EU emission trading: caution against a unilateral climate course

The European Parliament has voted on reform of the European Emission Trading System for the fourth trading period (2021-2030). BDI calls also for an economically convincing reform because one thing is already clear: the scheme will be tightened and will lead to greater burdens on companies.

The European Commission presented its proposal for a review of the Emission Trading System (ETS) in July 2015. The European Parliament tightened parts of this proposal in February 2017 but also improved it on some points. The review of the EU ETS directive has become necessary because the European Council decided the new ambitious EU climate objective in October 2014. Greenhouse gas emissions must be reduced by 40 percent as compared with the base year of 1990. To this end, emission trading must also contribute markedly more than hitherto.

Parliament votes for a middle way

In line with the vote in the Parliament, the permissible emission volume of the ETS sector will decrease by 2.2 percent a year from 2021. The plenary did not follow the Greens’ attempt to set an even more ambitious reduction rate. In addition, the Parliament voted by an overwhelming majority for more free allowances than proposed by the European Commission. Installations which are in international competition receive a free allocation. This reduces the risk of relocation to countries with less strict climate requirements. BDI jointly with its member associations and European industrial associations has deployed massively to ensure that inappropriate ETS costs are prevented at least for the most efficient installations. Only in this way can their international competitiveness be ensured in the future. BDI supports climate protection and emission trading but also campaigns for rules which enable German industries to grow in the EU also in the future.

Create incentives for low-carbon processes and products

The Parliament wants emission trading to be “strengthened”, supposedly in order to give stronger incentives to invest in low-carbon processes and products. ETS functions only if there is a certain scarcity of emission allowances. However, there is now a large surplus of allowances which are not needed because the economic and financial crisis has led to a marked fall in production. Because emission allowances continue to be valid even when they are not needed, the price for emission of one tonne of greenhouse gas has fallen to around five Euro. The Parliament would like to see higher carbon prices: hence, surplus allowances should be “parked” as rapidly as possible in a reserve, i. e. no longer be available directly to the market. Such an initiative would be acceptable to industry as long as the emission rights are not cancelled. And the companies covered by ETS must continue to be given effective protection against relocation.

Decision on emission trading reform in trilogue

The EU Environment Council defined its position for the ongoing negotiations at the end of February. Parliament, Council and European Commission must now reach agreement on the final specifications for emission trading reform in the so-called trilogue. BDI continues to urge that the volume of allowances which will anyway reduce more sharply than hitherto from 2021 is not cut further in the trilogue. Only if Europe defines investment-friendly rules as rapidly as possible can high-value jobs in the EU be secured also in the future. The US Administration has announced a change of direction on climate change. Brexit is on its way. Given these threatening developments in energy and climate policy, the EU must not close its eyes. If the EU now intensifies its climate policy undeterred and further tightens the screws unilaterally through EU emission trading, it would unnecessarily jeopardise the unique production network that is Europe.