The EU Commission has launched a consultation to revise guidelines for the carbon market.
A consultation has been proposed by the EU Commission with the aim of adjusting state aid rules for the EU Emissions Trading System (ETS) beyond 2021.
This would include a reduction in the number of sectors which are eligible for compensation from their respective governments. As well as this, the consultation would also look at lowering the rate of compensation and adjusting the rate based on decarbonisation measures taken by companies.
Current ETS rules are in place to avoid companies moving their carbon intensive operations outside of the EU where the climate policies are more relaxed. Also known as ‘carbon leakage’, this would reduce economic activity within the EU and have no impact on global emissions.
The EU ETS requires EU firms to purchase allowances which are equivalent to their emissions level. They are also required to pay more for their electricity as energy suppliers pass on carbon costs to the consumer.
However, the scheme currently offers compensation for both costs based on specific conditions. Companies can receive free emission allowances from the EU which reduces direct costs, while EU member states can offer compensation for the indirect costs passed on by the supplier; this is determined by the state aid guidelines.
€1 trillion is set to be invested in the European Green Deal and the commission has set out a draft of revised rules which would result in stricter conditions relating to member states and their compensation to businesses for indirect carbon costs.
The amount of sectors eligible for compensation will also be reduced from 14, to 8 – focusing on industries which are most prone to ‘carbon leakage’.
The revised rules would also see the compensation rate lowered to 75%, from 85% for the 2021 trading period onwards.
Non-energy efficient technologies would also be excluded from compensation and conditions would be put in place to ensure any compensation is conditional based on a company’s decarbonisation efforts.
Any guidelines would also need to work alongside any future legislation, as part of the European Green Deal which targets net zero emissions by 2050.