ETS Phase IV Proposal

Attached is my proposal to Parliament and press statement for Phase IV of the EU ETS


Please find attached my proposal to Parliament for Phase IV of the EU ETS and below accompanying press release.

Paris Agreement, Focussed Carbon Leakage and Innovation at the Heart of Duncan’s ETS Proposal

Ian Duncan MEP today published his report on Phase IV of the EU ETS putting heightened ambition to tackle climate change, focussed carbon leakage protection, and greater innovation at the heart of his proposal to fellow MEPs.

The Duncan report includes a 'triple lock' of ambition:

- The possibility to increase the annual emissions reduction rate (Linear Reduction Factor) after the first UN global stocktake in 2023,

- Empowering Member States to retire allowances connected with national electricity capacity closures,

- Empowering the Commission to put a proposal to the Parliament and Council if overlapping EU energy policies are affecting the market balance.

On carbon leakage, Duncan has proposed a more focussed method of distributing allowances to industry at risk of leaving the EU due to the cost of environmental regulation, while ensuring that even the most efficient installations don’t suffer an allowances ‘haircut' due to a Cross Sectoral Correction Factor (CSCF).

The report proposes four categories of carbon leakage risk: Very high, high, medium and low with a corresponding percentage of free permits for industry in each category.  Duncan has also proposed that, should a CSCF apply at any point in the Phase, up to 2% of allowances eligible for auction should be transferred to the free allocation pot to ameliorate its impact.

To encourage industrial innovation, including Carbon Capture and Storage (CCS) in Europe, the report proposes boosting the innovation fund with 150 million extra allowances (worth up to 3.75 billion Euros) taken from unallocated allowances at Phase III and a relaxation of the criteria to access the fund.

Other proposals include a more dynamic system of allocation to avoid windfall profits and under-allocation, as well as bolstered simplification measures and more support for small emitters.

Speaking on the publication of the report, Ian Duncan said:

“Right now the ETS is like a car without an engine, we need to ensure it is fit to do the job it should and drive emissions reductions in Europe.   The Paris Agreement has set a test for all of us, and our legislation must be fit to adapt to the new targets that Paris will produce.

As our climate change targets increase, free allocation will become scarcer. Accordingly we have to ensure that free allowances are allocated as efficiently as possible, while avoiding the most efficient plants in Europe from having their allowances stripped, as they presently experience.

Innovation is critical to the continued growth of industry and jobs in Europe which is why I believe we need to scale up the innovation fund by up to 3.75 billion Euros and make the fund more accessible.

These changes taken together will ensure the ETS is both an ambitious and effective tool to meet our climate change obligations while promoting jobs and growth in Europe’s industry”