The EU’s Emissions Trading System (ETS) is the Union’s primary policy tool for driving down carbon emissions. In its Electrification Action Plan released late last week, the EU Commission announced a review of the ETS. This review is designed to address competitiveness concerns and scales back some ETS targets. The press release states:
“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. It updates the Linear Reduction Factor (LRF) of 3.7% for 2031-2035 and 1.7% for 2036-2040, making the trajectory more gradual and aligned with domestic climate ambition level. Up to 2% high-quality international credits will allow to finance decarbonisation projects abroad and provide breathing space in 2036-2040 when the emission reduction in Europe will become more challenging.”
Environmental groups are not happy with the proposed changes, particularly the extension of free allocations for emitters. The World Wildlife Fund writes in a statement:
“Among the proposed changes are measures that would allow certain industries to continue receiving free pollution permits, often referred to as “freebies”, for longer, while slowing the pace at which emissions fall under the system. Yet evidence has consistently shown that free allowances delay industrial transformation by reducing the incentive to invest in cleaner production methods. Despite this, the Commission has proposed extending free allocations until 2040″
While the ETS review is ruffling feathers, other parts of the Electrification Action Plan have been better received. Among these, the Commission is proposing incentives for the EU economy similar to those under the Biden administration’s Inflation Reduction Act. These subsidies aim to increase uptake of electric vehicles and appliances among EU consumers.
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