EU carbon market reform: slower emission cuts proposed

The planned reform of the European Union’s carbon market should involve a slower annual pace of emissions reductions for industries from chemicals to cement, according to a member of the biggest political group in the bloc’s parliament.

Peter Liese, a German lawmaker of the European People’s Party and its lead on environmental issues, said his group wanted a “balanced” approach to overhauling the emissions cap-and-trade programme. The European Commission, the EU’s regulatory arm, is due to unveil the details of the reform in the third quarter, according to its tentative work programme.

The overhaul of the Emissions Trading System is moving up the EU’s political agenda as CEOs of the region’s biggest energy-intensive companies and heads of government hold separate meetings this week to discuss Europe’s declining competitiveness.

The Emissions Trading System is a key tool for the EU to curb greenhouse gases. But less than three years after tightening the market in a green push, governments are ready to slow the pace of pollution cuts and consider measures that would alleviate industry costs, EU policymakers and diplomats with knowledge of the issue told Bloomberg last week.

Liese told reporters in Brussels om Tuesday that his group wants “to stay course” on the EU’s climate ambitions, “but mistakes have to be changed and we want to put more focus on competitiveness.”

After his comments, EU benchmark carbon allowances fell as much 3.5% to €78.49 per ton, according to data on the ICE Endex Exchange, before recovering to trade about 1% lower.

The reform of the carbon market should address a wide range of issues, from a slower phaseout of free permits to pollute to extending the caps beyond 2039, the year when they are currently due to drop to zero, according to Liese.

The rate at which EU emission caps fall each year, known as the Linear Reduction Factor, could be lowered to 3.4% from the currently envisaged 4.4% as part of the reform, Liese said, a change that could take place by 2029 at the earliest.

The planned overhaul should also include some flexibility in an upcoming revision of the carbon efficiency benchmarks, inclusion of negative emissions in the carbon market, allowing the use of international carbon credits and an overhaul of the Market Stability Reserve, which automatically controls the supply of permits in the market.