EU Parliament votes for EU ETS reform to combat climate change

On 17 May 2022, Members of the European Parliament (MEPs) voted in favour of amendments to the EU Emissions Trading System (EU ETS) in the Environment Committee.

To incentivise industries to further reduce their emissions and invest in low-carbon technologies, the ETS should be reformed and its scope enlarged, MEPs concluded.

On Tuesday, the Committee on Environment, Public Health and Food Safety adopted their report on the revision of the EU ETS with 62 votes for, 20 against and 5 abstentions.

In total, the committee adopted five reports of the Fit for 55 in 2030 package. This is the EU’s plan to reduce greenhouse gas (GHG) emissions by at least 55% by 2030 compared to 1990 levels and achieve climate neutrality by 2050.

The package is said to be an important step towards the EU’s goal to become independent from expensive and polluting fossil fuels from Russia well before 2030.

MEPs believe that the ETS is at the core of the European climate policy and has triggered significant reductions in emissions, as a price on greenhouse gas (GHG) emissions is an incentive for economic actors to reduce their emissions and invest in low-carbon technologies.

Specifically, the reform will include:

• New ETS II for buildings and road transport – citizens not to be included before 2029
• Free allowances to be phased out from 2026 and disappear by 2030
• A bonus-malus system to be introduced from 2025
• Revenues to be used exclusively for climate action in EU and member states.

MEPs aim to significantly increase the ambition level compared to the EU Commission proposal. A steeper reduction pathway of the EU ETS should provide ‘a clear direction’ towards achieving the EU’s emissions reduction target for 2030 and the goal of the Paris Agreement to limit global warming to 1,5 degrees.

MEPs want the annual reduction of emission allowances to increase annually by 0,1 percentage points compared to the previous year until 2030, starting from 4,2 % in the year following the entry into force of this amendment.

The ETS will generate revenues to be used to support the green transition through support to technologies that contribute to energy and resource savings and pollution reductions. 

“This compromise is good for the climate, jobs and people in Europe. We support innovation in industry. Companies that go for climate neutrality will be better off while those that continue to pollute without investing, will have a hard time. I am particular happy, that the important ETS II and the connected Social Climate Fund are out of “intensive care” and even “out of hospital”. Although I would have wished for a broader approach, I am happy that ETS II is alive and kicking,” rapporteur Peter Liese (EPP, DE), said.

The report is scheduled for a vote at the plenary session on 6-9 June after which the EU Parliament will be ready to start negotiations with member states.

What will the EU ETS reform mean for the shipping industry?

As requested several times by the EU Parliament, the ETS would now finally be extended to maritime transport.

As informed, MEPs want to cover 100% of emissions from intra-European routes as of 2024 and 50% of emissions from extra-European routes from and to the EU from 2024 until end of 2026.

From 2027, emissions from all trips should be covered 100% with possible derogations for non-EU countries where coverage could be reduced to 50% subject to certain conditions.

MEPs also want other GHG emissions than CO2 to be included, such as methane nitrous oxides.

75% of the revenues generated from the auctioning of maritime allowances shall be put into an Ocean Fund to support the transition to an energy efficient and climate resilient EU maritime sector.

WWF: MEPs set the tone for more ambition in the EU ETS

In yesterday’s vote on the EU ETS, MEPs stood up for accelerating the decarbonisation of Europe’s industry by finally turning the ETS into the tool it was meant to be: something to incentivise emissions reductions, independent conservation organisation WWF said.

MEPs significantly increased the EU Commission’s ambition by voting for a target of 67% emission reductions compared to 2005 levels. However, WWF considers that a higher target of 70% would be needed to come closer to the 1.5°C goal of the Paris Agreement and set us on a path to climate neutrality. 

“The overall ETS target is key to turning it into a powerful instrument for decarbonisation, and MEPs have significantly improved on the Commission proposal. This must now be confirmed in plenary,” said Camille Maury, Policy Officer at WWF European Policy Office.

“For the EU to reach climate neutrality, heavy industry must decarbonise urgently, and get out of its polluting time warp now,” added Maury.

“Auctioning ETS allowances must become the norm, and the revenues spent on energy efficiency, innovation and a socially just transition.” 

WWF also welcomed the requirement that all ETS revenue shoult be spent on climate action.

“It’s only logical: Money from pollution permits must be spent on climate action. With clear rules on spending ETS revenues, EU countries will no longer be able to use this money for oil and gas infrastructure – all that in the name of climate action. What’s more, governments can finally be held accountable on how they’ve spent the money – such transparency has been lacking so far,” Romain Laugier, Climate & Energy Policy Officer, WWF European Policy Office, commented.