New changes are coming in the EU Emissions Trading Scheme. The emissions caps and the supply of carbon permits are some of the areas that are planned for improvement. The EU region also wants to align its entire economy with a tighter climate target by 2030.
The European Commission has proposed tighter control of carbon permits including stricter rules for getting carbon allowances for free. In addition, a mechanism to phase out maritime transport in the EU ETS from 2023 was put forward. The rate at which emissions caps decrease each year is also set to change.
The reform will be released on July 14th. The EU’s target for 2030 is to reach at least 55% of emissions reductions compared to 1990 levels. The objective was increased from a 40% reduction previously. According to a recent EU analysis, if the ETS law remains unchanged, the current pathway could lead to a 51% reduction.
That falls short with the new climate target for the next decade which is why the reform is needed. That is also why the Commission wants to increase the rate at which the emissions cap shrinks, the so-called linear mitigation factor.
The new rate is set to come into force a year after entry. However, the legislation requires the approval of national governments and the European Parliament, which can take at least two years. The value of the exact rate has not been mentioned yet.
Emissions Trading Scheme Changes Outlined
The draft climate change law also reads a reform of the Market Stability Reserve (MSR). The MSR serves to adjust the supply of allowances to be auctioned in order to prevent excess carbon pollution permits. It also helps push the prices higher.
A new “buffer MSR intake” will be introduced when the number of carbon permits in circulation is between 833 million and 1.096 billion. The amount of permits to be absorbed would be the difference between the number of permits in circulation and the 833 million limit.
The intake rate will remain at 24% until 2030 as long as there are more than 1.096 billion allowances in circulation, including permits for aviation. The number of permits held in reserve by 2023 will be limited to 400 million. Allowances above that level will be considered void.
The Commission also plans to strengthen the revenues it receives from the auctions of carbon permits. The funds will be used for the development of low-carbon technologies as well as for “sustainable renewal of low-income households”.
The Emissions Trading Scheme is one of the main instruments of the EU to achieve carbon neutrality by 2050. An expansion of measures and tighter limits on emitters are a signal the union is taking serious steps about transitioning the economy.