EU Environment Ministers agree on the reform of the Emission Trading Directive

Press release 2017-03-02 at 13:28
neuvosto
© Photo: Johanna Kaprio, Permanent Representation of Finland to the EU

On 28 February the EU Ministers of the Environment adopted a negotiation position on the revision of the emission trading system (ETS). Finland’s representative at the meeting was Minister of Agriculture and the Environment Kimmo Tiilikainen, who spoke in favour of the proposal.

The revisions concern the fourth trading period (2021-2030). The key issues are carbon leakage, free allocation of emission allowances, and funds that support the system. The negotiation position was adopted at the Council meeting on the basis of the proposal drafted by the Maltese Presidency.

“I am most pleased that after 1.5 years we have now reached a common position on this important matter. Strengthening the emission trading system is important to achieve the emission reductions agreed in the Paris Climate Change Agreement and in the EU. For Finland it is important that the energy-intensive industries operating on the international market will continue to be covered by the free allocation of allowances and, through this, a sufficient volume of allowances is reserved for them”, Minister Tiilikainen says.

So far the impact of emissions trading has remained modest as there has been an oversupply of emission allowances and the price has remained low. Now the emission trading system will be revised to better support the achievement of the EU target to reduce emissions by 40% to 2030.

The aim of the emission trading system is to keep the carbon dioxide emissions of large industrial and energy production plants below the emission ceiling set for the EU as a whole. In the proposal for the directive, from 2021 the annual volume of the emission allowances to be allocated decreases by 2.2% each year, instead of the current 1.74%. This higher linear emission reduction factor decreases the total volume of emission allowances so that the emission reduction in the sector is 43% from the level in 2005 by 2030.

Since 2013 the emission allowances have mainly been allocated by auctioning. According to the proposal, the share of the emission allowances to be auctioned is to be reduced by 2% from 2021, if the so-called correction factor is applied. The countries are entitled to use auction revenue to compensate the industries for the costs incurred.

The Emission Trading Directive also takes account of the risk of carbon leakage in order that energy-intensive industries do not move their production away from the EU area. Free allocation of allowances will continue in 2021-2030. Companies with the best performance in sectors where the risk of carbon leakage is significant will receive free allowances up to 100%, while in other sectors entitled to free allocation this share if 30%.

During the third period of the emission trading system (2013-2020) there is a significant oversupply of emission allowances on the European emissions market, partly due to the decrease in the demand resulting from the economic crisis. To support the system, a market stability reserve is to be introduced in 2019, where emission allowances may be placed or from which they may be returned to the market. In the proposal approved by the Environment Council the volume of the allowances to be placed into the reserve would be raised from 12 to 24% until 2023. From 2024 onwards the allowances in the market stability reserve exceeding the total volume of the emission allowances auctioned in the preceding year will be cancelled, if not otherwise decided in the general review of the directive in 2021.

The processing of the revision of the Emission Trading Directive continues between the Member States, Parliament and Commission (so-called Trilogy). After that the proposal must be approved by the official decision-making procedure of the Parliament and Council before its entry into force.

The emission trading system covers more than 40% of the total greenhouse gas emissions in the EU and about half of the greenhouse gas emissions in Finland. In Finland about 600 energy production and industrial plants are covered by emission trading.

Inquiries:

Marjo Nummelin, Ministerial Adviser, +358 40 523 3710, firstname.lastname@ym.fi

Liisi Klobut, Head of EU Cooperation, +358 50 301 8212, firstname.lastname@ym.fi

Jussi Palmén, Communication Specialist, +358 50 532 2278, firstname.lastname@ym.fi (requests for interviews with Minister Tiilikainen)