Posted on May, 17 2022

 In today’s vote on the EU Emissions Trading System (ETS), MEPs in the Environment Committee stood up for accelerating the decarbonisation of Europe’s industry by finally turning the ETS into the tool it was meant to be: something to incentivise emissions reductions.

MEPs significantly increased the Commission’s ambition by voting for a target of 67% emission reductions compared to 2005 levels. However, WWF considers that a higher target of 70% would be needed to come closer to the 1.5°C goal of the Paris Agreement and set us on a path to climate neutrality. 

“The overall ETS target is key to turning it into a powerful instrument for decarbonisation, and MEPs have significantly improved on the Commission proposal. This must now be confirmed in plenary,” said Camille Maury, Policy Officer at WWF European Policy Office.

Industries like cement, steel and chemicals are responsible for 15% of EU greenhouse gas emissions, but rather than paying for the pollution, they have been granted free ETS allowances since 2005. With the ongoing revision of the ETS, it is critical for free allowances to be phased out so these industries finally have an incentive to decarbonise in line with the EU’s climate neutrality target. 

MEPs have made clear today that they will put an end date to free allowances for industry, which is a significant step forward and something WWF has long called for. However, these handouts will not be fully phased out just yet. For heavy industry covered by the Carbon Border Adjustment Mechanism (CBAM), phase-out of free allowances would not happen before 2030 (five years ahead of the date proposed by the Commission). Moreover, MEPs did not vote in favour of an increased auctioned share to 60% - which means that in the current ETS trading phase, 43% of all allowances would still be given out for free, with only 57% auctioned, thereby continuing to make society as a whole bear the cost of decarbonisation. 

“For the EU to reach climate neutrality, heavy industry must decarbonise urgently, and get out of its polluting time warp now,” said Camille Maury. “Auctioning ETS allowances must become the norm, and the revenues spent on energy efficiency, innovation and a socially just transition.” 

Another very political issue in the vote was on the question on how Member States can use their ETS revenues. Although a substantial proportion of ETS permits to pollute are given away for free to companies, another share is auctioned and generates significant revenues for EU countries. However, EU countries in the past were under no obligation to spend these revenues on climate action.

Today, MEPs changed tack on this, voting to require that all ETS revenues be spent on climate action, and tightening rules on what this means: it must respect the ‘do no significant harm’ criteria and minimum labour and fundamental rights standards, and cannot support nuclear energy-related activities. Reporting over the use of ETS revenues has also drastically improved, with an obligation for EU countries to submit “full, quality and consistent information”.

Romain Laugier, Climate & Energy Policy Officer, WWF European Policy Office, said: “It’s only logical: Money from pollution permits must be spent on climate action. With clear rules on spending ETS revenues, EU countries will no longer be able to use this money for oil and gas infrastructure - all that in the name of climate action. What’s more, governments can finally be held accountable on how they’ve spent the money - such transparency has been lacking so far.”

The full ETS report will be voted on in the Environment Committee later today, and the plenary vote is expected to take place in June.