Room to improve... Where ambition can be increased in EU ETS plans

News Article

As EU environment ministers meet to discuss the EU Emissions Trading System (EU ETS), Eurelectric highlights that there is scope for higher ambition in the proposals to align the system with the 2030 climate target. 

Eurelectric is supporting the overall direction of the Commission’s proposals to reform the ETS as part of the 'Fit for 55' package. This includes an increased linear reduction factor (LRF) to 4.2%, combined with a one-off reduction of 117 million allowances as of 1 January 2024. The Market Stability Reserve (MSR) intake rate will be kept at 24%.  

Although the Modernisation Fund will is proposed to receive a boost of an additional 2.5% of the cap to financially support the energy transition among lower-income Member States, we recommend that the extra cap be calculated on the entire 2021-2030 period – and not from 2024 to 2030, as is currently proposed on the table.  

Our series of recent amendment proposals also calls for the lowering of the MSR thresholds. This is to ensure the effectiveness of the reserve. While we welcome the introduction of a buffer zone between the total number of allowances in circulation and the MSR’s upper threshold (833 million), an upper level of 1,096 million would weaken its effectiveness.  

To address this, we suggest that both the MSR’s buffer zone upper level (1,096 million) and the upper threshold for hedging (833 million) should be lowered to properly reflect an increasingly decarbonised economy and gradually declining hedging requirements.  

The exact levels should be determined through analysis to ensure a smooth market functioning. 

Finally, we suggest that the separate self-standing system for buildings and road transport should not lead to an automatic merging with the existing ETS – at least, not until the former has proven to work well, and does not negatively impact the integrity and functioning of the existing trading system. 

Policy coherence is important between different instruments in the ‘Fit for 55’ package to ensure a straightforward implementation, while the “polluter pays” principle remains respected. 

For more information read our reaction paper to the proposal and the amendments. The electricity industry wants to see the EU ETS deliver on its promies.