New EU carbon allowance mechanism proposed

New EU carbon allowance mechanism proposed
Published: 15 December 2016


MEPs have proposed that a system should be established for the cement and clinker sectors, among others, whereby importers will be required to surrender allowances to cover for the carbon content of imported goods. The Border Adjustment Measurement (BAM) scheme should be fully compatible with WTO rules and "focus on sectors with a low trade intensity and high emissions intensity such as cement," MEPs said.

"Once this mechanism is in place, no free allocation shall be given to sectors and subsectors that are deemed to be at risk of carbon leakage but covered by the import inclusion carbon mechanism," the provision says.

The proposed measure represents a compromise in response to the the Socialists and Democrats's (S&Ds) demand that the cement sector should be excluded from the list of energy-intensive, trade-exposed industries that are eligible for free allowances.

The compromise proposed "makes the outlook for 2019 onwards much more bullish than it otherwise would be," said UK consultancy Energy Aspects analyst, Trevor Sikorski. But there is still a long way to go before it is adopted as legislation, he warned.

See Cembureau's responce to the BAM proposal can be read here

EU Emissions Trading reform
The European Parliament's two biggest parties, the European People's Party (EPP) and the S&D also agreed a new deal on EU emissions trading scheme (EU ETS) reform whereby the removal rate of surplus allowances by the market stability reserve (MSR) will be increased, reports Argus Media.

The deal comes just in time for a vote by parliament's environment committee on the proposed amendment of the EU ETS directive scheduled for today. The EPP and the S&D, along with the European Conservatives and Reformists (ECR), have agreed a compromise whereby the MSR's intake rate will be increased in the first four years of its operation.

Under their proposal, 16 per cent of surplus allowances will be placed in the MSR in 2019, its first year of operation, followed by 24 per cent each year, starting from 1 September, until 2022.

The compromise also proposes that 800m allowances should be cancelled from the MSR on 1 January 2021. This represents a notable increase from a proposed 300m cancellation amount that was adopted by the industry and energy committee (ITRE) in October, says Argus Media.

But the linear reduction factor (LRF) — the annual rate at which the EU ETS allowance quota tightens will not increase from the 2.2 per cent originally envisaged by the European Commission.

Parties further agreed a provision whereby the share of auctioned allowances will decrease by up to five per cent over phase four (2021-30) if more free allowances are needed to protect EU industries at risk of carbon leakage. Where the auction share is not reduced or auctioned, allowances are cut by less than five per cent, then any remaining allowances will be cancelled up to a maximum of 200m.