European Commission public consultation on Climate change – updating the EU emissions trading system (ETS)

Published initiative by European Commission. Further information: European Commission

Ambitious climate policy and competitiveness can be combined

We appreciate a possibility to deliver views of Finnish Industries regarding a revision of the EU Emissions Trading Scheme ETS.

EK supports a climate target of at least 55% for 2030 and a climate neutrality target for 2050 in the EU. EK sees it is fully possible to achieve a very ambitious EU target of at least 55% by 2030 and at the same time preserve or even improve the competitiveness of European industry. We see that the EU ETS is an effective tool to reduce GHG emissions in energy production, industry, and aviation, and it must remain as a main instrument for these sectors. To realize this, the coming revision of the EU ETS should include following elements:

  1. A fair split between the EU ETS and effort sharing sectors to harness the full cost-efficient emissions reduction potential in these both sectors. No one can opt out of mitigating against climate change.
  2. After determining a new EU ETS target based on a proper impact assessment, the Linear Reduction Factor should be adjusted accordingly instead of rebasing. The starting point should be the earliest possible which leaves enough time for carbon market and ETS-companies to adapt their actions.
  3. A sufficient free allocation should be guaranteed to the carbon leakage sectors by a flexible and dynamic split between auctioning and free allocation. A use of the cross sectorial correction factor should be avoided. Indirect compensation schemes are even more important with increasing electrification. These measures are essential until the other countries put the similar climate measures in place. Recently published benchmarks, which are used to calculate free allocation, should be left as they are.
  4. Carbon Border Adjustment Mechanisms (CBAMs) seem to be instruments that are politically very risky, complicated, and costly to implement and should be considered only where other options for finding a common solution have been exhausted. The functionality and compatibility of CBAMs with the EU ETS need to be carefully assessed to avoid any disruption, especially in the options in which ETS allowances would be used as a CBAM for import goods. In any case, CBAMs needs to be complimentary for free allocation instead of replacing it totally. If the impact assessment shows that a CBAM is not a good tool to prevent carbon leakage or mitigate climate change, the EU needs to adapt its plans accordingly.
  5. There are new innovations and technologies to circulate carbon to products and fuels, like carbon capture and storage/usage, CCSU. The ETS needs to be adapted to allow these new developments, and in that way to promote them.
  6. Market Stability Reserve was created to deal with sudden abnormalities and dysfunctionality in carbon market. It should not be used to any other purposes, like tightening the ETS.
  7. Extension of scope to other sectors needs to be assess carefully. There are multiple national and the EU-level instruments already in place in road traffic and building sector, and necessarily the ETS will not bring better results. Overlapping policies usually create inefficiencies. If cap-and-trade -system is chosen, there should be separate ETS-systems, which can be emerged to the present EU ETS after sufficient time and experience. As maritime is global business and its regulation takes place at IMO, any EU mechanism should consider a risk for carbon leakage and view merger in global systems as soon as available.
  8. International offsets (article 6 of the Paris Agreement) need to be accepted in the EU ETS, as they were in the previous period of it. This would bring cost-efficient emissions reduction potential, which would help the EU to reach its climate neutrality target by 2050.
  9. EU ETS revenues shall be used within the ETS sectors. Revenues should be used partly to support low carbon technology investments and partly for compensation scheme of indirect costs. There is a huge investment gap in the next decades to fulfil.

Still continuing COVID-19 crisis has influenced dramatically production rates in many ETS installations. There should be an arrangement to exclude this unpredictable impact on calculations of free allocation in the coming years.

Competitiveness of European industry should be put into a focus when revising the EU ETS directive. This can easily be done, and still it is not putting the ambitious emissions reductions under any kind of risk. Only successful industry can bring welfare and growth to Europe.