Consultations on the reform of the EU ETS are "hot"

The processes and discussions taking place in the "corridors of Brussels" in view of the Commission's proposal on July 17 for the reform of the EU ETS (European Emissions Trading System) mechanism include the final abolition of ETS 2.

The discussion, as indicated by competent sources with knowledge of the matter, has "heated up" for good with the individual sectors of the industry, especially the energy-intensive part, intervening in every direction under the general line of "relaxing" the framework in order to alleviate the competitiveness problem that has grown in recent months, under the weight of the high energy costs that Europe is experiencing compared to its main competitors.

Individual member states are also "joining" in this dispute, with a first "ba de fer" having taken place during the approval of the new fall-back benchmarks, with the Commission finally managing to pass the new regulations that are expected to be incorporated into the revised EU directive. The relevant decision was published in the Official Journal of the EU on June 29, with industries being invited to submit their emission rights to the competent national authorities by September, as highlighted in a relevant "briefing" by the European Parliamentary Research Service.

For its part, the Commission, as reported by competent sources with knowledge of the matter, and given that things and "positions" are now changing from day to day, seems to insist on its initial orientation to maintain the "strictness" of the ETS in exchange for (possibly) giving way to the implementation of ETS 2 with "official" and "competent lips" talking about its abolition and not being implemented at all. It is recalled that ETS 2 was originally to be implemented in 2027 and has now been postponed to early 2028. It concerns the expansion of the emissions trading system in the shipping, transport and buildings sectors.

Any benefit is indirect.

Although not directly related to the industrial sectors that currently operate under the ETS regime, however, as competent sources clarify, such a development may yield an "indirect" benefit for the industry that is currently "uneasy" and is urgently requesting the relaxation of the measures, as such a development would prevent, for example, additional pressures on CO2 prices, apart from the "benefit" that would arise from maintaining fuel prices at reasonable levels, without the so-called "cost parity" occurring, which in turn aims to make synthetic fuels almost equally competitive compared to conventional ones.

In general, the "camps" are two to one, composed of those who have made decarbonization investments and therefore in such a development will see their investments lose their meaning and sustainability, compared to others who have not made progress and are focusing more on how to "shield" themselves against the EU's international competitors. This confrontation unfolds in the "lifespan" of free allowances, with decarbonization investments, being directly intertwined with a higher CO2 cost in the medium to long term.

100 billion from the industrial decarbonisation bank

In practice, the Commission's proposal, as the same sources report, will include provisions for the "industrial decarbonisation bank", analyzing its purpose and mode of operation.

As is known, the "Industrial Decarbonisation Bank" aims to support projects for the decarbonisation of industry with a total budget of 100 billion euros, which will be allocated in two phases.

The first phase includes 30 billion euros corresponding to 400 million rights and the second will allocate the remaining 70 billion euros. According to information, the selection will be made in the first phase based on the "first come first served" principle to then move to the "derisking CCFDs" regime.

The alternative for "hard to abate " industries

Another measure expected to be included in the draft revision of the mechanism concerns "negative emissions" or "carbon credits" or "carbon dioxide removals", i.e. the emissions that a number of industries have from the combustion of biofuels and are not currently charged by the ETS. The Commission's proposal will introduce the parameter of storing these emissions so that in this case they can act as "compensators" in the decarbonization equation.

This measure, as explained by competent sources, makes sense and is applicable to "hard to abate" industries where it is difficult to implement extensive decarbonization techniques and reduce their environmental footprint, which can be done through these emissions that will be counted in the overall "equation". Of course, as the same sources emphasize, it remains to be seen which industries will be "eligible" to utilize the measure, what the value of these emissions will be and in what proportion they will enter the system.

CBAM cause "headache"

From there, the "arrows" and the discussion focus on the Carbon Border Adjustment Mechanism (CBAM), with existing legislation providing for the abolition of free allowances by 2034 and a number of industries pushing for the measure to be postponed to 2038, 2040.

For its part, the Commission is reportedly oriented towards maintaining the timetable,

referring the complaints and protests of the sectors that see themselves burdened by the abolition of free emission allowances to the duties that it will impose, thus "equalizing" the problem that will arise. It is recalled that the CBAM applies to aluminum, hydrogen, fertilizers, iron, steel and cement, then making a distinction between sectors and subsectors depending on their exposure to "carbon leakage".

For CBAM sectors, the free distribution of allowances is phased out based on the "CBAM factor", which adjusts the levels of free allowances annually in compliance with the phase-in of CBAM with an end date, as mentioned above, in 2034, while no similar date has been set for sectors not covered by CBAM.

In any case, as market players with knowledge of the matter comment, the messages remain "ambiguous" and certainly indistinct as to the Commission's real objectives or, even more so, the decisions it will take at the "end of the day" given that, on the one hand, the "models" and "scenarios" it has "run" and ordered in view of the revision of the mechanism are "at their strictest", and on the other hand, the pressures continue to be suffocating, with a market executive stating that "there will be a fight in the next two weeks".

source: energypress.gr

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