The European Commission has released its much-anticipated proposal to revise the EU Emissions Trading System (ETS), and as many feared, it’s not great news for the planet. The EC has confirmed that it will allow industry to emit greenhouse gases like CO2 well into the 2040s, rather than cap them at zero by 2039 as originally planned. However, the Commission also released its Electrification Action Plan that plots a faster course to a green energy transition.
A key component of the ETS is the so-called linear reduction factor (LRF), or rate that pollution caps fall annually. Under the previous system, that was scheduled to reach zero by 2039, with a rate of 4.4 percent between 2031 and 2035. The LRF will now be reduced to 3.7 percent in that period and be rolled back further to 1.7 percent per year after 2036. That will extend emissions into the 2040s and likely be viewed by critics as a capitulation to industry.
On top of that, the EC will extend free carbon allowances for several years longer than originally planned. That means sectors covered by the carbon border tax will now receive those carbon allowances until 2038. And starting in 2036, the Commission will allow industry to buy carbon offsets from outside the EU to offset emissions. That could cause the price of those offsets to drop and allow industry to effectively pollute more.
The timing for the ETS update that weakens emissions regulations is surprising, considering recent world events that have pushed oil prices to sky-high levels. However, the EU Commission said that EU industries are under “increased pressure” due to changes in the geopolitical and economic context. “The review will bring relief to industry, while preserving the essential role of the ETS in the climate and energy transition, in line with the EU Climate Law,” the Commission wrote in a press release.
The World Wildlife Fund (WWF), however, said that it couldn’t see how the EU would reach its legal targets based on the new ETS. “How does the Commission intend to make up for these additional emissions while still meeting the 2040 target?” the WWF’s Camille Maury asked. “Any increase in ETS emissions would need to be compensated for by deeper emissions cuts elsewhere in the economy.”
Along with the ETS update, the EU Commission also released its Energy Action Plan proposal to speed the transition between fossil fuels and green energy. Some of the ideas include future-proofing electricity bills in the EU, lowering the upfront costs of electrification technologies, speeding up grid deployment and encouraging innovative electrification solutions.
The WWF was more positive on that plan, but added that it needed decarbonization to be effective. “Electrification is our ticket to energy independence. Every heat pump installed, house insulated or electrified industrial process powered by renewable energy brings the EU closer to a future with cleaner air, lower energy bills and less dependence on fossil fuels,” said WWF senior policy officer Arnaud Van Dooren. “But electrification alone is not a decarbonization strategy, it must be paired with ambitious renewable energy and energy efficiency targets.”
