Comments on Draft Opinion of the ITRE Committee on proposed Directive to reform the EU Emissions Trading System

The following comments refer only to amendments proposed in the Draft ITRE Opinion on the proposed Directive to reform the Emissions Trading System. For more detailed comments on the Commission proposal, see http://corporateeurope.org/environment/2015/11/eu-emissions-trading

• The ITRE Opinion (amendments 12 and 17) offer the potential of increasing the number of free allowances allocated via the New Entrants’ Reserve for new installations or significant production increases- contradicting the supposed objective of moving towards full auctioning. These proposals are a step backwards, in the context of a huge surplus of emissions allowances already available.

• The proposal to add 150 million unused pre-2020 allowances to the innovation fund (amendment 22) is problematic: these should be cancelled, not reallocated to support industry according to a process that has very weakly defined rules governing it.

• There is also no real justification for a lower benchmark (amendment 14). This just looks like a new loophole, as the Commission’s proposal is already supposed to take account of so-called “unavoidable process emissions.”

• The suggestion (amendment 16) to put a €15/ton threshold on compensation for indirect costs incurred through electricity prices is a welcome recognition of a significant loophole, but still assumes a far greater risk of “carbon leakage” than academic studies have shown actually occurs.

• Similarly, the “tiered” approach to carbon leakage (amendment 25) recognises that the Commission proposal worryingly offers free allowances to sectors that are not at risk. However, the problem is far greater than is acknowledged here: economic modelling by researchers at the London School of Economics suggests there would be very small differences in EU imports and exports even if pollution permits were 10 times their current price: http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2015/02/Working-Paper-178-Sato-and-Dechezlepretre.pdf 

• It makes sense to remove the €10 million threshold competitive bidding threshold for Member States “modernisation projects” (amendments 4 and 35) given the opportunities that creates for simply slicing larger projects into smaller subprojects – and the poor track record of previous “modernisation projects” in terms of supporting the continuation of coal power rather than a transition away from fossil fuels.

• The references to the Paris Agreement (amendment 28, 29) are also welcome in this context, but the key point to underscore is that the 2.2% linear factor (43% reduction target) does not represent the EU’s fair share of climate action in meeting a 2 degree temperature goal, let alone a 1.5 degree goal. Instead of just revisiting leakage provisions, the proposed trading period should be reduced from 10 to 5 years, to better fit the Paris timeline.