ETS: A European revolution


In the framework of the Energy Union strategy, the Commission has recently presented proposals for a new deal for energy consumers to launch a redesign of the European electricity market, to update energy efficiency labelling and to revise the EU Emissions Trading System. “The package is an important step towards implementing the Energy Union strategy with a forward-looking climate change policy, launched as one of the political priorities of the Juncker Commission in February 2015”, said the European Commission. The principle of “energy efficiency first” sets the grounds for the new energy deal and puts households and business consumers at the heart of the European energy market.

The Commission declarations are grandiose.

EU Commission Vice-President for Energy Union Maroš Šefčovič affirms: “In the Energy Union strategy, we committed to empowering European consumers, creating a single well-functioning energy market, putting energy efficiency first and becoming the number one in renewables. Today, five months after the adoption of the Energy Union strategy, this Summer Package shows our determination to decarbonise our economy and to give consumers a central role in Europe’s energy transition. It marks not only a new deal for consumers, but a new deal for Europe´s entire energy system.”

EU Commissioner for Climate Action and Energy Miguel Arias Cañete states: “Actions speak louder than words. Today we take a decisive step towards enshrining the EU’s target of at least 40% emissions cut by 2030 into law. My message to our global partners ahead of the Paris climate conference: the EU stands by its international commitments.  And my message to investors, businesses and industry: invest in clean energy; it’s here to stay and continue to grow. With these proposals, Europe is once again showing the way and leading the global the transition to a low-carbon society.” Indeed, this proposal sends a strong message to the International Community at a critical moment when other major players, such as G7 and China, have also shown their firm determination.

In practice, one of the three priorities set on the deal regards the EU Emissions Trading System (ETS), i.e. the system of exchange of CO2 emission credits among companies. In the run-up to the Paris climate summit, the Commission fixed the original Emissions Trading System to improve its cost-effectiveness in cutting emission in the decade to come. Since 2013, the main method of distributing EU ETS allowances has been through auctioning by Member States. 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 revision of the ETS foresees the following points starting from 2021:

  • Reduction of business sectors which are granted free CO2 credits (from 177 to about 50);
  • Reduction of the number of credits in the market (overall quantity of allowances will decline by 2.2% every year), with a subsequent increase in the credits price (estimated 25€/t in the period 2021-2030);
  • The amount gained by Member States from the selling will be devoted to investments in renewables and to face the risk of carbon leakage;
  • Creation of an Innovation Fund (built on the success of the existing funding programme to support low-carbon innovation using the proceeds from 300 million allowances during 2013-2020, the so-called NER 300);
  • Creation of a Modernisation Fund to support lower income Member States (Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia) in meeting the high investment needs relating to energy efficiency and the modernisation of their energy systems.

Thus, the ambitious climate actions are meant to create business opportunities and open up new markets for innovation and the use of low-carbon technologies. The proposed more targeted approach aims at safeguarding the international competitiveness of industry sectors that are at highest risk of seeing their production relocated outside the EU to less Green House Gas constrained jurisdictions as well as in pushing energy investment toward innovative and cleaner alternatives. Furthermore, the Commission proposes that revenues from the emission trading are used by Member States to finance actions to help third countries adapting to the impacts of climate change. EU emissions reductions will be an important contribution to the international effort to limit the global average temperature increase to below 2°C compared to pre-industrial levels.

This proposal advocates for a stronger, better functioning EU ETS that helps putting the EU on track towards a low-carbon economy. It brings significant opportunities for business and industry to develop and profit from new technologies and markets, supports innovation and helps create new opportunities for jobs and growth. The proposal also supports the low-carbon transition by providing more funds to address investment needs in lower-income Member States. The new ETS system could be the key for an effective European climate policy.


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