Environment Committee Debate
My speech to the Environment Committee today on the EU ETS
- The report seeks to strike the right balance between protecting jobs and the environment.
- It is built on cooperation and extensive dialogue with shadows - I thank them for their time and cooperation so far, and want to see that continue throughout the next stages. I would also like to put on record my thanks to both the ITRE committee for their report, and the DEVE committee for its opinion.
- At the end of the day, parliament’s position must be coherent and logical - it must be workable for the industries that it affects and ambitious for the climate it seeks to protect. I want us to deliver a system that is ambitious, fair and keeps us within our carbon budget without penalising the best performers in each sector.
Measures concerning industry:
- 150 million extra allowances for the innovation fund (increasing by a third) worth up to 3.75 billion euros - as well as simplifying access to funding will be critical to achieving the ultimate ambition of EU industries to innovate out of climate change.
- More dynamic allocation is crucial if we are to stop windfall profits on the one hand and undersupply on the other.
- A new benchmark rating of 0.3% will help those industries with high process emissions and those where efficiency improvements over the last eight years have not met the 0.5% per year minimum amount specified in the Commission proposal.
- Raising the small emitters threshold from 25,000 tonnes of C02 equivalent to 50,000 tonnes of CO2 equivalent will give many small emitters, from the ceramics sector for example, the option to take equivalent measures. Together plants emit only 5% of all emissions in the EU ETS but they comprise a significant number of installations and an even greater number of jobs.
- Allowing all plants under 5,000 tonnes of CO2 equivalent to opt out of the ETS without equivalent measures will negate less than 1% of all emissions but relieve a significant administrative burden on very small installations.
- The tiering approach I have included is borne of the need to stay within our carbon budget and to avoid a cross sectoral correction factor which penalises the best performers in every sector. While the desire to supply 100% free allowances to the best performers in every sector is admirable, its success is predicated on an ETS that does not become more ambitious over time and in line with the Paris Agreement, a benchmark reduction of 1% per year for each product which we know is unachievable for some, and a growth rate of no more than 0.5% per year. I do not want to send a signal to Europe’s industries that if they grow by more than 0.5% per year they will be penalised by the ETS.
- The tiering system I have outlined judges sectors and subsectors risk of carbon leakage and allocates our limited pot of allowances on that basis. The more exposed a sector is, the more free allowances it will receive. Unlike the Anglo-French approach, no sector will receive nothing - this is an important caveat for smaller industries whose voice is often frowned out in this debate.
- I have sought to put a triple lock of ambition in the report. I think we all agree on the need to make the ETS post-Paris ready but we differ on how to get there. Let me try and develop my thinking further on these points.
- First and foremost, lock one stipulates that the Linear Reduction Factor should change to reflect Post Paris ambition once that ambition has been calculated and quantified by the UN during the first global stock take in 2023. Now I have heard arguments for a higher LRF - ranging anywhere between 2.4% and 4.2% depending on who you listen to.
- On this point I want to say I am not adverse to a higher LRF - hence why I believe it should be reviewed in light of our Paris commitments - and I would be happy to accept and even propose an LRF of 2.4% but I do not believe that increasing the LRF is the panacea that some make it out to be. Instead I believe we can go further.
- Increasing the LRF will not solve the root causes of oversupply and low pricing within the market. Which brings me neatly to locks two and three.
- Lock two is designed to tackle one of the primary drivers of market depression, which is the impact of overlapping policies within the system. Studies show that by 2020 the Energy Efficiency Directive and the Renewables Directive alone will have suppressed the market by 700 million EU allowances. By empowering the Commission to assess the impact of overlapping policies on the ETS and come up with a proposal to address it, I have sought to lay the groundwork for a powerful new lever to both decrease the surplus of allowances and increase the harmony between the EU’s various climate and energy policies. From my work on dossiers such as the review of the Energy Efficiency Directive I know this is a concern shared by politicians from across parties, and I do believe, if we are being clever, a strengthened compromise amendment could see a significant adjustment to the CAP before the beginning of the phase on these grounds.
- I will say this without further comment - the impact of increasing the LRF to 2.4% is to remove 242 million allowances over a ten year period, the impact of tackling overlapping EU policies is to remove 700 million allowances immediately.
- Lock three concerns Member State action to decarbonise the power sector. Emission reduction measures at a national level in the electricity generating sector are working. The UK, which produces annually 75m tonnes of CO2 from coal, will fully decarbonise by 2025. Other EU nations have equally bold ambitions. My proposal will allow member states to retire these surplus allowances. This approach, founded upon subsidiarity, recognises that member states have a serious role in powering ambition within the ETS, and that they need not move at the pace of the slowest camel in the train.
- The measures I have put forward I believe can help get us to an ambitious and realistic parliament position that is based on compromise between the views of individual member states and politicians here today. I look forward to continuing to work closely with my shadows as we carry on the debate going forward, should my constituents not vote me out of a job this Thursday - in which case, good luck to you all!