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EU Ministers revise ETS and Social Climate Fund

After hours of dense and long discussions, the European Council adopted its negotiating positions on important legislative proposals in the Fit for 55 package.

“The achievement, led by the French Presidency, of an agreement between the Member States on the Fit for 55 package is a crucial step in attaining our climate objectives within the main sectors of the economy,” commented Agnès Pannier-Runacher, French Minister for the energy transition. “The ecological and energy transition will require the contribution of all sectors and all Member States, in a fair and inclusive manner. The Council is now ready to negotiate with the European Parliament on concluding the package, thereby placing the European Union more than ever in the vanguard of fighting climate change.”

In particular, the Ministers adopted a common position on the EU emissions trading system (EU ETS), effort-sharing between Member States in non-ETS sectors (ESR), emissions and removals from land use, land-use change and forestry (LULUCF), the creation of a Social Climate Fund (SCF) and new CO2 emission performance standards for cars and vans.

The new EU ETS

Launched in 2005, the ETS specifically targets industry’s emissions, obliging more than 10,000 power plants to pay for those. In other words, the less they pollute, the less they pay. However, the majority of the EU’s greenhouse gas (GHG) emissions come from the transport and building sectors.

Now, the Council agreed to create a new, separate emissions trading system for the buildings and road transport sectors. The new system will apply to distributors that supply fuels for consumption in these sectors. However, the start of the auctioning and surrender obligations will be delayed by one year compared to the Commission proposal (auctioning of allowances from 2027 onwards and surrender from 2028 onwards).

Social Climate Fund

Another important step is the decision to include maritime shipping emissions within the scope of the EU ETS. As Member States heavily dependent on maritime transport will naturally be the most affected, the Council agreed to redistribute 3,5 per cent of the ceiling of the auctioned allowances to those Member States. In addition, the general approach takes into account geographical specificities and proposes transitional measures for small islands, winter navigation and journeys relating to public service obligations, and strengthens measures to combat the risk of carbon leakage in the maritime sector.

As reported by the Commission, GHG emissions from operators covered by the EU ETS increased by 7.3 per cent in 2021 compared with 2020 levels and it was mainly due to aircrafts’ emissions with the resuming of travel after the pandemic. Yesterday, the Council also agreed to phase out free emission allowances for the aviation sector gradually by 2027 and align the proposal with the global Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The EU ETS will apply for intra-European flights (including the United Kingdom and Switzerland), while CORSIA will apply to EU operators for extra-European flights to and from third countries participating in CORSIA. The Council agreed to set aside 20 million of the phased-out free allowances to compensate for the additional costs associated with the use of sustainable aviation fuels (SAFs).

Finally other than extending the ETS (and creating a separate scheme) for the transport and building sectors, environment ministers decided on the so-called Market Stability Reserve (MSR) which will help balance the supply and demand. The Council endorsed the proposal to strengthen the MSR by prolonging, beyond 2023, the increased annual intake rate of allowances (24 per cent) and setting a threshold of 400 million allowances above which those placed in the reserve were no longer valid.

The (Social) Climate Fund and Poland’s discontent

Indeed, all of this should take place without burdening individuals and increasing the already high levels of energy poverty, a reason why Ministers agreed to establish a Social Climate Fund to support vulnerable households, micro-enterprises and transport users to support the creation of an emissions trading system for the buildings and road transport sectors.

Each Member State would submit to the Commission a social climate plan, containing a set of measures and investments to address the impact of carbon pricing on vulnerable citizens. The fund will provide financial support to Member States to finance the measures and investments identified in their plans, to increase the energy efficiency of buildings, the renovation of buildings, the decarbonisation of heating and air-conditioning in buildings and the uptake of zero-emission and low-emission mobility and transport, including measures providing direct income support in a temporary and limited manner.

The Council agreed that the fund would be part of the EU budget and fed by external assigned revenues up to a maximum amount of 59 billion euros.

However, this amount is significantly below the one proposed in July 2021, when the Fit for 55 was first unveiled. Back then, the Commission declared that the Fund would provide 72.2 billion euros for the period 2025-2032, based on a targeted amendment to the Multiannual Financial Framework (MFF). Now, the Fund will be established only over the period 2027-2032, coinciding with the entry into force of the ETS for the buildings and road transport sectors and it will not be linked to the EU’s MFF.

Among Central and Eastern European countries, Poland showed its dissatisfaction.

The Minister of Climate and Environment Anna Moskwa said that these changes to the Social Climate Fund will be a burden to society, especially considering that the amount of funds was significantly reduced. And overall, Poland is not happy with the results of the last few days.

What France’s Minister Agnès Pannier-Runacher described as “historic agreements,” have been seen by Poland as plans too much ambitious and not easily achievable without putting extra burdens on the shoulders of individual citizens. In other words, for Poland, the just transition doesn’t seem so just.

Photos: European Union.

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