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ETS: Waiting for the Trilogues

What’s the situation?

On Tuesday, May 30, the European Parliament, the Council and the European Commission postponed their second trilogue meeting on the reform of the EU Emission Trading System (ETS). This means that after four months of standstill on the file, no substantial progress can be expected for another month. This will make it nearly impossible for the file to be closed within the Maltese presidency and is now likely to be dragged to August or later.

The reason for the postponement was the absence of Parliament rapporteur MEP Ian Duncan (ECR) who gave notification on Monday evening that the trilogue would collide with his UK election campaign timetable. It also remains open how the file will be handled in case Duncan wins his constituency in the UK election. It is possible that his British co-MEP Julie Girling (ECR) will take over the ETS reform file in this case.

This is already the second time that the trilogue process has been stalled due to the absence of lead rapporteur Ian Duncan. After the European Parliament and the Council have adopted their respective positions on the file in late February, the Scottish MEP could not attend the first round of trilogue in early April due to a missed flight. The next trilogue meeting will be held on Tuesday, 27 June.

In terms of content, the meeting will focus on three different areas:

1. Ambition and a well-functioning ETS
• The main elements discussed here will be provisions related to the Market Stability Reserve (MSR), a bank for oversupplied allowances which will become operational in 2019. The Council has proposed a mechanism to delete a certain amount of allowances stored in the reserve permanently each year. Although this provision will not have any effect on the carbon price until the end of the next trading phase in 2030, it gives a long term signal to reduce excess allowance and is considered the most ambitious element of the reform. The Parliament, on the other hand, has proposed to cancel 800 million allowances from the reserve on an ad-hoc basis. Both institutions agree on doubling the intake rate of the MSR for its first years of operation.
• Another element which will be discussed is the Parliament’s proposal to allow Member States to unilaterally cancel allowances which would make sure that countries which wish to go further on ambition can do so without increasing the overall allowance surplus in the ETS. Especially with regards to the apparent incapacity of the ETS in becoming an active driver of decarbonization in the next decade, this provision would make sure that domestic initiatives will be complementary to EU action and would not inflate ETS allowances surplus.

2. Effective protection against the risk of carbon leakage
• Elements discussed under this heading mostly relate to the extension of free allowances where the Parliament holds a less ambitious stance in comparison to the Council. Besides a potential lowering of the share of auctioned allowances by 5%, the Parliament’s position also includes an extension of free allocation to emitters of waste gases, which would mostly benefit European steel producers. We have urged member states to limit their allocation of free allowances as much as possible.

3. Funds/low carbon support mechanisms
• Concerning the transitional allocation of free allowances to electricity providers in low-income countries under Art. 10c as well as eligibility criteria for receiving investments through the Modernisation Fund, the Parliament’s position includes emission performance standards (EPS) which would rule out any investments into coal power.
• 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.
• Another provision put forward by Parliament is the establishment of a Just Transition Fund which would social support schemes for regions undergoing structural transformations, such as current coal mining regions. CAN Europe has drafted a letter towards Environment Ministers to firmly push them to endorse the Parliament’s position on the Just Transition Fund and on making sure that coal funding through the ETS is inhibited.

For a more detailed overview of each institution’s position, please see our website (European Parliament and Council).

Beyond the ETS
All current proposals on the table clearly show that EU policy-makers are not willing to transform the ETS into an active driver for decarbonisation consistent with the Paris Agreement objectives. Although the ETS file itself offers some avenues for later interference (i.e. on the implementation of funds, the carbon leakage list, aviation...), we have launched a reflection process at our General Assembly to determine how the network should approach this lack of ambition and unwillingness to move forward on the EU level and how to push for alternatives and complementary measures at a national and regional level.

What happens in June?

19 June: Environment Council.
The next meeting of the Environment Ministers will take place on Monday, 19 June, but the ETS will likely only play a marginal role as the Council will adopt a position on the Effort Sharing Regulation (ESR).

27 June: Next trilogue meeting between the Council, the European Parliament and the European Commission.
The next chance for representatives from the Council (Maltese Presidency), the European Parliament (the rapporteur and shadows) and the European Commission to discuss and seek agreement on a package of contentious issues relating to the ETS reform.

by Klaus Röhrig

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