Moment of truth for EU legislators to show their colours on climate legislation
Posted on December, 12 2022
EU co-legislators will be gathering in Brussels this week to reach a final agreement on some of the most important legislation in the EU’s Fit for 55 climate package, including the Carbon Adjustment Mechanism (CBAM), the EU Emissions Trading Scheme (ETS), the Emissions Trading Scheme for road transport and buildings (ETS2) and the Social Climate Fund (SCF). If a deal is reached, that would mark the end of two years of hard work, but whether as a result the Fit for 55 package will actually be “fit for purpose” is still in the balance.
Why does this matter?
The Fit for 55 laws form an integral part of the European Green Deal and are critical to the EU reaching its climate goals. They also represent important new departures in EU climate legislation, such as an Emission Trading System for pollution from buildings and road transport (ETS2) and a new Social Climate Fund (SCF) - the first EU-wide fund that aims to ensure social and climate goals go hand in hand, and the only part of the Fit for 55 package directly addressing social issues.
Alex Mason, Head of Climate & Energy at WWF’s European Policy Office, said: “The details of this negotiation may seem arcane, but they really matter. The outcome will determine the speed of investment in renewable energy, the incentives industry has to decarbonise, and whether the most vulnerable in society are helped to cut their energy bills. This might be the last chance negotiators have to take the climate emergency seriously - to ignore the lobbying by fossil fuel interests, and instead put people and the climate first.”
What will WWF be looking for?
WWF is calling for the revised EU ETS, future CBAM and SCF to be aligned with climate science, be socially fair, and be implemented in a transparent and effective manner.
On the Carbon Adjustment Border Mechanism (CBAM)
The European Commissionʼs stated intentions of the CBAM is to drive higher climate ambition internationally. In order to deliver effectively, this instrument will have to support the reduction of EU greenhouse gas emissions while also creating incentives for higher climate ambition from international trading partners. During these final negotiations, WWF will be looking at co-legislators to agree on a CBAM that:
The Fit for 55 laws form an integral part of the European Green Deal and are critical to the EU reaching its climate goals. They also represent important new departures in EU climate legislation, such as an Emission Trading System for pollution from buildings and road transport (ETS2) and a new Social Climate Fund (SCF) - the first EU-wide fund that aims to ensure social and climate goals go hand in hand, and the only part of the Fit for 55 package directly addressing social issues.
Alex Mason, Head of Climate & Energy at WWF’s European Policy Office, said: “The details of this negotiation may seem arcane, but they really matter. The outcome will determine the speed of investment in renewable energy, the incentives industry has to decarbonise, and whether the most vulnerable in society are helped to cut their energy bills. This might be the last chance negotiators have to take the climate emergency seriously - to ignore the lobbying by fossil fuel interests, and instead put people and the climate first.”
What will WWF be looking for?
WWF is calling for the revised EU ETS, future CBAM and SCF to be aligned with climate science, be socially fair, and be implemented in a transparent and effective manner.
On the Carbon Adjustment Border Mechanism (CBAM)
The European Commissionʼs stated intentions of the CBAM is to drive higher climate ambition internationally. In order to deliver effectively, this instrument will have to support the reduction of EU greenhouse gas emissions while also creating incentives for higher climate ambition from international trading partners. During these final negotiations, WWF will be looking at co-legislators to agree on a CBAM that:
- Includes all highly-emitting industrial sectors (hydrogen, organic basic chemicals and polymers) and indirect emissions in its scope.
- Is fully implemented as of 2026 as an alternative to existing carbon leakage protection measures as soon as possible, by cutting the share of free ETS allowances for CBAM sectors significantly, reaching 50% in 2030, and 0% in 2032 the latest.
- Excludes export rebates as they are deemed incompatible with World Trade Organisation rules since they could constitute export subsidies. Adhering to these rules is a prerequisite for the successful implementation of a CBAM, and the credible positioning by the EU in relation to its international trading partners.
- Channels CBAM revenues towards climate action outside the EU. All revenues generated through the sale of CBAM certificates should be earmarked in full to fund climate action outside the EU.
On the Emissions Trading Scheme (ETS)
In order to support the 1.5°C goal, the EU ETS emissions reductions target must be increased to 70% by 2030 (compared to 2005), rather than 61% as proposed by the European Commission. That is why it is now up to the co-legislators (Council and the European Parliament) to agree on a higher ambition in line with science.
The EU ETS reform is complex, but finding the right balance between different options for action is possible and necessary in order for the reformed ETS to support more effective decarbonisation.
During these final negotiations, we will be looking at co-legislators to agree on a strong EU ETS reform, by:
In order to support the 1.5°C goal, the EU ETS emissions reductions target must be increased to 70% by 2030 (compared to 2005), rather than 61% as proposed by the European Commission. That is why it is now up to the co-legislators (Council and the European Parliament) to agree on a higher ambition in line with science.
The EU ETS reform is complex, but finding the right balance between different options for action is possible and necessary in order for the reformed ETS to support more effective decarbonisation.
During these final negotiations, we will be looking at co-legislators to agree on a strong EU ETS reform, by:
- Significantly increasing the ETS overall target to at least 64% through a combination of a strengthened linear reduction factor (LRF) as proposed by the European Parliament, a one-off reduction of the cap (rebasing) by at least 117 million allowances, as endorsed by the Council, and a strengthened Market Stability Reserve (MSR).
- Ending the allocation of free ETS permits to industrial sectors that will be covered by the Carbon Border Adjustment Mechanism (CBAM) as soon as possible, at least by 50% by 2030 for CBAM sectors. Ending free ETS permits to pollute in 2035 is too late, directly contradicts the ‘polluter pays' principle and will continue to slow down industrial decarbonisation.
- Implementing strong conditionality requirements while free ETS permits to pollute are still partially allocated to industry, and ensure a strong revision of the ETS benchmarks to spur investments in decarbonisation and energy efficiency. The allocation of all free ETS permits to pollute must be made conditional on industry’s implementation of both the recommendations from the energy audits or the energy system and the establishment of a clear decarbonisation plan at installation level, foreseeing a possible reduction by 100% for companies that do not comply with the requirements.
- Committing to spend all ETS revenues on climate action, as per the Commission’s proposal. WWF’s recent report on ETS revenues showed this is still not being done enough, with many countries not even reaching the recommended 50% spending on climate action. These revenues must not be used to prolong the life of fossil fuel installations, meaning that the Modernisation Fund must also close its doors to fossil gas investment. Member States must also agree to improve reporting rules to ensure transparency on the use of ETS revenues.
On the Emissions Trading System for Buildings and Road Transport (ETS2) and the Social Climate Fund (SCF)
The introduction of a second ETS for buildings and road transport (ETS2) needs meaningful social and environmental safeguards, such as a price corridor which rises over time.
But most importantly, the ETS2 must be accompanied by a transformative Social Climate Fund (SCF) to accelerate the targeted structural investments that will drive down inequality while also helping cut emissions in the transport and buildings sectors. Getting this right means that the SCF should start well-before an ETS2 impacts households, and proactively drive synergies between social and climate goals. It also needs to be well funded, to require high standards of inclusion and participation in the development of Social Climate Plans, and, crucially, to exclude fossil fuels from the scope.
During these final negotiations, we will be looking for an SCF that:
- Has a minimum budget that corresponds to at least 25% of the ETS2 revenues and which increases if carbon prices go up. The fund should also be boosted with national co-financing.
- Excludes fossil fuel investment or support from the scope: it makes no sense to be locking the most vulnerable groups into expensive, polluting fossil fuels with a social climate fund, especially one financed using carbon revenues.
WWF is publishing a statement on Wednesday with at least 30 other organisations calling on negotiators to recognise this folly and explicitly block any support for fossil fuel investment under this Fund. - Ensures participation by and inclusion of the people and groups who need the most support from the SCF, and whose voices are often underrepresented, through strong Partnership provisions and assessment.
Contact
Florian Cassier
Climate Communications Officer
WWF European Policy Office
fcassier@wwf.eu
+32 479 33 92 11
Coal fired power plant and wind mill
© Pixabay
Coal fired power plant and wind mill
© Pixabay