 2019) to reassess the EU’s climate ambitions, and that carbon leakage provisions should remain in place, at least within the until 2030.

Nevertheless, preparations for upcoming debate on the ETS revealed a new political impetus to engage (and lead) in the post-2020 ETS reform, which became evident in the recent struggle between the Environment Committee (ENVI) and the Industry Committee (ITRE) to control the Parliament’s work on the file. Considering the environmental rational of the EU ETS, it was always expected that ENVI would lead on it.

Nevertheless, ITRE had hoped to gain exclusive competence at least on the proposed Modernisation Fund, which will pay for the revamp of outdated energy infrastructure (mostly in Eastern Europe). After a long procedural saga, the Parliament’s Conference of Presidents (political group leaders) refused ITRE’s demands and gave exclusive competence to ENVI on the whole proposal, and shared ITRE / ENVI competence only in a few areas, including carbon leakage, the Modernisation Fund and certain paragraphs of the Innovation Fund (R&D for low-carbon technology).

ITRE’s push for a larger role on the ETS debate sought to counterbalance the environmental ambition of ENVI, and it is a good indicator of the shift in the debate towards linking the competitiveness of the European economy and the transition to a low carbon economy. These differences are likely to be replicated in the Council, with Poland leading a group of countries aiming to curtail the ambitions of the ETS.

Although the ultimate decision on the ETS reform belongs to ENVI as lead Committee, which could mean that environmental-leaning MEPs would have the upper hand, the ENVI rapporteur, British Conservative MEP Ian Duncan, already made clear that the negotiating mandate to engage in talks with the Member States on the file will be voted by the Parliament’s plenary, and not just ENVI. This procedural decision is likely to allow for a more balanced position from the Parliament, with industry’s competitiveness likely to be better protected and ambitious climate positions watered-down.

Discussions on the issue have already started in the Council, and are about to begin in the Parliament. Which side will end up on top remains to be seen, but what is certain is that the post-2020 ETS debate will underscore different political ambitions and priorities. These divergences will need to be resolved if Europe is to engineer a post-2020 ETS system that is fit for purpose and delivers a smooth transition to a low carbon economy, while at the same time protecting European industry from unnecessary burdens.


Enza Fragapane

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