European Parliament drops call to end free allowances under carbon border levy

BRUSSELS (Reuters) - The European Parliament on Tuesday dropped its call to phase out the free allowances industrial sectors receive through the European Union carbon market if those sectors become covered by the bloc’s planned carbon border policy.

FILE PHOTO: European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium, in this file picture taken October 28, 2015. REUTERS/Francois Lenoir

By forcing companies based outside the bloc to pay an emissions-based fee to sell polluting goods into Europe, Brussels aims to level the playing field for domestic firms and avoid companies leaving Europe to avoid CO2 costs - known as “carbon leakage”.

Currently the EU gives its own industry CO2 allowances which allow companies to emit a certain amount for free under the bloc’s carbon market, to protect firms from carbon leakage.

Lawmakers on Tuesday adopted amendments to a Parliament report which aims to influence the European Commission’s proposal for the policy, due in June, but dropped a demand for sectors to gradually lose their free allowances when they become covered by the border levy.

Parliament will confirm its position on the overall report with another vote on Wednesday. The amendments adopted on Tuesday did not alter lawmakers’ call to introduce carbon border measures in certain sectors by 2023.

Industry groups had urged lawmakers to change their position on this ahead of the vote, saying they need both free carbon permits and a border levy to stay competitive.

Yannick Jadot, the Green lawmaker leading parliament’s report on the policy, said right-wing lawmakers and certain industrial groups had allied to “break the most ambitious parts of the report”.

“The battle has only begun,” he said.

Other lawmakers said ending free permits would damage EU industry.

“This would have a profound impact on some industries in our respective member states, with a rapid phase-out of free allowances risking investor certainty,” said Rob Rooken from parliament’s European Conservatives and Reformists group.

Parliament’s draft report had said ending free allowances when the border levy is applied would “avoid double protection for EU installations”. The amended version said the border policy should avoid double protection, but did not mention free allowances.

Reporting by Kate Abnett; Editing by Marguerita Choy and Jan Harvey