By Kira Taylor
(EurActiv) — EU finance ministers reached an agreement Tuesday (4 October) to raise 20 billion euros in the bloc’s carbon market to support the transition away from Russian energy, paving the way for talks with the European Parliament to finalize the plan.
Tuesday’s deal is part of a broader 300 billion euro plan presented by the European Commission in May to accelerate the energy transition following the Kremlin’s military aggression in Ukraine.
“Today we have made a major step forward in making Europe more independent of fossil fuels from Russia,” said Zbyněk Stanjura, Minister of Finance of the Czech Republic, who assures the rotating presidency of the EU.
“Given the geopolitical context since Russia started its military aggression against Ukraine, and given the latest attacks on energy infrastructure in Europe, I am sure that it is necessary to push for a quick agreement on this proposal,” he added.
Proposal will add a new chapter on energy national recovery plans approved by the European Union to revive the economy following the COVID-19 crisis two years ago.
Reserve of market stability preserved
Brussels initially suggested releasing carbon credits from the Market Stability Reserve, a mechanism established in 2015 to skim excess allowances from the emissions trading system to support the price of carbon and encourage reductions. of CO2.
But EU countries, such as Germany, France, the Netherlands and Denmark, were opposed to the idea, said Agnese Ruggiero of Carbon Market Watch, a green NGO. And in the European Parliament, all the main political groups are also fiercely against it.
With its proposal, the European Commission has probably tried to kill two birds with one stone by raising funds and responding to calls from eastern EU countries to fight against high prices on the carbon market, has said Ruggiero.
But the proposal risked causing a negative spiral as releasing more allowances would lower Emissions Trading System (ETS) prices, requiring more allowances to be released to reach the 20 billion euro mark, she explained.
Experts have also criticized the Commission’s plan, saying it would undermine trust in the ETS at a time when the EU needs a high carbon price to support the bloc’s more ambitious 2030 decarbonisation targets. .
EU countries ready to clash with Parliament
Instead, EU ministers backed a combination of funds, including drawing 75% of the €20 billion Innovation Fund and 25% from the advance sale of carbon allowances (frontloading).
Although more allowances would be sold in the short term, there would be no new CO2 allowances added to the ETS, which would increase pressure on EU countries to accelerate emission reductions in the second half of the decade in order to meet the bloc’s 2030 target.
But the idea of using the Innovation Fund is rejected by the European Parliament, which would prefer to see the 20 billion euros taken from the regular pool of emission allowances.
“We strongly disagree with the bulk of the money coming from the innovation fund, because we need this fund to support the transition of the industry,” said Peter Liese, an MEP. German who is the chief negotiator of the reform of the ETS in the European Parliament. .
“This is completely unacceptable to us. And we will fight hard against this proposal” in the final talks with EU member states, he added, saying member states like France and the Bas were on the side of Parliament.
Last week, Liese presented a common position on the issue with the four largest political groups in Parliament – the centre-right European People’s Party (EPP), the left-wing Socialists and Democrats (S&D), the centrist Renew Europe (RE) and the Greens.
Despite Parliament’s concerns, Federico Sibaja of think tank Sandbag said there are benefits to pulling money from the Innovation Fund too.
“These resources would be better spent than how they are spent now because the Innovation Fund projects are really focused on innovative technologies that may not be deployed in the next few years. When in reality the money from the stimulus funds will immediately be spent on mitigation strategies,” he explained.
The scope of the Innovation Fund should also be addressed in broader discussions on carbon market reform, he added.
However, it is not yet clear whether the negotiations will take place as part of broader carbon market reform, which would allow bargaining on the record, or whether they will be addressed in separate negotiations.
The European Parliament is expected to vote on its position in November. It will then negotiate the plan with EU countries.
If passed, Parliament’s ‘frontloading’ proposal would leave EU countries with fewer allowances until the end of the decade, meaning the pressure to decarbonise ‘will be even greater’ as the EU is getting closer to 2030, Liese said.
“That’s why member states are not so happy,” he admitted.
The European Commission hopes that the proposal will be adopted early next year.