The European Commission is preparing to propose revisions to the European Union’s Emissions Trading System (ETS) that would extend the allocation of free emissions allowances to industrial sectors in return for commitments to invest within the EU, according to an internal Commission document seen by Reuters.
The ETS is the EU’s primary mechanism for reducing carbon emissions, requiring industries, power producers, shipping companies and airlines to purchase emissions permits for their greenhouse gas emissions.
Free allowances linked to competitiveness concerns
Energy-intensive industries currently receive part of their emissions allowances free of charge to help them remain competitive against producers in regions without comparable carbon costs.
Although the EU had previously planned to gradually phase out free allocations as part of its decarbonization strategy, pressure from several industries and member states has led to consideration of maintaining support measures aimed at protecting the competitiveness of European manufacturers.
The European Commission is expected to present its ETS revision proposal on July 15. According to the document, the review would also require EU member states to allocate a larger share of ETS revenues toward supporting the decarbonization of industries covered by the system.
Broader review of ETS mechanisms planned
The review is also expected to include a more comprehensive redesign of the Market Stability Reserve, the mechanism used to regulate the supply of emissions allowances and reduce price volatility. This follows a set of more limited adjustments proposed by the Commission earlier this year. The document indicates that the revised framework will simplify ETS compliance requirements for shipping operators and airlines.
Other key elements of the system, including the Innovation Fund, which finances low-carbon technologies, and the mechanism allocating 10 percent of ETS revenues to lower-income EU member states, are expected to remain unchanged.
