19th May 2022

Lead MEP now wants ETS opt-out for homes and private cars

  • The lead MEP is calling for a temporary opt-out for private houses and cars until 2027 (Photo: GollyGforce)
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A lead MEP is calling for a temporary opt-out for homes and private cars under reforms of the EU carbon market rules, as the new rules are expected to increase fuel and energy prices for households.

The EU's emissions-trading system (ETS) limits emissions in the power sector, manufacturing industry, and airlines operating in Europe. Within this limit, companies can sell and buy emissions allowances for every emitted tonne of CO2 - establishing a carbon-pricing tool that acts as an economic incentive to reduce pollution.

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Last summer, the European Commission unveiled a package of proposals to reduce greenhouse gas emissions by 55 percent by 2030, including a reform of the EU's carbon market. This included expanding the ETS scheme to cover shipping emissions and the creation of a separate cap-and-trade system for road transport and the building sector.

In a draft report from the European Parliament environment committee, German centre-right MEP Pieter Liese has now proposed to start applying the new ETS system to commercial transport and the heating for commercial buildings as of 2025 — a year before the commission's proposal.

This would mean that rules would not apply to private buildings and private transport until 2027.

The proposal comes amid skyrocketing energy prices, which have increased the burden on low-income households - and rapidly become a source of concern for EU member states due to the geopolitical implications.

However, according to Liese, "carbon pricing is key to enable the green transition in transport and heating".

Road transport and buildings have been struggling to reduce emissions in recent years, but stricter emissions standards could also drive emissions cuts.

Additionally, he also suggested that the Social Climate Fund, aimed at supporting vulnerable households in the energy transition, should start operating from 2025 onwards.

25 percent for most vulnerable

The lead EU lawmaker argued that not only 25 percent of the ETS revenues should be used to support the most vulnerable households, but that the remaining revenues going to member states' coffers should have a "more targeted support if the carbon price increases".

Meanwhile, Liese has also proposed that industries committed to the decarbonisation of their manufacturing processes should be better rewarded under the EU's cap-and-trade carbon market reform.

Under the commission proposal, free allowances are conditional on decarbonisation efforts, but the MEP on this file wants to introduce a new benchmark system, as of 2026, to support innovation and the decarbonisation of carbon-intensive industries, at risk of the so-called 'carbon leakage'.

The proposed system would see installations, which perform better than the average of the 10-percent best in a specific sector, having "an additional bonus" - in the form of extra free allocation.

But the worst-performing installations or those without climate-neutrality plans would see their free permits reduced.

"This is an important tool to make sure that everybody understands that finally all economic operators must assure climate-neutrality," Liese said.

Free permits are designed to help industry players remain competitive against rivals based in non-EU third countries and so prevent so-called 'carbon leakage'.

But the commission has planned to gradually phase-out free allowances between 2026 and 2035, during the transitional period of the new Carbon Border Adjustment Mechanism (CBAM) — initially applying only to the iron, steel, cement, fertiliser, aluminium, and electricity generation sectors.

Nevertheless, the MEP has proposed the creation of a temporary reserve of free allowances to help industries in case the CBAM cannot deliver or perform as expected.

NGOs have slammed the report for failing to deliver on the Green Deal objectives and for preventing a quicker phase-out of free allowances.

"Rather than strengthen the EU's carbon market, Liese's recommendations will literally cause the EU ETS to go up in smoke," said Sam Van den plas from Carbon Market Watch.

The report is expected to be voted in the European Parliament environment committee in mid-May, after discussions among EU lawmakers. Then it will be voted in plenary, before entering into negotiations with EU member states.

ETS expansion to homes and cars raises bills fears

The EU wants to become the first continent to reach net-zero. But revenues from the Social Climate Fund will be low, and not commensurate with the task of renovating 35 million homes or getting millions of cars off the road.

EU agency warns ETS emission-cuts are off track

The European Environment Agency warned current projections indicate emissions-reductions in member states covered by the EU's cap-and-trade carbon market are insufficient to meet the bloc's new climate targets for 2030 and 2050.

15 EU states subsidise fossil-fuels more than renewables

EU auditors found 15 EU member states gave more subsidies to fossil fuels than to renewable energies in 2020, despite their climate commitments. Their report warns phasing these subsidies out by 2025 will be "a challenging social and economic transition".

MEPs raise ambition on EU carbon market reform

MEPs on the environment committee agreed on reform of the European carbon market — including expanding it to buildings and transport. They also want to extend the scope of the carbon border tax, and phase out free permits by 2030.

Lagarde signals summer interest rate hike

European Central Bank president Christine Lagarde signalled an interest rate increase possibly as early as July, but some experts warn for a repeat of the 2011-2012 debt crisis.

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