EU ETS reform should be simple and realistic

Any solutions to update EU-ETS must be pragmatic, simple, and contain fair benchmarks, says Esther de Lange.

By Esther de Lange

30 May 2016

The European Union's emissions trading scheme (EU ETS) is, and needs to remain, the cornerstone of EU climate policy. The EU plays a leading role on the global stage when it comes to fighting climate change and I would like to keep it that way. Therefore, I am glad to see that the work on the ETS revision for the fourth trading period has gained momentum in Parliament.

In early May, the EPP group finalised the key priorities that will guide our group throughout the process.

It is our intention to be a reliable partner, and therefore we are keen to stick to the greenhouse gas emissions reduction targets set for 2030. At the same time, within this framework, we want to make sure that industry will remain in Europe, where installations are often the cleanest.


One of the central themes under discussion is how to proceed with the free allocation of emission allowances.

Of course, in an ideal world they would not be needed; the European Commission has foreseen that they would have to be phased out eventually. However, the world we live in is far from ideal, in our view free allowances remain absolutely necessary to protect European industry from carbon leakage.

Our climate efforts ought to be seen in a global context. If other parts of the world fail to come up with equally ambitious climate policies, the free allocation of allowances remains a necessity in order to make sure that production does not shift away from Europe. Otherwise, this would constitute a loss for our environment as well as our economy.

For the EPP group, the division between free allocations and auctioned allowances is not carved in stone. We need to be pragmatic. If needed, this division should be altered. We also need to address the risk of investment leakage, asking ourselves to what extent our policy behaviour impacts the European investment climate and whether it holds back investors from choosing Europe.

This issue is just as important as carbon leakage. We realise that some sectors are more at risk of carbon leakage than others. However, it is questionable whether a complex tiered approach is the best way to address this. It risks penalising many other sectors, while making the system more complex and unpredictable.

We believe that there are other options, increasing the share of free allocation, using more up-to-date production data and fi ne-tuning benchmarks. This will be a central element of the debate between political groups. Any solution found must be simple, predictable, realistic and workable.

Additionally, what we demand of industry should be technically possible. Any chemistry teacher will tell you that certain process emissions cannot be avoided. A reduction of a benchmark that is simply impossible to achieve, even for the 10 per cent best performers, clearly lacks fairness.

Finally, I strongly believe that Europe should be the home of smart innovation. We are not the biggest continent, but we should be the smartest. This also applies to innovative solutions to decrease CO2 emissions. Companies are committing considerable funding and manpower towards this goal, which the EU should support. 

The innovation fund should better take up emission-reducing projects and act as added value for companies. When it comes to the modernisation fund, it should take into account the different needs and different starting positions of member states, but always pay a contribution to climate objectives.

In summary, I would like to see an emissions trading scheme that respects our climate obligations while incentivising innovation and safeguarding the EU's competitiveness.

I am looking forward to carrying the process further with our colleagues in both the industry and environment committees to work towards a cleaner and more competitive Europe.