Irish EU presidency proposes slower cuts to industry's free carbon permits

The EU's Irish presidency has proposed changes to the bloc's carbon market that would slow the phase-out of free emissions permits for industry and exempt smaller ‌installations from new decarbonisation requirements, a compromise text showed on Sunday.

The text, which EU countries will debate on Wednesday, is part of talks on the European Commission's review of the EU Emissions Trading System. Brussels is redesigning the scheme to meet the EU's legally binding goal of cutting net greenhouse gas emissions ‌by 90% by 2040 from 1990 levels. The ETS, which covers power generation, industry, aviation and shipping, puts a price on carbon by requiring ‌companies to surrender a permit for every metric ton of CO2 they emit. The scheme was designed to deliver the EU's 2030 climate target and, if left unchanged, would reduce the supply of permits to near zero by 2039.

Each year, around 57% of ETS permits are auctioned, while the rest are given to industries for free to curb their CO2 bills, ⁠helping them ​compete with foreign rivals that do ⁠not face similar costs. A key change concerns industrial benchmarks, which determine how many free permits sectors such as steel, chemicals, cement and fertilisers receive. The text would base benchmarks on ⁠the most efficient installations representing 10% of a sector's production volume, replacing the current method based on the 10% most efficient installations. Industry groups have argued the existing method allows ​a small number of exceptionally efficient plants to disproportionately influence the benchmark.

It would also phase in benchmark cuts through annual updates rather ⁠than in one step every five years, resulting in a more gradual reduction in free allowances. Under the compromise, small installations — those that received fewer than 5,000 free permits over the previous allocation ⁠period — ​would be exempt from the Commission's proposed requirement to submit decarbonisation investment plans in order to qualify for free permits.

For larger installations, companies would be able to access the final 20% of their free allocation once construction begins on an eligible decarbonisation project, rather than waiting until the project ⁠is completed under the Commission proposal. The text also broadens opportunities for companies to pool investments across industrial clusters and value chains, and clarifies that ⁠certain heat-pump investments connected to district-heating networks ⁠can count towards compliance with investment requirements.

"The Irish Presidency is taking a constructive approach to deliver agreement on the ETS1 Review at the December Environment Council," a spokesperson for the Irish presidency said on Sunday. EU governments and the ‌European Parliament must each ‌agree their negotiating positions before entering talks to agree a final law.