October 6, 2016 / 5:10 PM / 3 years ago

EU industry committee reaches compromise on carbon market reform

BRUSSELS (Reuters) - Members of the European Parliament’s industry committee have reached a compromise on reforming the bloc’s carbon market, favoring a Commission proposal for the rate at which permits should be removed, an EU carbon policymaker said.

The committee met in Strasbourg to discuss a report on how to reform the Emissions Trading System, which is designed to make big polluters pay for their emissions.

However, a surplus of carbon credits following the economic crisis has weakened prices.

Under the current ETS trading phase, which runs from 2013 to 2020, the majority of carbon permits are sold through government auctions, with most of the remainder given free to industry.

Reform proposals seek to tighten the amount of carbon permits overall as part of the EU’s policy to implement a landmark global climate deal, the Paris Agreement, which will take effect after support from European nations took it across an important threshold on Wednesday.

“Now the four biggest (parliamentary) groups are on board and now it is a done deal,” said Swedish European Parliament member Fredrick Federley, who drafted the industry committee’s proposals for ETS reform.

“We will reach the climate targets of 2030 with a 2.2 linear reduction factor,” he said, referring to the 2.2 percent annual rate at which carbon permits will be removed from the market from 2020-2030.

“It is digestible to everyone but it is not an easy thing to swallow,” Federley added.

The Commission had proposed the 2.2 linear reduction rate originally. Environmental groups have criticized this for not being tough enough to help meet EU emissions cut targets.

Parliament’s Environment Committee, which has the main responsibility for shepherding the bill through Parliament, favors a faster pace of reduction to take into account the ambitious climate goals of the Paris Agreement.

The Committee’s proposals are still being finalised and due to go to a vote in early December.

Benchmark EU carbon permits were up more than 7 percent at 5.88 euros a ton on Thursday afternoon.

FREE PERMITS

Another issue under discussion was the reduction of the amount of free permits handed out to industry from 2020.

A Commission proposal suggested dividing energy-intensive industries into two categories, with some sectors receiving allowances covering 100 percent of their emissions, some 30 percent and the rest nothing.

Some lawmakers, including Federley, have called for a more tiered approach, allocating more free permits to industries most at risk of relocating in what is known as “carbon leakage”.

Industry has been united in opposing what is known as the cross-sectoral correction factor, saying it would penalize even the cleanest plants.

However, a compromise has been suggested that in the case that the correction factor is triggered, up to 5 percent of permits to be auctioned would be given as free permits, Federley said.

To further reduce the number of carbon permits from 2020, the committee also proposed cancelling some from the so-called market stability reserve, which stores surplus carbon permits that have piled up due to oversupply and economic slowdown.

The industry committee will vote on Oct. 13 and a plenary vote on the reform is expected early next year.

Writing by Nina Chestney in London; Editing by Susan Thomas and Adrian Croft

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