Ribera: we remain committed to climate
Executive VP Teresa Ribera started by pointing out that climate change means destruction and reminded everyone that the Commission remains committed to fight climate change.
More specifically on prices, she said green is cheaper and wiser, while dependency is expensive. She lauded the ETS for making polluters pay and generating revenues needed to invest in our future.
She then handed over to Wopke Hoekstra to present the ETS review, and Dan Jørgensen for the electrification action plan and the regulation to future-proof electricity bills. The opening remarks and transcripts are available here.
Hoekstra: support industrial decarbonisation, expand scope to mid-range non-EU flights
Climate commissioner Wopke Hoekstra explained that the ETS review will trigger hundreds of billions of investments on European soil. He also pointed out that unlike the previous reforms; the EU now defines a clear conditionality for receiving support.
Hoekstra did not initially provide details on the proposed ETS cap for the period 2031-2040 (the annual issuance of emission allowances), but he was asked about this during the Q&A session. In response, he did not specify the share of the abatement efforts for ETS and non-ETS sectors, but he did provide detailed numbers for the linear reduction factor that effectively decides the issuance of EUAs. Currently at 4.3% (and set to increase to 4.4% in 2028-2030), the LRF will be reduced to 3.7% in 2031, then drop again to 1.7% in 2036, which is when Europe will start accepting international climate credits to count for up to 5 percentage points of the 90% reduction target. See more details in our take on the proposed cap trajectory
Hoekstra stressed that these numbers are “90% proof”. “If we compare to non-ETS sectors: we are not asking more, nor less, from ETS”
During his opening remarks, Hoekstra pointed out that despite being a formidable asset in the EU’s toolbox, the ETS comes with some weaknesses, most notably when it fails to produce a level playing field compared to manufacturers located outside Europe. So far, CBAM has not fully prevented this.
Another point was made on the fact that that while many European companies have invested in decarbonisation, others have simply invested abroad (in countries with laxer climate regimes).
A third weakness is that while member states receive roughly 80% of the EUA revenues, less than 10% of that has been spent at industrial decarbonisation.
Hoekstra went on to present three main elements in the ETS review proposal. First, that the direction is fully aligned with the EU’s 2040 climate target of reducing emissions by 90%. It will also ensure that investments made will be rewarded.
Second, that the approach will now be more business friendly and savvy. Hoekstra said first mover will continue to be rewarded, all while free allocation of EUAs will extend beyond 2030. In return, the recipient companies must invest in decarbonisation in Europe. See more on that here.
On international credits, up to 5% of the 90% 2040 emissions-reduction target may be met using international credits. Hoekstra described this as a discretionary option rather than a settled commitment, to be exercised only “if, in 2035, it is clear that it is cost-effective,” with a Commission report on their use due by 2033. Of the 5%, roughly 2 percentage points would apply within ETS-covered sectors and the remaining 3 outside ETS scope.
Furthermore, industries will benefit from the fact that member states’ governments will need to spend at least 50% of their EUA revenues on industrial decarbonisation, an objective that will also be supported by the new Industrial Decarbonisation Bank and a €30 billion Investment Booster that will be available before 2030.
Third, the ETS will cover more sectors. On maritime, Hoekstra highlighted that much more EUA-generated money will be channelled back to the sector to provide a solid push to get its decarbonisation efforts off the ground. He put the figure at €15 billion per year, which is eight times more than now. Key points will be to keep incentivising sustainable biofuels by creating a pan-European market and expanding to smaller vessels.
Non-EEA aviation is in, but only up to 5,000 km
Hoekstra made a point that aviation is the only sector with consistently rising emissions, and one in which European operators are facing a real challenge in terms of an uneven playing field. In response, he said the EU will apply the ETS also on outbound flights starting in 2029. He did not explain the choice of year, which differs from the general expectation that a scope expansion would become operational already in 2027.
Importantly, Hoekstra did explicitly limit the inclusion of outbound flights to affect only those up to 5,000 km. If counting from Europe’s geographical centre (or from Brussels), that would include all states near Europe, as well as Qatar and the United Arab Emirates, both of whom are big international flight hubs. Notably, with the suggested radius, the US, China and India will all be beyond. This suggests the Commission has sought to avoid antagonising the countries that effectively stopped the EU’s previous attempt to include international aviation in the ETS, back in 2021.
Also, all private jets departing or landing will be included in the ETS. Hoekstra was very clear on this, stating that “separately, and independent of the distance threshold, all private jet flights (inbound and outbound, regardless of origin or distance) will be brought into ETS scope, with no exemption.”
On sustainable aviation fuel, Hoekstra cited a substantial funding increase.
As for municipal waste incineration emissions, a sector set up for possible inclusion in ETS, Hoekstra said the idea is to incentivise recycling over garbage creation.
Lastly, he said the proposal envisages some 250 Mt worth of permanent domestic removal units to be integrated into the ETS.
Jørgensen: double the rate of electrification
Energy commissioner Dan Jørgensen emphasised that since the closure of the Strait of Hormuz, Europe has paid more than €50 bn extra for its energy, without receiving a single extra molecule. This shows Europe’s vulnerability. Instead of expensive polluting molecules, Europe needs to switch to cheap, clean, homegrown electrons.
According to Jørgensen, this is also the right way to improve the continent’s competitiveness. Just increasing renewables and nuclear would not be enough. Jørgensen stressed that the electrons need to be used in in transport, housing and industry, hence the proposal to double the electrification rate: “it took us from the Stone Age to get [the electrification rate] to 23%, and now we want to double it in 14 years”.
That said, Jørgensen also stressed the need to drive electricity prices down. This is to be achieved through a smarter use of the existing electricity grids rather than unnecessary expansions. Key in this respect will be to use smart meters for a more flexible consumption of electricity.
Jørgensen also said the Commission will present a plan later this year, for how to phase out subsidies for fossil fuels.
Veyt’s take
For more details on what’s in the legislative proposal and how it is likely to be bearish for the carbon price, request access to Veyt’s first take of the review and our EU ETS analysis.
See also the European Commission’s web portal.
