New funds announced to help poorer member states and boost CCS and renewables

The European Commission has today unveiled plans to revise the EU Emissions Trading System.

The measures are part of the EC’s Energy Union strategy and are designed to ensure that Europe meets its decarbonisation targets.

Included in the changes to the EU ETS is the setting up of a fund to help the EU’s poorer countries finance their decarbonisation schemes, and another fund to back the development of renewables and carbon capture and storage.

The ETS is the biggest scheme in the world for trading emissions allowances. Regulated businesses meaEuropean Union Summer Energy Packagesure and report their carbon emissions, handing in one allowance for each tonne they release. Companies can trade allowances as an incentive for them to reduce their emissions and countries can also sell permits to the market.

Today’s announced changes to the EU ETS will come into effect from 2021 following the end of the current trading period, which started in 2013 and runs to 2020.

The EC is to use the EU ETS to set up two new financing schemes – an Innovation Fund and a Modernisation Fund.

The EC says the Innovation Fund will “support first-of-a-kind investments in renewable energy, carbon capture and storage and low-carbon innovation in energy intensive industry”.

Some 400 million allowances – worth around €10bn − will be reserved from 2021 onwards for the fund. In addition, a further 50 million of the unallocated allowances from 2013-2020 will be set aside to enable the Innovation Fund to start before 2021 and include projects to support “breakthrough technologies in industry”.

The Modernisation Fund is designed to help 10 lower income Member States find the investment they need for energy efficiency and the modernization of their power systems. The 10 states are Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia.

Between 2021 and 2030, 2 per cent of allowances – some 310 million allowances in total, worth €7.75 billion – will be set aside to establish the fund, to which all Member States will contribute.

Countries will submit potential projects after organising competitive bidding processes among industry for the modernization money. Free carbon allocations to power plants in lower-income EU countries will also be extended to the 2021 trading period as part of the price of support. There will be stricter transparency requirements than previously.

Allowances are currently reduced by 1.74 per cent a year but from 2021 this will become 2.2 per cent. The EC said that this would deliver a drop in emissions of 43 per cent compared to 2005 by 2030.EU ETS

A total of 15.5 billion allowances worth €387.5bn will be available during the 2021-2030 trading period, with each permit at €25.

Some 57 per cent of them worth €225bn will be auctioned by member states and 6.3 billion allowances will go to industry in free allocations, worth around €160bn. The most efficient companies will get priority for the free allowances while less efficient companies will have to buy permits, incentivising them to improve their efficiency and cut emissions.

Currently 177 sectors qualify for free permits but in the 2021-2030 period this will be cut by about 100 and the list will then remain in place for ten years instead of the current five years.

The EC says that the benchmark to decide how to reward the better performing companies will also be based on new data which will take into account technological progress and lower emissions during recession.

Announcing the package, EU Commissioner for Climate Action and Energy Miguel Arias Cañete said: “Today we take a decisive step towards enshrining the EU’s target of at least 40 per cent emissions cut by 2030 into law.”

He said he had a message to investors, businesses and industry: “Invest in clean energy – it is here to stay and continue to grow. With these proposals, Europe is once again showing the way and leading the global the transition to a low-carbon society.”

EU Commission Vice-President for Energy Union Maroš Šefčovič said that today’s package “shows our determination to decarbonise our economy” and added that it marked “a new deal for Europe´s entire energy system”.