The speed at which companies under the ETS will be forced to reduce their emissions will be considerably slower than previously planned. That will be done by reducing the “linear reduction factor” (LRF) — the rate at which pollution caps fall annually, which was due to reach zero by 2039.
Under the Commission’s review, the LRF will be reduced from 4.4 percent to 3.7 percent between 2031 and 2035. After 2036, it will decrease at the even gentler rate of 1.7 percent annually. That will extend pollution well into the 2040s, and will likely be seen as a major rollback by the ETS’s staunchest defenders.
The Commission will also hand out free carbon allowances for several years longer, including to sectors covered by the carbon border tax, which will now receive them until 2038 — a move that could inspire challenges at the World Trade Organization.
For the first time, starting in 2036, the Commission will give industry the option of buying carbon credits from outside the EU to offset their emissions. That has the potential to lower the carbon price and give industries more options to pollute if EU carbon allowances run out. It will also introduce 250 million tons of domestic removal credits — representing carbon dioxide removed from the atmosphere — into the ETS to be auctioned between 2031 and 2040.
Taken together, these measures will likely be welcomed by industry, that claim the ETS in its current trajectory is unrealistic and costly. Whether pro-ETS groups in Parliament and member countries accept the looser rules is less certain.
EU climate chief Wopke Hoekstra said the review was a more “business-friendly” approach to carbon pricing, but insisted the EU had not abandoned climate goals.