Activists slam tweak to EU carbon allowance scheme

"Polluting for free in times of a climate crisis is untenable," says Sam Van den Plas, policy director at Carbon Market Watch, one of the signatories of the letter.

Under its ETS system, the EU has already issued over €200bn in free emissions permits, Carbon Market Watch said.

The European Commission is now proposing €5bn in new permits, representing "hundreds of billions of euros" of additional free allowances.

"If the EU wants ETS to work, it should scrap the subsidies and make 'polluters-pay' the true price of their pollution," notes Agnese Ruggiero, policy officer at the NGO.

Carbon permits are licences companies can use or trade, allowing them a certain amount of carbon dioxide emissions.

The number of allowances is set to decline by 2.2 percent per year over the period 2021 to 2030, compared to 1.74 percent currently.

According to the commission, this will "increase the pace of emissions cuts," but environmental groups say the decrease is too minor.

"We want a one-off reduction of €450m emission allowances and a reduction factor of 3.1 percent on an annual basis starting from 2023," Ruggiero said.

The scrapping of these effectively 'free pollution' licences would ensure that the polluter pays and increase revenues for member states.

"The revenues generated from auctioning ETS allowances would bring member states the much-needed resources to invest in the green transition while also protecting the most vulnerable households from high energy prices," said Ruggiero.

Allowances have been one of the prominent debates surrounding ETS since its inception in 2005.

According to the EU, infrastructure covered by the existing ETS reduced emissions by about 35 percent between 2005 and 2019.

However, allocating free permits to some member states and companies provides for a fairer transition, but it also prolongs polluting companies' lives.

Last year, the EU Court of Auditors ruled that permits need a rethink because they are not targeted at the right industries.

"Free allowances should be targeted at those industrial sectors least able to pass on carbon costs to consumers. But, this is not the case," said lead auditor Samo Jereb at the time.

Auditors found power plants, and industrial companies, invest in more fossil-fuel efficiency and not clean energy due to these free allowances.

Political fight

With carbon allowances soaring to over €90 a tonne, Polish prime minister Mateusz Morawiecki denounced it as a European energy tax at the European Council summit last week.

Leading a group of mainly eastern European member states, he called for the ETS system to be suspended due to its high price.

"The high price of CO2 allowances is causing economic destabilisation, and this is hindering the implementation of EU climate policy," he later wrote in an op-ed.

However, according to data tweeted by by EU Commission president Ursula von der Leyen on Thursday (17 December), the carbon tax only accounts for 10 percent of the price surge, which - according to spot market data - is overwhelmingly caused by high gas prices.

Another political fight is expected to centre around the proposed systems' extension to include housing and shipping, and imposing stricter limits on emitters.

The expansion of the ETS scheme to include housing and transport will significantly raise fuel and energy prices for households in the coming years. The commission has proposed a social climate fund to cushion these effects. Stricter emissions standards for buildings and transport may also mitigate higher prices.