Article 8 Coordination with Directive 96/61/EC
Member States shall take the necessary measures to ensure that, where installations carry out activities that are included in Annex I to Directive 96/61/EC, the conditions of, and procedure for, the issue of a greenhouse gas emissions permit are coordinated with those for the permit provided for in that Directive. The requirements of Articles 5, 6 and 7 of this Directive may be integrated into the procedures provided for in Directive 96/61/EC.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The European Green Deal Communication 1 launched a new growth strategy for the EU that aims to transform the EU into a fair and prosperous society with a modern, resource-efficient and competitive economy. It reaffirms the Commission’s ambition to increase its climate targets and make Europe the first climate-neutral continent by 2050. Furthermore, it aims to protect the health and well-being of citizens from environment-related risks and impacts. The necessity and value of the European Green Deal have only grown in light of the very severe effects of the COVID-19 pandemic on the health, living and working conditions and well-being of the Union’s citizens. Tackling climate change is an urgent challenge. In line with the scientific findings of the Intergovernmental Panel on Climate Change (IPCC) Special Report, global net-zero CO 2 emissions need to be achieved around 2050, and neutrality for all other greenhouse gases as soon as possible later in the century. This urgent challenge requires the EU to step up its action and demonstrate global leadership by becoming climate neutral by 2050. This objective is set out in the Communication ‘ A Clean Planet for all ’ - A European strategic long-term vision for a prosperous, modern, competitive and climate-neutral economy’ 2 . Based on the European Green Deal strategy and a comprehensive impact assessment, the Commission’s Communication of September 2020 on Stepping up Europe’s 2030 climate ambition 3 (‘2030 Climate Target Plan’) proposed to raise the EU's ambition and put forward a comprehensive plan to increase the European Union’s binding target for 2030 towards at least 55 % net emission reduction, in a responsible way. Raising the 2030 ambition now helps give certainty to policymakers and investors, so that decisions made in the coming years do not lock in emission levels inconsistent with the EU’s objective to be climate neutral by 2050. The 2030 target is in line with the Paris Agreement objective to keep the global temperature increase to well below 2°C and pursue efforts to keep it to 1.5°C. The European Council endorsed the new EU binding target for 2030 at its meeting of December 2020 4 . It also called on the Commission “ to assess how all economic sectors can best contribute to the 2030 target and to make the necessary proposals, accompanied by an in-depth examination of the environmental, economic and social impact at Member State level, taking into account national energy and climate plans and reviewing existing flexibilities ”. To this end, the European Climate Law 5 , as agreed with the co-legislators, makes the EU’s climate neutrality target legally binding, and raises the 2030 ambition by setting a target of at least 55 % net emission reductions by 2030 compared to 1990. In order to follow the pathway proposed in the European Climate Law, and deliver this increased level of ambition for 2030, the Commission has reviewed the climate and energy legislation currently in place that are expected to only reduce greenhouse gas emissions by 40 % by 2030 and by 60 % by 2050. This ‘ Fit for 55 ’ legislative package, as announced in the 2030 Climate Target Plan, is the most comprehensive building block in the efforts to implement the ambitious new 2030 climate target, and all economic sectors and policies will need to make their contribution. The European Council also invited the Commission in December 2020 to consider exploring ways to strengthen the EU Emissions Trading System (EU ETS), while preserving its integrity and taking into account the need to address distributional concerns and energy poverty. The European Council also invited the Commission to consider proposing measures that enable energy-intensive industries to develop and deploy innovative climate-neutral technologies while maintaining their industrial competitiveness. The current ETS legislation was revised in 2018 to deliver a 43 % reduction in EU ETS emissions by 2030 compared to 2005, coherent with an EU economy-wide emissions reduction target of at least 40 % by 2030 compared to 1990. More recent analysis by the Commission services, however, indicates that, if the legislation remains unchanged, the sectors currently covered by the EU ETS would instead achieve emission reductions of -51 % in 2030 compared to 2005 6 . Even though this would mean outperforming the contribution of -43 % referred to above, it would still be an insufficient contribution to an overall target of at least -55 % compared to 1990. Therefore, the general objective of this initiative is to revise the ETS Directive in a manner commensurate with the 2030 climate ambition to reach at least 55 % net greenhouse gas emission reductions by 2030 below 1990 levels and with a gradual and balanced trajectory towards climate neutrality by 2050, in a cost-effective and coherent way while taking into account the need for a just transition and the need for all sectors to contribute to the EU’s climate efforts. As explained in the impact assessment, contribution of the sectors covered by the EU ETS of -61 % compared to 2005 is considered as best reflecting the 2030 Climate Target Plan results and is taken as the EU ETS ambition contributing to an overall target of at least -55 % compared to 1990. Increasing the EU ETS’s environmental contribution entails adjusting primarily the total number of allowances issued under the EU ETS (the ‘cap’). However, a reduced amount of allowances available to the market affects other pillars of the EU ETS and the carbon price. It impacts core principles such as the need for market stability, the protection against the risk of carbon leakage, the carefully balanced distributional effects between Member States, and the availability of funds for the increased investment needs in low-carbon technologies. At the same time as the EU ETS is brought in line with the overall target of at least -55 % compared to 1990, this increased climate ambition also needs to be reflected in the contribution to the EU’s climate efforts of sectors currently outside of the EU ETS. The impact assessment accompanying the 2030 Climate Target Plan found that in the absence of additional measures, emissions in certain sectors would not decrease as much as required to be on a path to achieve an economy-wide 55 % reduction in emissions. In fact, in maritime transport, emissions today are higher than in 1990, and maritime transport emissions are expected to grow further in a business-as-usual scenario . All pathways assessed as part of the 2030 Climate Target Plan and the Sustainable and Smart Mobility Strategy 7 envisage 80-82 % emissions reductions from international shipping by 2050 relative to 1990 (equivalent to 88-89 % emissions reductions relative to 2008) 8 , in order to be consistent with the increased level of climate ambition. Therefore, the European Commission undertook the commitment to extend the EU ETS to maritime transport as part of a basket of EU measures to address emissions from maritime transport , along with action agreed within the IMO. In this context, the Commission welcomes the progress that the European Parliament and the Council have made since 2019 on the proposal to amend Regulation (EU) 2015/757 9 in order to take appropriate account of the global data collection system for ship fuel oil consumption data ( COM(2019) 38 final) and the Commission takes note of the European Parliament’s Plenary support for the extension of the EU’s Emissions Trading System (EU ETS) to cover maritime transport emissions from 2023. Emissions from maritime transport should be included in the existing emissions trading system. To ensure a smooth transition, a phase-in period should be introduced where shipping companies would only have to surrender allowances for a portion of their verified emissions, gradually rising to 100 % over 4 years. As only around 90 million tons of CO 2 would be added through the extension to maritime transport to the existing ETS, the impact on the availability of allowances for other sectors covered would remain limited. To take into account the inclusion of the maritime sector in the EU ETS, Regulation (EU) 2015/757 should be amended, in particular as regards the reporting of aggregated emissions data at company level and considering the role of administering authorities in respect of shipping companies. These amendments complement those proposed in COM(2019) 38 final. As specified in the 2030 Climate Target Plan, the building sector is currently responsible directly and indirectly for 36 % of energy-related greenhouse gas emissions in the EU and has a large cost-effective potential to reduce emissions. More than half of those emissions are already covered by the existing ETS, notably the provision of electricity for use in buildings and most emissions of district heating. However, many homes are still heated with outdated systems that use polluting fossil fuels such as coal and oil. The sector of road transport also has a significant cost-effective reduction potential. Today, road transport accounts for a fifth of the EU’s greenhouse gas emissions and increased its emissions by over a quarter since 1990. As already considered in the European Green Deal Communication, the Commission is proposing to include the building sector and road transport into emissions trading. The coverage of these sectors by emissions trading, when put in the context of other appropriate regulatory and investment measures for the sectors in question, would provide for increased and more harmonised economic incentives to reduce emissions across these sectors in the EU and increased certainty of delivery of the emission reductions for those sectors. Emissions trading for the buildings and road transport sectors should be introduced through separate but adjacent emissions trading. This will avoid any disturbance of the well-functioning emissions trading system for stationary installations and aviation, given the different reduction potentials in those sectors and different factors that influence the demand. Any possible merger of the two systems should be assessed only after a few years of functioning of the new emissions trading, based on experience. The extension to buildings and road transport requires an upstream approach to regulated entities. Market stability is crucial for the EU ETS to function correctly to achieve its targets. To ensure market stability, Decision (EU) 2015/1814 10 established the market stability reserve (MSR). It began operating in January 2019. The objectives of the MSR are to tackle historical supply-demand imbalances and to make the EU ETS more resilient to major imbalances. The mechanism must preserve regulatory stability and ensure long-term predictability. Article 3 of the Decision requires the Commission to review the functioning of the reserve within three years of the start of the operation. This review needs to be considered together with the effects for market stability of increasing the ambition of the EU ETS, so the necessary amendments to the reserve are proposed together with the amendments to the EU ETS with this proposal. In this context, this proposal, as part of the Fit for 55 package, has the following specific objectives: – strengthening the EU ETS in its current scope in order to provide the appropriate contribution to an overall target of at least -55 % GHG emissions compared to 1990; – ensuring continued effective protection for the sectors exposed to a significant risk of carbon leakage while incentivising the uptake of low-carbon technologies; – addressing the distributional and social effects of this transition, by reviewing the use of auctioning revenues and the size and functioning of the low-carbon funding mechanisms; – ensuring that the other sectors than those currently included in the EU ETS contribute cost-effectively to the emission reductions needed in line with EU targets and Paris Agreement commitments notably by including emissions from maritime transport and emissions from buildings and road transport under the rules of the EU ETS while ensuring synergies with other policies targeting those sectors; – reviewing the monitoring, reporting and verification system of CO 2 emissions from maritime transport to take into account the inclusion of the maritime transport sector in the EU ETS; – reviewing the market stability reserve in line with the corresponding legal obligation and examining possible amendments to its design, to fulfil the legal objectives in the MSR decision and to address any issues that may be raised in the context of the increased ambition.
Revised version (Article 8 Coordination with Directive 2010/75/EU):
Member States shall take the necessary measures to ensure that, where installations carry out activities that are included in Annex I to Directive 2010/75/EU, the conditions and procedure for the issue of a greenhouse gas emissions permit are coordinated with those for the issue of a permit provided for in that Directive. The requirements laid down in Articles 5, 6 and 7 of this Directive may be integrated into the procedures provided for in Directive 2010/75/EU. The Commission shall review the effectiveness of synergies with Directive 2010/75/EU. Environmental and climate-relevant permits shall be coordinated to ensure efficient and speedier execution of measures needed to comply with Union climate and energy objectives. The Commission may submit a report to the European Parliament and to the Council in the context of any future review of this Directive.
Article 9 Community-wide quantity of allowances
The Community-wide quantity of allowances issued each year starting in 2013 shall decrease in a linear manner beginning from the mid-point of the period from 2008 to 2012. The quantity shall decrease by a linear factor of 1,74 % compared to the average annual total quantity of allowances issued by Member States in accordance with the Commission Decisions on their national allocation plans for the period from 2008 to 2012. The Commission shall, by 30 June 2010, publish the absolute Community-wide quantity of allowances for 2013, based on the total quantities of allowances issued or to be issued by the Member States in accordance with the Commission Decisions on their national allocation plans for the period from 2008 to 2012. The Commission shall review the linear factor and submit a proposal, where appropriate, to the European Parliament and to the Council as from 2020, with a view to the adoption of a decision by 2025.
Article 9a Adjustment of the Community-wide quantity of allowances
1. In respect of installations that were included in the Community scheme during the period from 2008 to 2012 pursuant to Article 24(1), the quantity of allowances to be issued from 1 January 2013 shall be adjusted to reflect the average annual quantity of allowances issued in respect of those installations during the period of their inclusion, adjusted by the linear factor referred to in Article 9. 2. In respect of installations carrying out activities listed in Annex I, which are only included in the Community scheme from 2013 onwards, Member States shall ensure that the operators of such installations submit to the relevant competent authority duly substantiated and independently verified emissions data in order for them to be taken into account for the adjustment of the Community-wide quantity of allowances to be issued. Any such data shall be submitted, by 30 April 2010, to the relevant competent authority in accordance with the provisions adopted pursuant to Article 14(1). If the data submitted are duly substantiated, the competent authority shall notify the Commission thereof by 30 June 2010 and the quantity of allowances to be issued, adjusted by the linear factor referred to in Article 9, shall be adjusted accordingly. In the case of installations emitting greenhouse gases other than CO 2 , the competent authority may notify a lower amount of emissions according to the emission reduction potential of those installations. 3. The Commission shall publish the adjusted quantities referred to in paragraphs 1 and 2 by 30 September 2010. 4. In respect of installations which are excluded from the Community scheme in accordance with Article 27, the Community-wide quantity of allowances to be issued from 1 January 2013 shall be adjusted downwards to reflect the average annual verified emissions of those installations in the period from 2008 to 2010, adjusted by the linear factor referred to in Article 9.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The European Green Deal Communication 1 launched a new growth strategy for the EU that aims to transform the EU into a fair and prosperous society with a modern, resource-efficient and competitive economy. It reaffirms the Commission’s ambition to increase its climate targets and make Europe the first climate-neutral continent by 2050. Furthermore, it aims to protect the health and well-being of citizens from environment-related risks and impacts. The necessity and value of the European Green Deal have only grown in light of the very severe effects of the COVID-19 pandemic on the health, living and working conditions and well-being of the Union’s citizens. Tackling climate change is an urgent challenge. In line with the scientific findings of the Intergovernmental Panel on Climate Change (IPCC) Special Report, global net-zero CO 2 emissions need to be achieved around 2050, and neutrality for all other greenhouse gases as soon as possible later in the century. This urgent challenge requires the EU to step up its action and demonstrate global leadership by becoming climate neutral by 2050. This objective is set out in the Communication ‘ A Clean Planet for all ’ - A European strategic long-term vision for a prosperous, modern, competitive and climate-neutral economy’ 2 . Based on the European Green Deal strategy and a comprehensive impact assessment, the Commission’s Communication of September 2020 on Stepping up Europe’s 2030 climate ambition 3 (‘2030 Climate Target Plan’) proposed to raise the EU's ambition and put forward a comprehensive plan to increase the European Union’s binding target for 2030 towards at least 55 % net emission reduction, in a responsible way. Raising the 2030 ambition now helps give certainty to policymakers and investors, so that decisions made in the coming years do not lock in emission levels inconsistent with the EU’s objective to be climate neutral by 2050. The 2030 target is in line with the Paris Agreement objective to keep the global temperature increase to well below 2°C and pursue efforts to keep it to 1.5°C. The European Council endorsed the new EU binding target for 2030 at its meeting of December 2020 4 . It also called on the Commission “ to assess how all economic sectors can best contribute to the 2030 target and to make the necessary proposals, accompanied by an in-depth examination of the environmental, economic and social impact at Member State level, taking into account national energy and climate plans and reviewing existing flexibilities ”. To this end, the European Climate Law 5 , as agreed with the co-legislators, makes the EU’s climate neutrality target legally binding, and raises the 2030 ambition by setting a target of at least 55 % net emission reductions by 2030 compared to 1990. In order to follow the pathway proposed in the European Climate Law, and deliver this increased level of ambition for 2030, the Commission has reviewed the climate and energy legislation currently in place that are expected to only reduce greenhouse gas emissions by 40 % by 2030 and by 60 % by 2050. This ‘ Fit for 55 ’ legislative package, as announced in the 2030 Climate Target Plan, is the most comprehensive building block in the efforts to implement the ambitious new 2030 climate target, and all economic sectors and policies will need to make their contribution. The European Council also invited the Commission in December 2020 to consider exploring ways to strengthen the EU Emissions Trading System (EU ETS), while preserving its integrity and taking into account the need to address distributional concerns and energy poverty. The European Council also invited the Commission to consider proposing measures that enable energy-intensive industries to develop and deploy innovative climate-neutral technologies while maintaining their industrial competitiveness. The current ETS legislation was revised in 2018 to deliver a 43 % reduction in EU ETS emissions by 2030 compared to 2005, coherent with an EU economy-wide emissions reduction target of at least 40 % by 2030 compared to 1990. More recent analysis by the Commission services, however, indicates that, if the legislation remains unchanged, the sectors currently covered by the EU ETS would instead achieve emission reductions of -51 % in 2030 compared to 2005 6 . Even though this would mean outperforming the contribution of -43 % referred to above, it would still be an insufficient contribution to an overall target of at least -55 % compared to 1990. Therefore, the general objective of this initiative is to revise the ETS Directive in a manner commensurate with the 2030 climate ambition to reach at least 55 % net greenhouse gas emission reductions by 2030 below 1990 levels and with a gradual and balanced trajectory towards climate neutrality by 2050, in a cost-effective and coherent way while taking into account the need for a just transition and the need for all sectors to contribute to the EU’s climate efforts. As explained in the impact assessment, contribution of the sectors covered by the EU ETS of -61 % compared to 2005 is considered as best reflecting the 2030 Climate Target Plan results and is taken as the EU ETS ambition contributing to an overall target of at least -55 % compared to 1990. Increasing the EU ETS’s environmental contribution entails adjusting primarily the total number of allowances issued under the EU ETS (the ‘cap’). However, a reduced amount of allowances available to the market affects other pillars of the EU ETS and the carbon price. It impacts core principles such as the need for market stability, the protection against the risk of carbon leakage, the carefully balanced distributional effects between Member States, and the availability of funds for the increased investment needs in low-carbon technologies. At the same time as the EU ETS is brought in line with the overall target of at least -55 % compared to 1990, this increased climate ambition also needs to be reflected in the contribution to the EU’s climate efforts of sectors currently outside of the EU ETS. The impact assessment accompanying the 2030 Climate Target Plan found that in the absence of additional measures, emissions in certain sectors would not decrease as much as required to be on a path to achieve an economy-wide 55 % reduction in emissions. In fact, in maritime transport, emissions today are higher than in 1990, and maritime transport emissions are expected to grow further in a business-as-usual scenario . All pathways assessed as part of the 2030 Climate Target Plan and the Sustainable and Smart Mobility Strategy 7 envisage 80-82 % emissions reductions from international shipping by 2050 relative to 1990 (equivalent to 88-89 % emissions reductions relative to 2008) 8 , in order to be consistent with the increased level of climate ambition. Therefore, the European Commission undertook the commitment to extend the EU ETS to maritime transport as part of a basket of EU measures to address emissions from maritime transport , along with action agreed within the IMO. In this context, the Commission welcomes the progress that the European Parliament and the Council have made since 2019 on the proposal to amend Regulation (EU) 2015/757 9 in order to take appropriate account of the global data collection system for ship fuel oil consumption data ( COM(2019) 38 final) and the Commission takes note of the European Parliament’s Plenary support for the extension of the EU’s Emissions Trading System (EU ETS) to cover maritime transport emissions from 2023. Emissions from maritime transport should be included in the existing emissions trading system. To ensure a smooth transition, a phase-in period should be introduced where shipping companies would only have to surrender allowances for a portion of their verified emissions, gradually rising to 100 % over 4 years. As only around 90 million tons of CO 2 would be added through the extension to maritime transport to the existing ETS, the impact on the availability of allowances for other sectors covered would remain limited. To take into account the inclusion of the maritime sector in the EU ETS, Regulation (EU) 2015/757 should be amended, in particular as regards the reporting of aggregated emissions data at company level and considering the role of administering authorities in respect of shipping companies. These amendments complement those proposed in COM(2019) 38 final. As specified in the 2030 Climate Target Plan, the building sector is currently responsible directly and indirectly for 36 % of energy-related greenhouse gas emissions in the EU and has a large cost-effective potential to reduce emissions. More than half of those emissions are already covered by the existing ETS, notably the provision of electricity for use in buildings and most emissions of district heating. However, many homes are still heated with outdated systems that use polluting fossil fuels such as coal and oil. The sector of road transport also has a significant cost-effective reduction potential. Today, road transport accounts for a fifth of the EU’s greenhouse gas emissions and increased its emissions by over a quarter since 1990. As already considered in the European Green Deal Communication, the Commission is proposing to include the building sector and road transport into emissions trading. The coverage of these sectors by emissions trading, when put in the context of other appropriate regulatory and investment measures for the sectors in question, would provide for increased and more harmonised economic incentives to reduce emissions across these sectors in the EU and increased certainty of delivery of the emission reductions for those sectors. Emissions trading for the buildings and road transport sectors should be introduced through separate but adjacent emissions trading. This will avoid any disturbance of the well-functioning emissions trading system for stationary installations and aviation, given the different reduction potentials in those sectors and different factors that influence the demand. Any possible merger of the two systems should be assessed only after a few years of functioning of the new emissions trading, based on experience. The extension to buildings and road transport requires an upstream approach to regulated entities. Market stability is crucial for the EU ETS to function correctly to achieve its targets. To ensure market stability, Decision (EU) 2015/1814 10 established the market stability reserve (MSR). It began operating in January 2019. The objectives of the MSR are to tackle historical supply-demand imbalances and to make the EU ETS more resilient to major imbalances. The mechanism must preserve regulatory stability and ensure long-term predictability. Article 3 of the Decision requires the Commission to review the functioning of the reserve within three years of the start of the operation. This review needs to be considered together with the effects for market stability of increasing the ambition of the EU ETS, so the necessary amendments to the reserve are proposed together with the amendments to the EU ETS with this proposal. In this context, this proposal, as part of the Fit for 55 package, has the following specific objectives: – strengthening the EU ETS in its current scope in order to provide the appropriate contribution to an overall target of at least -55 % GHG emissions compared to 1990; – ensuring continued effective protection for the sectors exposed to a significant risk of carbon leakage while incentivising the uptake of low-carbon technologies; – addressing the distributional and social effects of this transition, by reviewing the use of auctioning revenues and the size and functioning of the low-carbon funding mechanisms; – ensuring that the other sectors than those currently included in the EU ETS contribute cost-effectively to the emission reductions needed in line with EU targets and Paris Agreement commitments notably by including emissions from maritime transport and emissions from buildings and road transport under the rules of the EU ETS while ensuring synergies with other policies targeting those sectors; – reviewing the monitoring, reporting and verification system of CO 2 emissions from maritime transport to take into account the inclusion of the maritime transport sector in the EU ETS; – reviewing the market stability reserve in line with the corresponding legal obligation and examining possible amendments to its design, to fulfil the legal objectives in the MSR decision and to address any issues that may be raised in the context of the increased ambition.
Revised version (Article 9a Adjustment of the Union -wide quantity of allowances):
1. In respect of installations that were included in the EU ETS during the period from 2008 to 2012 pursuant to Article 24(1), the quantity of allowances to be issued from 1 January 2013 shall be adjusted to reflect the average annual quantity of allowances issued in respect of those installations during the period of their inclusion, adjusted by the linear factor referred to in Article 9. 2. In respect of installations carrying out activities listed in Annex I, which are only included in the EU ETS from 2013 onwards, Member States shall ensure that the operators of such installations submit to the relevant competent authority duly substantiated and independently verified emissions data in order for them to be taken into account for the adjustment of the Union -wide quantity of allowances to be issued. Any such data shall be submitted, by 30 April 2010, to the relevant competent authority in accordance with the provisions adopted pursuant to Article 14(1). If the data submitted are duly substantiated, the competent authority shall notify the Commission thereof by 30 June 2010 and the quantity of allowances to be issued, adjusted by the linear factor referred to in Article 9, shall be adjusted accordingly. In the case of installations emitting greenhouse gases other than CO 2 , the competent authority may notify a lower amount of emissions according to the emission reduction potential of those installations. 3. The Commission shall publish the adjusted quantities referred to in paragraphs 1 and 2 by 30 September 2010. 4. In respect of installations which are excluded from the EU ETS in accordance with Article 27, the Union -wide quantity of allowances to be issued from 1 January 2013 shall be adjusted downwards to reflect the average annual verified emissions of those installations in the period from 2008 to 2010, adjusted by the linear factor referred to in Article 9.
Article 10 Auctioning of allowances
1. From 2013 onwards, Member States shall auction all allowances which are not allocated free of charge in accordance with Article 10a and 10c. By 31 December 2010, the Commission shall determine and publish the estimated amount of allowances to be auctioned. 2. The total quantity of allowances to be auctioned by each Member State shall be composed as follows: (a) 88 % of the total quantity of allowances to be auctioned being distributed amongst Member States in shares that are identical to the share of verified emissions under the Community scheme for 2005 or the average of the period from 2005 to 2007, whichever one is the highest, of the Member State concerned; (b) 10 % of the total quantity of allowances to be auctioned being distributed amongst certain Member States for the purpose of solidarity and growth within the Community, thereby increasing the amount of allowances that those Member States auction under point (a) by the percentages specified in Annex IIa; and (c) 2 % of the total quantity of allowances to be auctioned being distributed amongst Member States the greenhouse gas emissions of which were, in 2005, at least 20 % below their emissions in the base year applicable to them under the Kyoto Protocol. The distribution of this percentage amongst the Member States concerned is set out in Annex IIb. For the purposes of point (a), in respect of Member States which did not participate in the Community scheme in 2005, their share shall be calculated using their verified emissions under the Community scheme in 2007. If necessary, the percentages referred to in points (b) and (c) shall be adapted in a proportional manner to ensure that the distribution is 10 % and 2 % respectively. 3. Member States shall determine the use of revenues generated from the auctioning of allowances. At least 50 % of the revenues generated from the auctioning of allowances referred to in paragraph 2, including all revenues from the auctioning referred to in paragraph 2, points (b) and (c), or the equivalent in financial value of these revenues, should be used for one or more of the following: (a) to reduce greenhouse gas emissions, including by contributing to the Global Energy Efficiency and Renewable Energy Fund and to the Adaptation Fund as made operational by the Poznan Conference on Climate Change (COP 14 and COP/MOP 4), to adapt to the impacts of climate change and to fund research and development as well as demonstration projects for reducing emissions and for adaptation to climate change, including participation in initiatives within the framework of the European Strategic Energy Technology Plan and the European Technology Platforms; (b) to develop renewable energies to meet the commitment of the Community to using 20 % renewable energies by 2020, as well as to develop other technologies contributing to the transition to a safe and sustainable low-carbon economy and to help meet the commitment of the Community to increase energy efficiency by 20 % by 2020; (c) measures to avoid deforestation and increase afforestation and reforestation in developing countries that have ratified the international agreement on climate change, to transfer technologies and to facilitate adaptation to the adverse effects of climate change in these countries; (d) forestry sequestration in the Community; (e) the environmentally safe capture and geological storage of CO 2 , in particular from solid fossil fuel power stations and a range of industrial sectors and subsectors, including in third countries; (f) to encourage a shift to low-emission and public forms of transport; (g) to finance research and development in energy efficiency and clean technologies in the sectors covered by this Directive; (h) measures intended to increase energy efficiency and insulation or to provide financial support in order to address social aspects in lower and middle income households; (i) to cover administrative expenses of the management of the Community scheme. Member States shall be deemed to have fulfilled the provisions of this paragraph if they have in place and implement fiscal or financial support policies, including in particular in developing countries, or domestic regulatory policies, which leverage financial support, established for the purposes set out in the first subparagraph and which have a value equivalent to at least 50 % of the revenues generated from the auctioning of allowances referred to in paragraph 2, including all revenues from the auctioning referred to in paragraph 2, points (b) and (c). Member States shall inform the Commission as to the use of revenues and the actions taken pursuant to this paragraph in their reports submitted under Decision No 280/2004/EC. 4. By 30 June 2010, the Commission shall adopt a regulation on timing, administration and other aspects of auctioning to ensure that it is conducted in an open, transparent, harmonised and non-discriminatory manner. To this end, the process should be predictable, in particular as regards the timing and sequencing of auctions and the estimated volumes of allowances to be made available. Auctions shall be designed to ensure that: (a) operators, and in particular any SMEs covered by the Community scheme, have full, fair and equitable access; (b) all participants have access to the same information at the same time and that participants do not undermine the operation of the auction; (c) the organisation and participation in auctions is cost-efficient and undue administrative costs are avoided; and (d) access to allowances is granted for small emitters. That measure, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(3). Member States shall report on the proper implementation of the auctioning rules for each auction, in particular with respect to fair and open access, transparency, price formation and technical and operational aspects. These reports shall be submitted within one month of the auction concerned and shall be published on the Commission's website. 5. The Commission shall monitor the functioning of the European carbon market. Each year, it shall submit a report to the European Parliament and to the Council on the functioning of the carbon market including the implementation of the auctions, liquidity and the volumes traded. If necessary, Member States shall ensure that any relevant information is submitted to the Commission at least two months before the Commission adopts the report.
Amendment rationale: CONTEXT OF THE PROPOSAL Emissions from aviation are one of the fastest growing sources of greenhouse gas emissions. As the technological potential for emissions reduction is limited in the aviation sector, market-based measures (MBMs) allow aviation to contribute to emission reductions by the airlines offsetting their strong emission growth through funding emission reductions in other sectors. The suitability of MBMs for international aviation has long been recognised. The 2001 ICAO Assembly endorsed the application of open emissions trading systems to international aviation. Following the ICAO's 2004 endorsement of regional MBMs, the EU led the way by including aviation in its Emission Trading System (EU ETS). Despite its positive environmental effects at low economic costs, the implementation of the EU ETS has had to face significant international opposition (e.g. allegations that regulating emissions from airlines based outside the EU would violate the sovereignty of third states). The European Court of Justice has, however, dismissed appeals by foreign airlines in this respect and confirmed the legality of the EU ETS[1]. At the same time, the integration of aviation into the EU ETS has been decisive in driving forward ICAO discussions. The intensive engagement of the EU in tackling climate change has been crucial in generating momentum in ICAO towards global action for addressing aviation emissions. Clearly, given the EU ETS would only ever cover a proportion of international aviation emissions, the overall strong global growth of these emissions will continue if no MBM is implemented on a global level, and emission reduction goals will remain aspirational. The 2013 38th ICAO Assembly has now decided on the development of a global MBM to be finalised at the next ICAO Assembly in 2016 and to be implemented by 2020. Progress was not made on a "framework" for national/ regional MBMs up to 2020, as in particular the Assembly resolution repeated the same language as from the 2007 and 2010 Assemblies and the European States confirmed their position on the 2007 and 2010 Assembly resolutions as concerns so-called 'mutual agreement'. In response to this progress on a global MBM and to promote further momentum, the Commission considers it appropriate to propose lowering the proportion of emissions to which the EU emissions trading system should apply up to 2020, as the further action already envisaged in Decision No. 377/2013/EU.
Revised version (Article 10 Auctioning of allowances):
1. From 2019 onwards, Member States shall auction all allowances that are not allocated free of charge in accordance with Articles 10a and 10c and are not placed in the market stability reserve established by Decision (EU) 2015/1814 of the European Parliament and of the Council ( 13 ). 1a. Where the volume of allowances to be auctioned by Member States in the last year of each period referred to in Article 13(1) of this Directive exceeds by more than 30 % the expected average auction volume for the first two years of the following period before application of Article 1(5) of Decision (EU) 2015/1814, two thirds of the difference between the volumes shall be deducted from the auction volumes in the last year of the period and added in equal instalments to the volumes to be auctioned by Member States in the first two years of the following period. 2. The total quantity of allowances to be auctioned by each Member State shall be composed as follows: (a) 88 % of the total quantity of allowances to be auctioned being distributed amongst Member States in shares that are identical to the share of verified emissions under the Community scheme for 2005 or the average of the period from 2005 to 2007, whichever one is the highest, of the Member State concerned; (b) 10 % of the total quantity of allowances to be auctioned being distributed amongst certain Member States for the purpose of solidarity and growth within the Community, thereby increasing the amount of allowances that those Member States auction under point (a) by the percentages specified in Annex IIa; and (c) 2 % of the total quantity of allowances to be auctioned being distributed amongst Member States the greenhouse gas emissions of which were, in 2005, at least 20 % below their emissions in the base year applicable to them under the Kyoto Protocol. The distribution of this percentage amongst the Member States concerned is set out in Annex IIb. For the purposes of point (a), in respect of Member States which did not participate in the Community scheme in 2005, their share shall be calculated using their verified emissions under the Community scheme in 2007. If necessary, the percentages referred to in points (b) and (c) shall be adapted in a proportional manner to ensure that the distribution is 10 % and 2 % respectively. 3. Member States shall determine the use of revenues generated from the auctioning of allowances. At least 50 % of the revenues generated from the auctioning of allowances referred to in paragraph 2, including all revenues from the auctioning referred to in paragraph 2, points (b) and (c), or the equivalent in financial value of these revenues, should be used for one or more of the following: (a) to reduce greenhouse gas emissions, including by contributing to the Global Energy Efficiency and Renewable Energy Fund and to the Adaptation Fund as made operational by the Poznan Conference on Climate Change (COP 14 and COP/MOP 4), to adapt to the impacts of climate change and to fund research and development as well as demonstration projects for reducing emissions and for adaptation to climate change, including participation in initiatives within the framework of the European Strategic Energy Technology Plan and the European Technology Platforms; (b) to develop renewable energies to meet the commitment of the Community to using 20 % renewable energies by 2020, as well as to develop other technologies contributing to the transition to a safe and sustainable low-carbon economy and to help meet the commitment of the Community to increase energy efficiency by 20 % by 2020; (c) measures to avoid deforestation and increase afforestation and reforestation in developing countries that have ratified the international agreement on climate change, to transfer technologies and to facilitate adaptation to the adverse effects of climate change in these countries; (d) forestry sequestration in the Community; (e) the environmentally safe capture and geological storage of CO 2 , in particular from solid fossil fuel power stations and a range of industrial sectors and subsectors, including in third countries; (f) to encourage a shift to low-emission and public forms of transport; (g) to finance research and development in energy efficiency and clean technologies in the sectors covered by this Directive; (h) measures intended to increase energy efficiency and insulation or to provide financial support in order to address social aspects in lower and middle income households; (i) to cover administrative expenses of the management of the Community scheme. Member States shall be deemed to have fulfilled the provisions of this paragraph if they have in place and implement fiscal or financial support policies, including in particular in developing countries, or domestic regulatory policies, which leverage financial support, established for the purposes set out in the first subparagraph and which have a value equivalent to at least 50 % of the revenues generated from the auctioning of allowances referred to in paragraph 2, including all revenues from the auctioning referred to in paragraph 2, points (b) and (c). Member States shall inform the Commission as to the use of revenues and the actions taken pursuant to this paragraph in their reports submitted under Decision No 280/2004/EC. 4. By 30 June 2010, the Commission shall adopt a regulation on timing, administration and other aspects of auctioning to ensure that it is conducted in an open, transparent, harmonised and non-discriminatory manner. To this end, the process should be predictable, in particular as regards the timing and sequencing of auctions and the estimated volumes of allowances to be made available. Where an assessment shows for the individual industrial sectors that no significant impact on sectors or subsectors exposed to a significant risk of carbon leakage is to be expected, the Commission may, in exceptional circumstances, adapt the timetable for the period referred to in Article 13(1) beginning on 1 January 2013 so as to ensure the orderly functioning of the market. The Commission shall make no more than one such adaptation for a maximum number of 900 million allowances. Auctions shall be designed to ensure that: (a) operators, and in particular any SMEs covered by the Community scheme, have full, fair and equitable access; (b) all participants have access to the same information at the same time and that participants do not undermine the operation of the auction; (c) the organisation and participation in auctions is cost-efficient and undue administrative costs are avoided; and (d) access to allowances is granted for small emitters. That measure, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(3). Member States shall report on the proper implementation of the auctioning rules for each auction, in particular with respect to fair and open access, transparency, price formation and technical and operational aspects. These reports shall be submitted within one month of the auction concerned and shall be published on the Commission's website. 5. The Commission shall monitor the functioning of the European carbon market. Each year, it shall submit a report to the European Parliament and to the Council on the functioning of the carbon market including the implementation of the auctions, liquidity and the volumes traded. If necessary, Member States shall ensure that any relevant information is submitted to the Commission at least two months before the Commission adopts the report.
Article 10a Transitional Community-wide rules for harmonised free allocation
1. By 31 December 2010, the Commission shall adopt Community-wide and fully-harmonised implementing measures for the allocation of the allowances referred to in paragraphs 4, 5, 7 and 12, including any necessary provisions for a harmonised application of paragraph 19. Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(3). The measures referred to in the first subparagraph shall, to the extent feasible, determine Community-wide ex-ante benchmarks so as to ensure that allocation takes place in a manner that provides incentives for reductions in greenhouse gas emissions and energy efficient techniques, by taking account of the most efficient techniques, substitutes, alternative production processes, high efficiency cogeneration, efficient energy recovery of waste gases, use of biomass and capture and storage of CO 2 , where such facilities are available, and shall not provide incentives to increase emissions. No free allocation shall be made in respect of any electricity production, except for cases falling within Article 10c and electricity produced from waste gases. For each sector and subsector, in principle, the benchmark shall be calculated for products rather than for inputs, in order to maximise greenhouse gas emissions reductions and energy efficiency savings throughout each production process of the sector or the subsector concerned. In defining the principles for setting ex-ante benchmarks in individual sectors and subsectors, the Commission shall consult the relevant stakeholders, including the sectors and subsectors concerned. The Commission shall, upon the approval by the Community of an international agreement on climate change leading to mandatory reductions of greenhouse gas emissions comparable to those of the Community, review those measures to provide that free allocation is only to take place where this is fully justified in the light of that agreement. 2. In defining the principles for setting ex-ante benchmarks in individual sectors or subsectors, the starting point shall be the average performance of the 10 % most efficient installations in a sector or subsector in the Community in the years 2007-2008. The Commission shall consult the relevant stakeholders, including the sectors and subsectors concerned. The regulations pursuant to Articles 14 and 15 shall provide for harmonised rules on monitoring, reporting and verification of production-related greenhouse gas emissions with a view to determining the ex-ante benchmarks. 3. Subject to paragraphs 4 and 8, and notwithstanding Article 10c, no free allocation shall be given to electricity generators, to installations for the capture of CO 2 , to pipelines for transport of CO 2 or to CO 2 storage sites. 4. Free allocation shall be given to district heating as well as to high efficiency cogeneration, as defined by Directive 2004/8/EC, for economically justifiable demand, in respect of the production of heating or cooling. In each year subsequent to 2013, the total allocation to such installations in respect of the production of that heat shall be adjusted by the linear factor referred to in Article 9. 5. The maximum annual amount of allowances that is the basis for calculating allocations to installations which are not covered by paragraph 3 and are not new entrants shall not exceed the sum of: (a) the annual Community-wide total quantity, as determined pursuant to Article 9, multiplied by the share of emissions from installations not covered by paragraph 3 in the total average verified emissions, in the period from 2005 to 2007, from installations covered by the Community scheme in the period from 2008 to 2012; and (b) the total average annual verified emissions from installations in the period from 2005 to 2007 which are only included in the Community scheme from 2013 onwards and are not covered by paragraph 3, adjusted by the linear factor, as referred to in Article 9. A uniform cross-sectoral correction factor shall be applied if necessary. 6. Member States may also adopt financial measures in favour of sectors or subsectors determined to be exposed to a significant risk of carbon leakage due to costs relating to greenhouse gas emissions passed on in electricity prices, in order to compensate for those costs and where such financial measures are in accordance with state aid rules applicable and to be adopted in this area. Those measures shall be based on ex-ante benchmarks of the indirect emissions of CO 2 per unit of production. The ex-ante benchmarks shall be calculated for a given sector or subsector as the product of the electricity consumption per unit of production corresponding to the most efficient available technologies and of the CO 2 emissions of the relevant European electricity production mix. 7. Five percent of the Community-wide quantity of allowances determined in accordance with Articles 9 and 9a over the period from 2013 to 2020 shall be set aside for new entrants, as the maximum that may be allocated to new entrants in accordance with the rules adopted pursuant to paragraph 1 of this Article. Allowances in this Community-wide reserve that are neither allocated to new entrants nor used pursuant to paragraph 8, 9 or 10 of this Article over the period from 2013 to 2020 shall be auctioned by the Member States, taking into account the level to which installations in Member States have benefited from this reserve, in accordance with Article 10(2) and, for detailed arrangements and timing, Article 10(4), and the relevant implementing provisions. Allocations shall be adjusted by the linear factor referred to in Article 9. No free allocation shall be made in respect of any electricity production by new entrants. By 31 December 2010, the Commission shall adopt harmonised rules for the application of the definition of ‘new entrant’, in particular in relation to the definition of ‘significant extensions’. 8. Up to 300 million allowances in the new entrants' reserve shall be available until 31 December 2015 to help stimulate the construction and operation of up to 12 commercial demonstration projects that aim at the environmentally safe capture and geological storage (CCS) of CO 2 as well as demonstration projects of innovative renewable energy technologies, in the territory of the Union. The allowances shall be made available for support for demonstration projects that provide for the development, in geographically balanced locations, of a wide range of CCS and innovative renewable energy technologies that are not yet commercially viable. Their award shall be dependent upon the verified avoidance of CO 2 emissions. Projects shall be selected on the basis of objective and transparent criteria that include requirements for knowledge-sharing. Those criteria and the measures shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(3), and shall be made available to the public. Allowances shall be set aside for the projects that meet the criteria referred to in the third subparagraph. Support for these projects shall be given via Member States and shall be complementary to substantial co-financing by the operator of the installation. They could also be co-financed by the Member State concerned, as well as by other instruments. No project shall receive support via the mechanism under this paragraph that exceeds 15 % of the total number of allowances available for this purpose. These allowances shall be taken into account under paragraph 7. 9. Lithuania, which, pursuant to Article 1 of Protocol No 4 on the Ignalina nuclear power plant in Lithuania, annexed to the 2003 Act of Accession, has committed to the closure of unit 2 of the Ignalina Nuclear Power Plant by 31 December 2009, may, if the total verified emissions of Lithuania in the period from 2013 to 2015 within the Community scheme exceed the sum of the free allowances issued to installations in Lithuania for electricity production emissions in that period and three-eighths of the allowances to be auctioned by Lithuania for the period from 2013 to 2020, claim allowances from the new entrants reserve for auctioning in accordance with the regulation referred to in Article 10(4). The maximum amount of such allowances shall be equivalent to the excess emissions in that period to the extent that this excess is due to increased emissions from electricity generation, minus any quantity by which allocations in that Member State in the period from 2008 to 2012 exceeded verified emissions within the Community scheme in Lithuania during that period. Any such allowances shall be taken into account under paragraph 7. 10. Any Member State with an electricity network which is interconnected with Lithuania and which, in 2007, imported more than 15 % of its domestic electricity consumption from Lithuania for its own consumption, and where emissions have increased due to investment in new electricity generation, may apply paragraph 9 mutatis mutandis under the conditions set out in that paragraph. 11. Subject to Article 10b, the amount of allowances allocated free of charge under paragraphs 4 to 7 of this Article in 2013 shall be 80 % of the quantity determined in accordance with the measures referred to in paragraph 1. Thereafter the free allocation shall decrease each year by equal amounts resulting in 30 % free allocation in 2020, with a view to reaching no free allocation in 2027. 12. Subject to Article 10b, in 2013 and in each subsequent year up to 2020, installations in sectors or subsectors which are exposed to a significant risk of carbon leakage shall be allocated, pursuant to paragraph 1, allowances free of charge at 100 % of the quantity determined in accordance with the measures referred to in paragraph 1. 13. By 31 December 2009 and every five years thereafter, after discussion in the European Council, the Commission shall determine a list of the sectors or subsectors referred to in paragraph 12 on the basis of the criteria referred to in paragraphs 14 to 17. Every year the Commission may, at its own initiative or at the request of a Member State, add a sector or subsector to the list referred to in the first subparagraph if it can be demonstrated, in an analytical report, that this sector or subsector satisfies the criteria in paragraphs 14 to 17, following a change that has a substantial impact on the sector’s or subsector’s activities. For the purpose of implementing this Article, the Commission shall consult the Member States, the sectors or subsectors concerned and other relevant stakeholders. 14. In order to determine the sectors or subsectors referred to in paragraph 12, the Commission shall assess, at Community level, the extent to which it is possible for the sector or subsector concerned, at the relevant level of disaggregation, to pass on the direct cost of the required allowances and the indirect costs from higher electricity prices resulting from the implementation of this Directive into product prices without significant loss of market share to less carbon efficient installations outside the Community. These assessments shall be based on an average carbon price according to the Commission’s impact assessment accompanying the package of implementation measures for the EU’s objectives on climate change and renewable energy for 2020 and, if available, trade, production and value added data from the three most recent years for each sector or subsector. 15. A sector or subsector shall be deemed to be exposed to a significant risk of carbon leakage if: (a) the sum of direct and indirect additional costs induced by the implementation of this Directive would lead to a substantial increase of production costs, calculated as a proportion of the gross value added, of at least 5 %; and (b) the intensity of trade with third countries, defined as the ratio between the total value of exports to third countries plus the value of imports from third countries and the total market size for the Community (annual turnover plus total imports from third countries), is above 10 %. 16. Notwithstanding paragraph 15, a sector or subsector is also deemed to be exposed to a significant risk of carbon leakage if: (a) the sum of direct and indirect additional costs induced by the implementation of this Directive would lead to a particularly high increase of production costs, calculated as a proportion of the gross value added, of at least 30 %; or (b) the intensity of trade with third countries, defined as the ratio between the total value of exports to third countries plus the value of imports from third countries and the total market size for the Community (annual turnover plus total imports from third countries), is above 30 %. 17. The list referred to in paragraph 13 may be supplemented after completion of a qualitative assessment, taking into account, where the relevant data are available, the following criteria: (a) the extent to which it is possible for individual installations in the sector or subsector concerned to reduce emission levels or electricity consumption, including, as appropriate, the increase in production costs that the related investment may entail, for instance on the basis of the most efficient techniques; (b) current and projected market characteristics, including when trade exposure or direct and indirect cost increase rates are close to one of the thresholds mentioned in paragraph 16; (c) profit margins as a potential indicator of long-run investment or relocation decisions. 18. The list referred to in paragraph 13 shall be determined after taking into account, where the relevant data are available, the following: (a) the extent to which third countries, representing a decisive share of global production of products in sectors or subsectors deemed to be at risk of carbon leakage, firmly commit to reducing greenhouse gas emissions in the relevant sectors or subsectors to an extent comparable to that of the Community and within the same time-frame; and (b) the extent to which the carbon efficiency of installations located in these countries is comparable to that of the Community. 19. No free allocation shall be given to an installation that has ceased its operations, unless the operator demonstrates to the competent authority that this installation will resume production within a specified and reasonable time. Installations for which the greenhouse gas emissions permit has expired or has been withdrawn and installations for which the operation or resumption of operation is technically impossible shall be considered to have ceased operations. 20. The Commission shall, as part of the measures adopted under paragraph 1, include measures for defining installations that partially cease to operate or significantly reduce their capacity, and measures for adapting, as appropriate, the level of free allocations given to them accordingly.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The European Green Deal Communication 1 launched a new growth strategy for the EU that aims to transform the EU into a fair and prosperous society with a modern, resource-efficient and competitive economy. It reaffirms the Commission’s ambition to increase its climate targets and make Europe the first climate-neutral continent by 2050. Furthermore, it aims to protect the health and well-being of citizens from environment-related risks and impacts. The necessity and value of the European Green Deal have only grown in light of the very severe effects of the COVID-19 pandemic on the health, living and working conditions and well-being of the Union’s citizens. Tackling climate change is an urgent challenge. In line with the scientific findings of the Intergovernmental Panel on Climate Change (IPCC) Special Report, global net-zero CO 2 emissions need to be achieved around 2050, and neutrality for all other greenhouse gases as soon as possible later in the century. This urgent challenge requires the EU to step up its action and demonstrate global leadership by becoming climate neutral by 2050. This objective is set out in the Communication ‘ A Clean Planet for all ’ - A European strategic long-term vision for a prosperous, modern, competitive and climate-neutral economy’ 2 . Based on the European Green Deal strategy and a comprehensive impact assessment, the Commission’s Communication of September 2020 on Stepping up Europe’s 2030 climate ambition 3 (‘2030 Climate Target Plan’) proposed to raise the EU's ambition and put forward a comprehensive plan to increase the European Union’s binding target for 2030 towards at least 55 % net emission reduction, in a responsible way. Raising the 2030 ambition now helps give certainty to policymakers and investors, so that decisions made in the coming years do not lock in emission levels inconsistent with the EU’s objective to be climate neutral by 2050. The 2030 target is in line with the Paris Agreement objective to keep the global temperature increase to well below 2°C and pursue efforts to keep it to 1.5°C. The European Council endorsed the new EU binding target for 2030 at its meeting of December 2020 4 . It also called on the Commission “ to assess how all economic sectors can best contribute to the 2030 target and to make the necessary proposals, accompanied by an in-depth examination of the environmental, economic and social impact at Member State level, taking into account national energy and climate plans and reviewing existing flexibilities ”. To this end, the European Climate Law 5 , as agreed with the co-legislators, makes the EU’s climate neutrality target legally binding, and raises the 2030 ambition by setting a target of at least 55 % net emission reductions by 2030 compared to 1990. In order to follow the pathway proposed in the European Climate Law, and deliver this increased level of ambition for 2030, the Commission has reviewed the climate and energy legislation currently in place that are expected to only reduce greenhouse gas emissions by 40 % by 2030 and by 60 % by 2050. This ‘ Fit for 55 ’ legislative package, as announced in the 2030 Climate Target Plan, is the most comprehensive building block in the efforts to implement the ambitious new 2030 climate target, and all economic sectors and policies will need to make their contribution. The European Council also invited the Commission in December 2020 to consider exploring ways to strengthen the EU Emissions Trading System (EU ETS), while preserving its integrity and taking into account the need to address distributional concerns and energy poverty. The European Council also invited the Commission to consider proposing measures that enable energy-intensive industries to develop and deploy innovative climate-neutral technologies while maintaining their industrial competitiveness. The current ETS legislation was revised in 2018 to deliver a 43 % reduction in EU ETS emissions by 2030 compared to 2005, coherent with an EU economy-wide emissions reduction target of at least 40 % by 2030 compared to 1990. More recent analysis by the Commission services, however, indicates that, if the legislation remains unchanged, the sectors currently covered by the EU ETS would instead achieve emission reductions of -51 % in 2030 compared to 2005 6 . Even though this would mean outperforming the contribution of -43 % referred to above, it would still be an insufficient contribution to an overall target of at least -55 % compared to 1990. Therefore, the general objective of this initiative is to revise the ETS Directive in a manner commensurate with the 2030 climate ambition to reach at least 55 % net greenhouse gas emission reductions by 2030 below 1990 levels and with a gradual and balanced trajectory towards climate neutrality by 2050, in a cost-effective and coherent way while taking into account the need for a just transition and the need for all sectors to contribute to the EU’s climate efforts. As explained in the impact assessment, contribution of the sectors covered by the EU ETS of -61 % compared to 2005 is considered as best reflecting the 2030 Climate Target Plan results and is taken as the EU ETS ambition contributing to an overall target of at least -55 % compared to 1990. Increasing the EU ETS’s environmental contribution entails adjusting primarily the total number of allowances issued under the EU ETS (the ‘cap’). However, a reduced amount of allowances available to the market affects other pillars of the EU ETS and the carbon price. It impacts core principles such as the need for market stability, the protection against the risk of carbon leakage, the carefully balanced distributional effects between Member States, and the availability of funds for the increased investment needs in low-carbon technologies. At the same time as the EU ETS is brought in line with the overall target of at least -55 % compared to 1990, this increased climate ambition also needs to be reflected in the contribution to the EU’s climate efforts of sectors currently outside of the EU ETS. The impact assessment accompanying the 2030 Climate Target Plan found that in the absence of additional measures, emissions in certain sectors would not decrease as much as required to be on a path to achieve an economy-wide 55 % reduction in emissions. In fact, in maritime transport, emissions today are higher than in 1990, and maritime transport emissions are expected to grow further in a business-as-usual scenario . All pathways assessed as part of the 2030 Climate Target Plan and the Sustainable and Smart Mobility Strategy 7 envisage 80-82 % emissions reductions from international shipping by 2050 relative to 1990 (equivalent to 88-89 % emissions reductions relative to 2008) 8 , in order to be consistent with the increased level of climate ambition. Therefore, the European Commission undertook the commitment to extend the EU ETS to maritime transport as part of a basket of EU measures to address emissions from maritime transport , along with action agreed within the IMO. In this context, the Commission welcomes the progress that the European Parliament and the Council have made since 2019 on the proposal to amend Regulation (EU) 2015/757 9 in order to take appropriate account of the global data collection system for ship fuel oil consumption data ( COM(2019) 38 final) and the Commission takes note of the European Parliament’s Plenary support for the extension of the EU’s Emissions Trading System (EU ETS) to cover maritime transport emissions from 2023. Emissions from maritime transport should be included in the existing emissions trading system. To ensure a smooth transition, a phase-in period should be introduced where shipping companies would only have to surrender allowances for a portion of their verified emissions, gradually rising to 100 % over 4 years. As only around 90 million tons of CO 2 would be added through the extension to maritime transport to the existing ETS, the impact on the availability of allowances for other sectors covered would remain limited. To take into account the inclusion of the maritime sector in the EU ETS, Regulation (EU) 2015/757 should be amended, in particular as regards the reporting of aggregated emissions data at company level and considering the role of administering authorities in respect of shipping companies. These amendments complement those proposed in COM(2019) 38 final. As specified in the 2030 Climate Target Plan, the building sector is currently responsible directly and indirectly for 36 % of energy-related greenhouse gas emissions in the EU and has a large cost-effective potential to reduce emissions. More than half of those emissions are already covered by the existing ETS, notably the provision of electricity for use in buildings and most emissions of district heating. However, many homes are still heated with outdated systems that use polluting fossil fuels such as coal and oil. The sector of road transport also has a significant cost-effective reduction potential. Today, road transport accounts for a fifth of the EU’s greenhouse gas emissions and increased its emissions by over a quarter since 1990. As already considered in the European Green Deal Communication, the Commission is proposing to include the building sector and road transport into emissions trading. The coverage of these sectors by emissions trading, when put in the context of other appropriate regulatory and investment measures for the sectors in question, would provide for increased and more harmonised economic incentives to reduce emissions across these sectors in the EU and increased certainty of delivery of the emission reductions for those sectors. Emissions trading for the buildings and road transport sectors should be introduced through separate but adjacent emissions trading. This will avoid any disturbance of the well-functioning emissions trading system for stationary installations and aviation, given the different reduction potentials in those sectors and different factors that influence the demand. Any possible merger of the two systems should be assessed only after a few years of functioning of the new emissions trading, based on experience. The extension to buildings and road transport requires an upstream approach to regulated entities. Market stability is crucial for the EU ETS to function correctly to achieve its targets. To ensure market stability, Decision (EU) 2015/1814 10 established the market stability reserve (MSR). It began operating in January 2019. The objectives of the MSR are to tackle historical supply-demand imbalances and to make the EU ETS more resilient to major imbalances. The mechanism must preserve regulatory stability and ensure long-term predictability. Article 3 of the Decision requires the Commission to review the functioning of the reserve within three years of the start of the operation. This review needs to be considered together with the effects for market stability of increasing the ambition of the EU ETS, so the necessary amendments to the reserve are proposed together with the amendments to the EU ETS with this proposal. In this context, this proposal, as part of the Fit for 55 package, has the following specific objectives: – strengthening the EU ETS in its current scope in order to provide the appropriate contribution to an overall target of at least -55 % GHG emissions compared to 1990; – ensuring continued effective protection for the sectors exposed to a significant risk of carbon leakage while incentivising the uptake of low-carbon technologies; – addressing the distributional and social effects of this transition, by reviewing the use of auctioning revenues and the size and functioning of the low-carbon funding mechanisms; – ensuring that the other sectors than those currently included in the EU ETS contribute cost-effectively to the emission reductions needed in line with EU targets and Paris Agreement commitments notably by including emissions from maritime transport and emissions from buildings and road transport under the rules of the EU ETS while ensuring synergies with other policies targeting those sectors; – reviewing the monitoring, reporting and verification system of CO 2 emissions from maritime transport to take into account the inclusion of the maritime transport sector in the EU ETS; – reviewing the market stability reserve in line with the corresponding legal obligation and examining possible amendments to its design, to fulfil the legal objectives in the MSR decision and to address any issues that may be raised in the context of the increased ambition.
Revised version (Article 10a Transitional Union -wide rules for harmonised free allocation):
1. The Commission is empowered to adopt delegated acts in accordance with Article 23 to supplement this Directive concerning the Union-wide and fully harmonised rules for the allocation of allowances referred to in paragraphs 4, 5, 7 and 19 of this Article. The measures referred to in the first subparagraph shall, to the extent feasible, determine Union -wide ex-ante benchmarks so as to ensure that allocation takes place in a manner that provides incentives for reductions in greenhouse gas emissions and energy efficient techniques, by taking account of the most efficient techniques, substitutes, alternative production processes, high efficiency cogeneration, efficient energy recovery of waste gases, use of biomass and capture and storage of CO 2 , where such facilities are available, and shall not provide incentives to increase emissions. No free allocation shall be made in respect of any electricity production, except for cases falling within Article 10c and electricity produced from waste gases. If an installation is covered by the obligation to conduct an energy audit or to implement a certified energy management system under Article 8 of Directive 2012/27/EU of the European Parliament and of the Council ( 17 ) and if the recommendations of the audit report or of the certified energy management system are not implemented, unless the pay-back time for the relevant investments exceeds three years or unless the costs of those investments are disproportionate, then the amount of free allocation shall be reduced by 20 %. The amount of free allocation shall not be reduced if an operator demonstrates that it has implemented other measures which lead to greenhouse gas emission reductions equivalent to those recommended by the audit report or by the certified energy management system for the installation concerned. The Commission shall supplement this Directive by providing, in the delegated acts adopted pursuant to this paragraph and without prejudice to the rules applicable under Directive 2012/27/EU, for administratively simple harmonised rules for the application of the third subparagraph of this paragraph that ensure that the application of the conditionality does not jeopardise a level playing field, environmental integrity or equal treatment between installations across the Union. Those harmonised rules shall in particular provide for timelines, for criteria for the recognition of implemented energy efficiency measures as well as for alternative measures reducing greenhouse gas emissions, using the procedure for national implementing measures in accordance with Article 11(1) of this Directive. In addition to the requirements set out in the third subparagraph of this paragraph, the reduction by 20 % referred to in that subparagraph shall be applied where, by 1 May 2024, operators of installations whose greenhouse gas emission levels are higher than the 80th percentile of emission levels for the relevant product benchmarks have not established a climate-neutrality plan for each of those installations for its activities covered by this Directive. That plan shall contain the elements specified in Article 10b(4) and be established in accordance with the implementing acts provided for in that Article. Article 10b(4) shall be read as only referring to the installation level. The achievement of the targets and milestones referred to in Article 10b(4), third subparagraph, point (b), shall be verified in respect of the period until 31 December 2025 and in respect of each period ending 31 December of each fifth year thereafter, in accordance with the verification and accreditation procedures provided for in Article 15. No free allowances beyond 80 % shall be allocated if achievement of the intermediate targets and milestones has not been verified in respect of the period until the end of 2025 or in respect of the period from 2026 to 2030. Allowances that are not allocated due to a reduction of free allocation in accordance with the third and fifth subparagraphs of this paragraph shall be used to exempt installations from the adjustment in accordance with paragraph 5 of this Article. Where any such allowances remain, 50 % of those allowances shall be made available to support innovation in accordance with paragraph 8 of this Article. The other 50 % of those allowances shall be auctioned in accordance with Article 10(1) of this Directive and Member States should use the respective revenues to address any residual risk of carbon leakage in the sectors covered by Annex I to Regulation (EU) 2023/956, supporting the transition and promoting their decarbonisation in accordance with State aid rules. No free allocation shall be given to installations in sectors or subsectors to the extent they are covered by other measures to address the risk of carbon leakage as established by Regulation (EU) 2023/956. The measures referred to in the first subparagraph of this paragraph shall be adjusted accordingly. For each sector and subsector, in principle, the benchmark shall be calculated for products rather than for inputs, in order to maximise greenhouse gas emission reductions and energy efficiency savings throughout each production process of the sector or the subsector concerned. In order to provide further incentives for reducing greenhouse gas emissions and improving energy efficiency and to ensure a level playing field for installations using new technologies that partly reduce or fully eliminate greenhouse gas emissions, and installations using existing technologies, the determined Union-wide ex-ante benchmarks shall be reviewed in relation to their application in the period from 2026 to 2030, with a view to potentially modifying the definitions and system boundaries of existing product benchmarks, considering as guiding principles the circular use-potential of materials and that the benchmarks should be independent of the feedstock and the type of production process, where the production processes have the same purpose. The Commission shall endeavour to adopt the implementing acts for the purpose of determining the revised benchmark values for free allocation in accordance with paragraph 2, third subparagraph, as soon as possible and before the start of the period from 2026 to 2030. In defining the principles for setting ex-ante benchmarks in individual sectors and subsectors, the Commission shall consult the relevant stakeholders, including the sectors and subsectors concerned. The Commission shall, upon the approval by the Union of an international agreement on climate change leading to mandatory reductions of greenhouse gas emissions comparable to those of the Union , review those measures to provide that free allocation is only to take place where this is fully justified in the light of that agreement. 1a. Subject to the application of Regulation (EU) 2023/956, no free allocation shall be given in relation to the production of goods listed in Annex I to that Regulation. The reduction of free allocation shall be calculated annually as the average share of the demand for free allocation for the production of goods listed in Annex I to Regulation (EU) 2023/956 compared to the calculated total free allocation demand for all installations, for the relevant period referred to in Article 11(1) of this Directive. The CBAM factor shall be applied in this calculation. Allowances resulting from the reduction of free allocation shall be made available to support innovation in accordance with paragraph 8. By 31 December 2024 and as part of its annual report to the European Parliament and to the Council pursuant to Article 10(5) of this Directive, the Commission shall assess the carbon leakage risk for goods subject to CBAM and produced in the Union for export to third countries which do not apply the EU ETS or a similar carbon pricing mechanism. The report shall in particular assess the carbon leakage risk in sectors to which CBAM will apply, in particular the role and accelerated uptake of hydrogen, and the developments as regards trade flows and the embedded emissions of goods produced by those sectors on the global market. Where the report concludes that there is a carbon leakage risk for goods produced in the Union for export to third countries which do not apply the EU ETS or an equivalent carbon pricing mechanism, the Commission shall, where appropriate, submit a legislative proposal to address that carbon leakage risk in a manner that is compliant with the rules of the World Trade Organization, including Article XX of the General Agreement on Tariffs and Trade 1994, and takes into account the decarbonisation of installations in the Union. 2. In defining the principles for setting ex-ante benchmarks in individual sectors or subsectors, the starting point shall be the average performance of the 10 % most efficient installations in a sector or subsector in the Union in the years 2007-2008. The Commission shall consult the relevant stakeholders, including the sectors and subsectors concerned. The acts pursuant to Articles 14 and 15 shall provide for harmonised rules on monitoring, reporting and verification of production-related greenhouse gas emissions with a view to determining the ex-ante benchmarks. The Commission shall adopt implementing acts for the purpose of determining the revised benchmark values for free allocation. Those acts shall be in accordance with the delegated acts adopted pursuant to paragraph 1 of this Article and shall comply with the following: (a) For the period from 2021 to 2025, the benchmark values shall be determined on the basis of information submitted pursuant to Article 11 for the years 2016 and 2017. On the basis of a comparison of those benchmark values with the benchmark values contained in Commission Decision 2011/278/EU ( 18 ), as adopted on 27 April 2011, the Commission shall determine the annual reduction rate for each benchmark, and shall apply it to the benchmark values applicable in the period from 2013 to 2020 in respect of each year between 2008 and 2023 to determine the benchmark values for the period from 2021 to 2025. (b) Where the annual reduction rate exceeds 1,6 % or is below 0,2 %, the benchmark values for the period from 2021 to 2025 shall be the benchmark values applicable in the period from 2013 to 2020 reduced by whichever of those two percentage rates is relevant, in respect of each year between 2008 and 2023. (d) Where the annual reduction rate exceeds 2,5 % or is below 0,3 %, the benchmark values for the period from 2026 to 2030 shall be the benchmark values applicable in the period from 2013 to 2020 reduced by whichever of those two percentage rates is relevant, in respect of each year between 2008 and 2028. (e) For the period from 2026 to 2030, the annual reduction rate for the product benchmark for hot metal shall not be affected by the change of benchmark definitions and system boundaries applicable pursuant to paragraph 1, eighth subparagraph. By way of derogation regarding the benchmark values for aromatics and syngas, those benchmark values shall be adjusted by the same percentage as the refineries benchmarks in order to preserve a level playing field for producers of those products. The implementing acts referred to in the third subparagraph shall be adopted in accordance with the examination procedure referred to in Article 22a(2). In order to promote efficient energy recovery from waste gases, for the period referred to in point (b) of the third subparagraph, the benchmark value for hot metal, which predominantly relates to waste gases, shall be updated with an annual reduction rate of 0,2 %. 5. In order to respect the auctioning share set out in Article 10, for every year in which the sum of free allocations does not reach the maximum amount that respects the auctioning share, the remaining allowances up to that amount shall be used to prevent or limit reduction of free allocations to respect the auctioning share in later years. Where, nonetheless, the maximum amount is reached, free allocations shall be adjusted accordingly. Any such adjustment shall be done in a uniform manner. However, installations whose greenhouse gas emission levels are below the average of the 10 % most efficient installations in a sector or subsector in the Union for the relevant benchmarks in a year when the adjustment applies shall be exempted from that adjustment. 5a. By way of derogation from paragraph 5, an additional amount of up to 3 % of the total quantity of allowances shall, to the extent necessary, be used to increase the maximum amount available under paragraph 5. 5b. Where less than 3 % of the total quantity of allowances is needed to increase the maximum amount available under paragraph 5: — a maximum of 50 million allowances shall be used to increase the amount of allowances available to support innovation in accordance with Article 10a(8); and — a maximum of 0,5 % of the total quantity of allowances shall be used to increase the amount of allowances available to modernise the energy systems of certain Member States in accordance with Article 10d. 6. Member States should adopt financial measures in accordance with the second and fourth subparagraphs of this paragraph in favour of sectors or subsectors which are exposed to a genuine risk of carbon leakage due to significant indirect costs that are actually incurred from greenhouse gas emission costs passed on in electricity prices, provided that such financial measures are in accordance with State aid rules, and in particular do not cause undue distortions of competition in the internal market. The financial measures adopted should not compensate indirect costs covered by free allocation in accordance with the benchmarks established pursuant to paragraph 1 of this Article. Where a Member State spends an amount higher than the equivalent of 25 % of the auction revenues referred to in Article 10(3) for the year in which the indirect costs were incurred, it shall set out the reasons for exceeding that amount. Member States shall also seek to use no more than 25 % of the revenues generated from the auctioning of allowances for the financial measures referred to in the first subparagraph. Within three months of the end of each year, Member States that have such financial measures in place shall make available to the public, in an easily accessible form, the total amount of compensation provided per benefitting sector and subsector. As from 2018, in any year in which a Member State uses more than 25 % of the revenues generated from the auctioning of allowances for such purposes, it shall publish a report setting out the reasons for exceeding that amount. The report shall include relevant information on electricity prices for large industrial consumers benefiting from such financial measures, without prejudice to requirements regarding the protection of confidential information. The report shall also include information on whether due consideration has been given to other measures to sustainably lower indirect carbon costs in the medium to long term. The Commission shall include in the report provided for in Article 10(5), inter alia , an assessment of the effects of such financial measures on the internal market and, where appropriate, recommend any measures that may be necessary pursuant to that assessment. Those measures shall be such as to ensure that there is adequate protection against the risk of carbon leakage, based on ex-ante benchmarks for the indirect emissions of CO 2 per unit of production. Those ex-ante benchmarks shall be calculated for a given sector or subsector as the product of the electricity consumption per unit of production corresponding to the most efficient available technologies and of the CO 2 emissions of the relevant European electricity production mix. 7. Allowances from the maximum amount referred to in paragraph 5 of this Article which were not allocated for free by 2020 shall be set aside for new entrants, together with 200 million allowances placed in the market stability reserve pursuant to Article 1(3) of Decision (EU) 2015/1814. Of the allowances set aside, up to 200 million shall be returned to the market stability reserve at the end of the period from 2021 to 2030 if not allocated for that period. From 2021, allowances that, pursuant to paragraphs 19, 20 and 22, are not allocated to installations shall be added to the amount of allowances set aside in accordance with the first subparagraph, first sentence, of this paragraph. Allocations shall be adjusted by the linear factor referred to in Article 9. No free allocation shall be made in respect of any electricity production by new entrants. 8. 345 million allowances from the quantity which could otherwise be allocated for free pursuant to this Article, and 80 million allowances from the quantity which could otherwise be auctioned pursuant to Article 10, as well as the allowances resulting from the reduction of free allocation referred to in paragraph 1a of this Article, shall be made available to a fund (the ‘Innovation Fund’) with the objective of supporting innovation in low- and zero-carbon techniques, processes and technologies that contribute significantly to the decarbonisation of the sectors covered by this Directive and contribute to zero pollution and circularity objectives, including projects aimed at scaling up such techniques, processes and technologies with a view to their broad roll-out across the Union. Such projects shall possess significant greenhouse gas emissions abatement potential and contribute to energy and resource savings in line with the Union’s climate and energy targets for 2030. The Commission shall frontload Innovation Fund allowances to ensure that an adequate amount of resources is available to foster innovation, including for scaling up. Allowances that are not issued to aircraft operators due to them ceasing operations and which are not necessary to cover any shortfall in surrenders by those operators shall also be used for innovation support as referred to in the first subparagraph. Moreover, 5 million allowances from the quantity referred to in Article 3c(5) and (7) relating to aviation allocations for 2026 shall be made available for innovation support as referred to in the first subparagraph of this paragraph. In addition, 50 million unallocated allowances from the market stability reserve shall supplement any remaining revenues from the 300 million allowances available in the period from 2013 to 2020 under Commission Decision 2010/670/EU ( 19 ), and shall be used in a timely manner for innovation support as referred to in the first subparagraph of this paragraph. When designing and implementing calls for proposals or competitive bidding under the Innovation Fund, the Commission shall consider strategic projects recognised in accordance with a regulation of the European Parliament and of the Council establishing a framework of measures for strengthening Europe’s net-zero technology products manufacturing ecosystem, which are deemed to contribute to the objectives of the Strategic Technologies for Europe Platform (STEP) in accordance with Article 2(4) of Regulation (EU) 2024/795 of the European Parliament and of the Council ( 20 ). Member States shall consider providing support from the European Regional Development Fund and the Cohesion Fund established by Regulation (EU) 2021/1058 of the European Parliament and of the Council ( 21 ) and the Just Transition Fund established by Regulation (EU) 2021/1056 to projects in their territory in the context of financial mechanisms developed under the Innovation Fund, such as the ‘auction-as-a-service’ scheme. The Innovation Fund shall cover the sectors listed in Annexes I and III, as well as products and processes substituting carbon intensive ones produced or used in sectors listed in Annex I, including innovative renewable energy and energy storage technologies and environmentally safe carbon capture and utilisation (CCU) that contributes substantially to mitigating climate change, in particular for unavoidable process emissions, and shall help stimulate the construction and operation of projects aimed at the environmentally safe capture, transport and geological storage (CCS) of CO 2 , in particular for unavoidable industrial process emissions, and the direct capture of CO 2 from the atmosphere with safe, sustainable and permanent storage (DACS), in geographically balanced locations. The Innovation Fund may also support breakthrough innovative technologies and infrastructure, including production of low- and zero-carbon fuels, to decarbonise the maritime, aviation, rail and road transport sectors, including collective forms of transport such as public transport and coach services. For aviation, it may also support electrification and actions to reduce the overall climate impacts of aviation. The Commission shall give special attention to projects in sectors covered by Regulation (EU) 2023/956 to support innovation in low-carbon technologies, CCU, CCS, renewable energy and energy storage, in a way that contributes to mitigating climate change with the aim of awarding, over the period from 2021 to 2030, projects in those sectors a significant share of the equivalence in financial value of the allowances referred to in paragraph 1a, fourth subparagraph, of this Article. In addition, the Commission may launch, before 2027, calls for proposals dedicated to the sectors covered by that Regulation. The Commission shall also give special attention to projects contributing to the decarbonisation of the maritime sector and shall include topics dedicated to that purpose in the Innovation Fund calls for proposals, where appropriate, including to electrify maritime transport, and to address its full climate impact, including black carbon emissions. Such calls for proposals shall also, in the criteria used for the selection of projects, take particular account of the potential for increasing biodiversity protection and for reducing noise and water pollution from projects and investments. The Innovation Fund may in accordance with paragraph 8a support projects through competitive bidding, such as CDs, CCDs or fixed premium contracts to support decarbonisation technologies for which the carbon price might not be a sufficient incentive. The Commission shall seek synergies between the Innovation Fund and Horizon Europe, in particular in relation to European partnerships, and shall, where relevant, seek synergies between the Innovation Fund and other Union programmes. Projects in the territory of all Member States, including small-scale and medium-scale projects, shall be eligible, and, for maritime activities, projects with clear added value for the Union shall be eligible. Technologies receiving support shall be innovative and not yet commercially viable at a similar scale without support, but shall represent breakthrough solutions or be sufficiently mature for application on a pre-commercial scale. The Commission shall ensure that the allowances destined for the Innovation Fund are auctioned in accordance with the principles and modalities referred to in Article 10(4) of this Directive. Proceeds from the auctioning shall constitute external assigned revenue in accordance with Article 21(5) of Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council ( 22 ). Budgetary commitments for actions extending over more than one financial year may be broken down into annual instalments over several years. The Commission shall, on request, provide technical assistance to Member States with low effective participation in projects under the Innovation Fund for the purpose of increasing the capacities of the requesting Member State to support the efforts of project proponents in their respective territories to submit applications for funding from the Innovation Fund, in order to improve the effective geographical participation in the Innovation Fund and increase the overall quality of submitted projects. The Commission shall pursue effective, quality-based geographical coverage in relation to funding from the Innovation Fund across the Union and shall ensure comprehensive monitoring of progress and appropriate follow-up in that respect. Subject to the agreement of applicants, following the closure of a call for proposals, the Commission shall inform Member States of the applications for funding of projects in their respective territories and shall provide them with detailed information concerning those applications in order to facilitate Member States’ coordination of the support for projects. In addition, the Commission shall inform Member States about the list of pre-selected projects prior to the award of the support. Projects shall be selected by means of a transparent selection procedure, in a technology-neutral manner in accordance with the objectives of the Innovation Fund as set out in the first subparagraph of this paragraph and on the basis of objective and transparent criteria, taking into account the extent to which projects provide a significant contribution to the Union’s climate and energy targets while contributing to the zero pollution and circularity objectives in accordance with the first subparagraph of this paragraph, and, where relevant, the extent to which projects contribute to achieving emission reductions well below the benchmarks referred to in paragraph 2. Projects shall have the potential for widespread application or to significantly lower the costs of transitioning towards a climate-neutral economy in the sectors concerned. Priority shall be given to innovative technologies and processes addressing multiple environmental impacts. Projects involving CCU shall deliver a net reduction in emissions and ensure avoidance or permanent storage of CO 2 . In the case of grants provided through calls for proposals, up to 60 % of the relevant costs of projects may be supported, out of which up to 40 % need not be dependent on verified avoidance of greenhouse gas emissions, provided that pre-determined milestones, taking into account the technology deployed, are attained. In the case of support provided through competitive bidding and in the case of technical assistance support, up to 100 % of the relevant costs of projects may be supported. The potential for emission reductions in multiple sectors offered by combined projects, including in nearby areas, shall be taken into account in the criteria used for the selection of projects. Projects funded by the Innovation Fund shall be required to share knowledge with other relevant projects as well as with Union-based researchers having a legitimate interest. The terms of knowledge sharing shall be defined by the Commission in calls for proposals. The calls for proposals shall be open and transparent. In preparing the calls for proposals, the Commission shall strive to ensure that all sectors are duly covered. The Commission shall take measures to ensure that the calls are communicated as widely as possible, and especially to small and medium-sized enterprises. The Commission is empowered to adopt delegated acts in accordance with Article 23 to supplement this Directive concerning rules on the operation of the Innovation Fund, including the selection procedure and criteria, and the eligible sectors and technological requirements for the different types of support. No project shall receive support via the mechanism under this paragraph that exceeds 15 % of the total number of allowances available for this purpose. Those allowances shall be taken into account under paragraph 7. By 31 December 2023 and every year thereafter, the Commission shall report to the Climate Change Committee referred to in Article 22a(1) of this Directive, on the implementation of the Innovation Fund, providing an analysis of projects awarded funding, by sector and by Member State, and the expected contribution of those projects towards the objective of climate neutrality in the Union as set out in Regulation (EU) 2021/1119. The Commission shall provide the report to the European Parliament and to the Council and shall make that report public. 8a. For CDs and CCDs awarded upon conclusion of a competitive bidding mechanism, appropriate coverage through budgetary commitments resulting from the proceeds of auctioning of allowances available in the Innovation Fund shall be provided and those budgetary commitments may be broken down into annual instalments over several years. For the first two rounds of the competitive bidding mechanism, coverage of the financial liability related to CDs and CCDs shall be fully ensured with appropriations resulting from the proceeds of auctioning of allowances allocated to the Innovation Fund pursuant to paragraph 8. On the basis of a qualitative and quantitative assessment by the Commission of the financial risks arising from the implementation of CDs and CCDs, to be made after the conclusion of the first two rounds of the competitive bidding mechanism and each time it is necessary thereafter in accordance with the principle of prudence, whereby assets and profits are not to be overestimated and liabilities and losses are not to be underestimated, the Commission may, in accordance with the empowerment in the eighth subparagraph, decide to cover only part of the financial liability related to CDs and CCDs through the means referred to in the first subparagraph and the remaining part through other means. The Commission shall aim to limit the use of other means of coverage. Where the assessment leads to the conclusion that other means of coverage are necessary to realise the full potential of the CDs and CCDs, the Commission shall aim for a balanced mix of other means of coverage. By way of derogation from Article 210(1) of Regulation (EU, Euratom) 2018/1046, the Commission shall determine the extent of the use of other means of coverage pursuant to the delegated act provided for in the eighth subparagraph of this paragraph. The remaining financial liability shall be sufficiently covered, having regard to the principles of Title X of Regulation (EU, Euratom) 2018/1046, if necessary, adapted to the specificities of CDs and CCDs, by way of derogation from Article 209(2), points (d) and (h), Article 210(1), Article 211(1), (2), (4) and (6), Articles 212, 213 and 214, Article 218(1) and Article 219(3) and (6) of that Regulation. Where applicable, other means of coverage, the provisioning rate and the necessary derogations shall be established in a delegated act provided for in the eighth subparagraph of this paragraph. The Commission shall not use more than 30 % of the proceeds of the auctioning of allowances allocated to the Innovation Fund pursuant to paragraph 8 for provisioning for CDs and CCDs. The provisioning rate shall be no lower than 50 % of the total financial liability borne by the Union budget for CDs and CCDs. When establishing the provisioning rate, the Commission shall take into account elements that may reduce the financial risks for the Union budget, beyond the appropriations available in the Innovation Fund, such as possible sharing of liability with Member States on a voluntary basis, or a possible re-insurance mechanism from the private sector. The Commission shall review the provisioning rate at least every three years from the date of application of the delegated act establishing it for the first time. In order to avoid speculative applications, access to competitive bidding may be made conditional on the payment by applicants of a deposit to be forfeited in the event of non-fulfilment of the contract. Such forfeited deposits shall be used for the Innovation Fund as external assigned revenue pursuant to Article 21(5) of Regulation (EU, Euratom) 2018/1046. Any contribution paid to the granting authority by a beneficiary in accordance with the terms of the CD or CCD where the reference price is higher than the strike price (‘reflows’) shall be used for the Innovation Fund as external assigned revenue pursuant to Article 21(5) of that Regulation. The Commission is empowered to adopt delegated acts in accordance with Article 23 of this Directive to supplement this Directive in order to provide for and detail other means of coverage, if any, and, where applicable, the provisioning rate and the necessary additional derogations from Title X of Regulation (EU, Euratom) 2018/1046 as set out in the fourth subparagraph of this paragraph, and the rules on the operation of the competitive bidding mechanism, in particular in relation to deposits and reflows. The Commission is empowered to adopt delegated acts in accordance with Article 23 to amend the fifth subparagraph of this paragraph by raising the limit of 30 % referred to in that subparagraph by no more than a total of 20 percentage points where necessary to respond to a demand for CDs and CCDs, taking into account the experience of the first rounds of the competitive bidding mechanism and considering the need to find an appropriate balance in the support from the Innovation Fund between grants and such contracts. Financial support from the Innovation Fund shall be proportionate to the policy objectives set out in this Article and shall not lead to undue distortions of the internal market. To this end, support shall only be granted to cover additional costs or investment risks that cannot be borne by investors under normal market conditions. 8b. 40 million allowances from the quantity which could otherwise be allocated for free pursuant to this Article, and 10 million allowances from the quantity which could otherwise be auctioned pursuant to Article 10 of this Directive shall be made available for the Social Climate Fund established by Regulation (EU) 2023/955 of the European Parliament and of the Council ( 23 ). The Commission shall ensure that the allowances destined for the Social Climate Fund are auctioned in 2025 in accordance with the principles and modalities referred to in Article 10(4) of this Directive and the delegated act adopted in accordance with that Article. The revenues from that auctioning shall constitute external assigned revenue in accordance with Article 21(5) of Regulation (EU, Euratom) 2018/1046, and shall be used in accordance with the rules applicable to the Social Climate Fund. 9. Greece, which had a gross domestic product (GDP) per capita at market prices below 60 % of the Union average in 2014, may claim, prior to the application of paragraph 7 of this Article, up to 25 million allowances from the maximum amount referred to in paragraph 5 of this Article which are not allocated for free by 31 December 2020, for the co-financing of up to 60 % of the decarbonisation of the electricity supply of islands within its territory. Article 10d(3) shall apply mutatis mutandis to such allowances. Allowances may be claimed where, due to restricted access to the international debt markets, a project aiming at the decarbonisation of the electricity supply of Greece's islands could otherwise not be realised and where the European Investment Bank (EIB) confirms the financial viability and socio-economic benefits of the project. 11. Subject to Article 10b, the amount of allowances allocated free of charge under paragraphs 4 to 7 of this Article in 2013 shall be 80 % of the quantity determined in accordance with the measures referred to in paragraph 1. Thereafter the free allocation shall decrease each year by equal amounts resulting in 30 % free allocation in 2020 . 19. No free allocation shall be given to an installation that has ceased operating. Installations for which the greenhouse gas emissions permit has expired or has been withdrawn and installations for which the operation or resumption of operation is technically impossible shall be considered to have ceased operations. 20. The level of free allocations given to installations whose operations have increased or decreased, as assessed on the basis of a rolling average of two years, by more than 15 % compared to the level initially used to determine the free allocation for the relevant period referred to in Article 11(1) shall, as appropriate, be adjusted. Such adjustments shall be carried out with allowances from, or by adding allowances to, the amount of allowances set aside in accordance with paragraph 7 of this Article. 21. In order to ensure the effective, non-discriminatory and uniform application of the adjustments and threshold referred to in paragraph 20 of this Article, to avoid any undue administrative burden, and to prevent manipulation or abuse of the adjustments to the allocation, the Commission may adopt implementing acts which define further arrangements for the adjustments. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 22a(2). 22. Where corrections to free allocations granted pursuant to Article 11(2) are necessary, such corrections shall be carried out with allowances from, or by adding allowances to, the amount of allowances set aside in accordance with paragraph 7 of this Article.
Article 10b Measures to support certain energy-intensive industries in the event of carbon leakage
1. By 30 June 2010, the Commission shall, in the light of the outcome of the international negotiations and the extent to which these lead to global greenhouse gas emission reductions, and after consulting with all relevant social partners, submit to the European Parliament and to the Council an analytical report assessing the situation with regard to energy-intensive sectors or subsectors that have been determined to be exposed to significant risks of carbon leakage. This shall be accompanied by any appropriate proposals, which may include: (a) adjustment of the proportion of allowances received free of charge by those sectors or subsectors under Article 10a; (b) inclusion in the Community scheme of importers of products which are produced by the sectors or subsectors determined in accordance with Article 10a; (c) assessment of the impact of carbon leakage on Member States’ energy security, in particular where the electricity connections with the rest of the Union are insufficient and where there are electricity connections with third countries, and appropriate measures in this regard. Any binding sectoral agreements which lead to global greenhouse gas emissions reductions of the magnitude required to effectively address climate change, and which are monitorable, verifiable and subject to mandatory enforcement arrangements shall also be taken into account when considering what measures are appropriate. 2. The Commission shall assess, by 31 March 2011, whether the decisions made regarding the proportion of allowances received free of charge by sectors or subsectors in accordance with paragraph 1, including the effect of setting ex-ante benchmarks in accordance with Article 10a(2), are likely to significantly affect the quantity of allowances to be auctioned by Member States in accordance with Article 10(2)(b), compared to a scenario with full auctioning for all sectors in 2020. It shall, if appropriate, submit adequate proposals to the European Parliament and to the Council, taking into account the possible distributional effects of such proposals.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The European Green Deal Communication 1 launched a new growth strategy for the EU that aims to transform the EU into a fair and prosperous society with a modern, resource-efficient and competitive economy. It reaffirms the Commission’s ambition to increase its climate targets and make Europe the first climate-neutral continent by 2050. Furthermore, it aims to protect the health and well-being of citizens from environment-related risks and impacts. The necessity and value of the European Green Deal have only grown in light of the very severe effects of the COVID-19 pandemic on the health, living and working conditions and well-being of the Union’s citizens. Tackling climate change is an urgent challenge. In line with the scientific findings of the Intergovernmental Panel on Climate Change (IPCC) Special Report, global net-zero CO 2 emissions need to be achieved around 2050, and neutrality for all other greenhouse gases as soon as possible later in the century. This urgent challenge requires the EU to step up its action and demonstrate global leadership by becoming climate neutral by 2050. This objective is set out in the Communication ‘ A Clean Planet for all ’ - A European strategic long-term vision for a prosperous, modern, competitive and climate-neutral economy’ 2 . Based on the European Green Deal strategy and a comprehensive impact assessment, the Commission’s Communication of September 2020 on Stepping up Europe’s 2030 climate ambition 3 (‘2030 Climate Target Plan’) proposed to raise the EU's ambition and put forward a comprehensive plan to increase the European Union’s binding target for 2030 towards at least 55 % net emission reduction, in a responsible way. Raising the 2030 ambition now helps give certainty to policymakers and investors, so that decisions made in the coming years do not lock in emission levels inconsistent with the EU’s objective to be climate neutral by 2050. The 2030 target is in line with the Paris Agreement objective to keep the global temperature increase to well below 2°C and pursue efforts to keep it to 1.5°C. The European Council endorsed the new EU binding target for 2030 at its meeting of December 2020 4 . It also called on the Commission “ to assess how all economic sectors can best contribute to the 2030 target and to make the necessary proposals, accompanied by an in-depth examination of the environmental, economic and social impact at Member State level, taking into account national energy and climate plans and reviewing existing flexibilities ”. To this end, the European Climate Law 5 , as agreed with the co-legislators, makes the EU’s climate neutrality target legally binding, and raises the 2030 ambition by setting a target of at least 55 % net emission reductions by 2030 compared to 1990. In order to follow the pathway proposed in the European Climate Law, and deliver this increased level of ambition for 2030, the Commission has reviewed the climate and energy legislation currently in place that are expected to only reduce greenhouse gas emissions by 40 % by 2030 and by 60 % by 2050. This ‘ Fit for 55 ’ legislative package, as announced in the 2030 Climate Target Plan, is the most comprehensive building block in the efforts to implement the ambitious new 2030 climate target, and all economic sectors and policies will need to make their contribution. The European Council also invited the Commission in December 2020 to consider exploring ways to strengthen the EU Emissions Trading System (EU ETS), while preserving its integrity and taking into account the need to address distributional concerns and energy poverty. The European Council also invited the Commission to consider proposing measures that enable energy-intensive industries to develop and deploy innovative climate-neutral technologies while maintaining their industrial competitiveness. The current ETS legislation was revised in 2018 to deliver a 43 % reduction in EU ETS emissions by 2030 compared to 2005, coherent with an EU economy-wide emissions reduction target of at least 40 % by 2030 compared to 1990. More recent analysis by the Commission services, however, indicates that, if the legislation remains unchanged, the sectors currently covered by the EU ETS would instead achieve emission reductions of -51 % in 2030 compared to 2005 6 . Even though this would mean outperforming the contribution of -43 % referred to above, it would still be an insufficient contribution to an overall target of at least -55 % compared to 1990. Therefore, the general objective of this initiative is to revise the ETS Directive in a manner commensurate with the 2030 climate ambition to reach at least 55 % net greenhouse gas emission reductions by 2030 below 1990 levels and with a gradual and balanced trajectory towards climate neutrality by 2050, in a cost-effective and coherent way while taking into account the need for a just transition and the need for all sectors to contribute to the EU’s climate efforts. As explained in the impact assessment, contribution of the sectors covered by the EU ETS of -61 % compared to 2005 is considered as best reflecting the 2030 Climate Target Plan results and is taken as the EU ETS ambition contributing to an overall target of at least -55 % compared to 1990. Increasing the EU ETS’s environmental contribution entails adjusting primarily the total number of allowances issued under the EU ETS (the ‘cap’). However, a reduced amount of allowances available to the market affects other pillars of the EU ETS and the carbon price. It impacts core principles such as the need for market stability, the protection against the risk of carbon leakage, the carefully balanced distributional effects between Member States, and the availability of funds for the increased investment needs in low-carbon technologies. At the same time as the EU ETS is brought in line with the overall target of at least -55 % compared to 1990, this increased climate ambition also needs to be reflected in the contribution to the EU’s climate efforts of sectors currently outside of the EU ETS. The impact assessment accompanying the 2030 Climate Target Plan found that in the absence of additional measures, emissions in certain sectors would not decrease as much as required to be on a path to achieve an economy-wide 55 % reduction in emissions. In fact, in maritime transport, emissions today are higher than in 1990, and maritime transport emissions are expected to grow further in a business-as-usual scenario . All pathways assessed as part of the 2030 Climate Target Plan and the Sustainable and Smart Mobility Strategy 7 envisage 80-82 % emissions reductions from international shipping by 2050 relative to 1990 (equivalent to 88-89 % emissions reductions relative to 2008) 8 , in order to be consistent with the increased level of climate ambition. Therefore, the European Commission undertook the commitment to extend the EU ETS to maritime transport as part of a basket of EU measures to address emissions from maritime transport , along with action agreed within the IMO. In this context, the Commission welcomes the progress that the European Parliament and the Council have made since 2019 on the proposal to amend Regulation (EU) 2015/757 9 in order to take appropriate account of the global data collection system for ship fuel oil consumption data ( COM(2019) 38 final) and the Commission takes note of the European Parliament’s Plenary support for the extension of the EU’s Emissions Trading System (EU ETS) to cover maritime transport emissions from 2023. Emissions from maritime transport should be included in the existing emissions trading system. To ensure a smooth transition, a phase-in period should be introduced where shipping companies would only have to surrender allowances for a portion of their verified emissions, gradually rising to 100 % over 4 years. As only around 90 million tons of CO 2 would be added through the extension to maritime transport to the existing ETS, the impact on the availability of allowances for other sectors covered would remain limited. To take into account the inclusion of the maritime sector in the EU ETS, Regulation (EU) 2015/757 should be amended, in particular as regards the reporting of aggregated emissions data at company level and considering the role of administering authorities in respect of shipping companies. These amendments complement those proposed in COM(2019) 38 final. As specified in the 2030 Climate Target Plan, the building sector is currently responsible directly and indirectly for 36 % of energy-related greenhouse gas emissions in the EU and has a large cost-effective potential to reduce emissions. More than half of those emissions are already covered by the existing ETS, notably the provision of electricity for use in buildings and most emissions of district heating. However, many homes are still heated with outdated systems that use polluting fossil fuels such as coal and oil. The sector of road transport also has a significant cost-effective reduction potential. Today, road transport accounts for a fifth of the EU’s greenhouse gas emissions and increased its emissions by over a quarter since 1990. As already considered in the European Green Deal Communication, the Commission is proposing to include the building sector and road transport into emissions trading. The coverage of these sectors by emissions trading, when put in the context of other appropriate regulatory and investment measures for the sectors in question, would provide for increased and more harmonised economic incentives to reduce emissions across these sectors in the EU and increased certainty of delivery of the emission reductions for those sectors. Emissions trading for the buildings and road transport sectors should be introduced through separate but adjacent emissions trading. This will avoid any disturbance of the well-functioning emissions trading system for stationary installations and aviation, given the different reduction potentials in those sectors and different factors that influence the demand. Any possible merger of the two systems should be assessed only after a few years of functioning of the new emissions trading, based on experience. The extension to buildings and road transport requires an upstream approach to regulated entities. Market stability is crucial for the EU ETS to function correctly to achieve its targets. To ensure market stability, Decision (EU) 2015/1814 10 established the market stability reserve (MSR). It began operating in January 2019. The objectives of the MSR are to tackle historical supply-demand imbalances and to make the EU ETS more resilient to major imbalances. The mechanism must preserve regulatory stability and ensure long-term predictability. Article 3 of the Decision requires the Commission to review the functioning of the reserve within three years of the start of the operation. This review needs to be considered together with the effects for market stability of increasing the ambition of the EU ETS, so the necessary amendments to the reserve are proposed together with the amendments to the EU ETS with this proposal. In this context, this proposal, as part of the Fit for 55 package, has the following specific objectives: – strengthening the EU ETS in its current scope in order to provide the appropriate contribution to an overall target of at least -55 % GHG emissions compared to 1990; – ensuring continued effective protection for the sectors exposed to a significant risk of carbon leakage while incentivising the uptake of low-carbon technologies; – addressing the distributional and social effects of this transition, by reviewing the use of auctioning revenues and the size and functioning of the low-carbon funding mechanisms; – ensuring that the other sectors than those currently included in the EU ETS contribute cost-effectively to the emission reductions needed in line with EU targets and Paris Agreement commitments notably by including emissions from maritime transport and emissions from buildings and road transport under the rules of the EU ETS while ensuring synergies with other policies targeting those sectors; – reviewing the monitoring, reporting and verification system of CO 2 emissions from maritime transport to take into account the inclusion of the maritime transport sector in the EU ETS; – reviewing the market stability reserve in line with the corresponding legal obligation and examining possible amendments to its design, to fulfil the legal objectives in the MSR decision and to address any issues that may be raised in the context of the increased ambition.
Article 10c Option for transitional free allocation for the modernisation of electricity generation
1. By derogation from Article 10a(1) to (5), Member States may give a transitional free allocation to installations for electricity production in operation by 31 December 2008 or to installations for electricity production for which the investment process was physically initiated by the same date, provided that one of the following conditions is met: (a) in 2007, the national electricity network was not directly or indirectly connected to the network interconnected system operated by the Union for the Coordination of Transmission of Electricity (UCTE); (b) in 2007, the national electricity network was only directly or indirectly connected to the network operated by UCTE through a single line with a capacity of less than 400 MW; or (c) in 2006, more than 30 % of electricity was produced from a single fossil fuel, and the GDP per capita at market price did not exceed 50 % of the average GDP per capita at market price of the Community. The Member State concerned shall submit to the Commission a national plan that provides for investments in retrofitting and upgrading of the infrastructure and clean technologies. The national plan shall also provide for the diversification of their energy mix and sources of supply for an amount equivalent, to the extent possible, to the market value of the free allocation with respect to the intended investments, while taking into account the need to limit as far as possible directly linked price increases. The Member State concerned shall submit to the Commission, every year, a report on investments made in upgrading infrastructure and clean technologies. Investment undertaken from 25 June 2009 may be counted for this purpose. 2. Transitional free allocations shall be deducted from the quantity of allowances that the respective Member State would otherwise auction pursuant to Article 10(2). In 2013, the total transitional free allocation shall not exceed 70 % of the annual average verified emissions in 2005-2007 from such electricity generators for the amount corresponding to the gross final national consumption of the Member State concerned and shall gradually decrease, resulting in no free allocation in 2020. For those Member States which did not participate in the Community scheme in 2005, the relevant emissions shall be calculated using their verified Community scheme emissions under the Community scheme in 2007. The Member State concerned may determine that the allowances allocated pursuant to this Article may only be used by the operator of the installation concerned for surrendering allowances pursuant to Article 12(3) with respect to emissions of the same installation during the year for which the allowances are allocated. 3. Allocations to operators shall be based on the allocation under the verified emissions in 2005-2007 or an ex-ante efficiency benchmark based on the weighted average of emission levels of most greenhouse gas efficient electricity production covered by the Community scheme for installations using different fuels. The weighting may reflect the shares of the different fuels in electricity production in the Member State concerned. The Commission shall, in accordance with the regulatory procedure referred to in Article 23(2), provide guidance to ensure that the allocation methodology avoids undue distortions of competition and minimises negative impacts on the incentives to reduce emissions. 4. Any Member State applying this Article shall require benefiting electricity generators and network operators to report every 12 months on the implementation of their investments referred to in the national plan. Member States shall report on this to the Commission and shall make such reports public. 5. Any Member State that intends to allocate allowances on the basis of this Article shall, by 30 September 2011, submit to the Commission an application containing the proposed allocation methodology and individual allocations. An application shall contain: (a) evidence that the Member State meets at least one of the conditions set out in paragraph 1; (b) a list of the installations covered by the application and the amount of allowances to be allocated to each installation in accordance with paragraph 3 and the Commission guidance; (c) the national plan referred to in the second subparagraph of paragraph 1; (d) monitoring and enforcement provisions with respect to the intended investments pursuant to the national plan; (e) information showing that the allocations do not create undue distortions of competition. 6. The Commission shall assess the application taking into account the elements set out in paragraph 5 and may reject the application, or any aspect thereof, within six months of receiving the relevant information. 7. Two years before the end of the period during which a Member State may give transitional free allocation to installations for electricity production in operation by 31 December 2008, the Commission shall assess the progress made in the implementation of the national plan. If the Commission considers, on request of the Member State concerned, that there is a need for a possible extension of that period, it may submit to the European Parliament and to the Council appropriate proposals, including the conditions that would have to be met in the case of an extension of that period.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The European Green Deal Communication 1 launched a new growth strategy for the EU that aims to transform the EU into a fair and prosperous society with a modern, resource-efficient and competitive economy. It reaffirms the Commission’s ambition to increase its climate targets and make Europe the first climate-neutral continent by 2050. Furthermore, it aims to protect the health and well-being of citizens from environment-related risks and impacts. The necessity and value of the European Green Deal have only grown in light of the very severe effects of the COVID-19 pandemic on the health, living and working conditions and well-being of the Union’s citizens. Tackling climate change is an urgent challenge. In line with the scientific findings of the Intergovernmental Panel on Climate Change (IPCC) Special Report, global net-zero CO 2 emissions need to be achieved around 2050, and neutrality for all other greenhouse gases as soon as possible later in the century. This urgent challenge requires the EU to step up its action and demonstrate global leadership by becoming climate neutral by 2050. This objective is set out in the Communication ‘ A Clean Planet for all ’ - A European strategic long-term vision for a prosperous, modern, competitive and climate-neutral economy’ 2 . Based on the European Green Deal strategy and a comprehensive impact assessment, the Commission’s Communication of September 2020 on Stepping up Europe’s 2030 climate ambition 3 (‘2030 Climate Target Plan’) proposed to raise the EU's ambition and put forward a comprehensive plan to increase the European Union’s binding target for 2030 towards at least 55 % net emission reduction, in a responsible way. Raising the 2030 ambition now helps give certainty to policymakers and investors, so that decisions made in the coming years do not lock in emission levels inconsistent with the EU’s objective to be climate neutral by 2050. The 2030 target is in line with the Paris Agreement objective to keep the global temperature increase to well below 2°C and pursue efforts to keep it to 1.5°C. The European Council endorsed the new EU binding target for 2030 at its meeting of December 2020 4 . It also called on the Commission “ to assess how all economic sectors can best contribute to the 2030 target and to make the necessary proposals, accompanied by an in-depth examination of the environmental, economic and social impact at Member State level, taking into account national energy and climate plans and reviewing existing flexibilities ”. To this end, the European Climate Law 5 , as agreed with the co-legislators, makes the EU’s climate neutrality target legally binding, and raises the 2030 ambition by setting a target of at least 55 % net emission reductions by 2030 compared to 1990. In order to follow the pathway proposed in the European Climate Law, and deliver this increased level of ambition for 2030, the Commission has reviewed the climate and energy legislation currently in place that are expected to only reduce greenhouse gas emissions by 40 % by 2030 and by 60 % by 2050. This ‘ Fit for 55 ’ legislative package, as announced in the 2030 Climate Target Plan, is the most comprehensive building block in the efforts to implement the ambitious new 2030 climate target, and all economic sectors and policies will need to make their contribution. The European Council also invited the Commission in December 2020 to consider exploring ways to strengthen the EU Emissions Trading System (EU ETS), while preserving its integrity and taking into account the need to address distributional concerns and energy poverty. The European Council also invited the Commission to consider proposing measures that enable energy-intensive industries to develop and deploy innovative climate-neutral technologies while maintaining their industrial competitiveness. The current ETS legislation was revised in 2018 to deliver a 43 % reduction in EU ETS emissions by 2030 compared to 2005, coherent with an EU economy-wide emissions reduction target of at least 40 % by 2030 compared to 1990. More recent analysis by the Commission services, however, indicates that, if the legislation remains unchanged, the sectors currently covered by the EU ETS would instead achieve emission reductions of -51 % in 2030 compared to 2005 6 . Even though this would mean outperforming the contribution of -43 % referred to above, it would still be an insufficient contribution to an overall target of at least -55 % compared to 1990. Therefore, the general objective of this initiative is to revise the ETS Directive in a manner commensurate with the 2030 climate ambition to reach at least 55 % net greenhouse gas emission reductions by 2030 below 1990 levels and with a gradual and balanced trajectory towards climate neutrality by 2050, in a cost-effective and coherent way while taking into account the need for a just transition and the need for all sectors to contribute to the EU’s climate efforts. As explained in the impact assessment, contribution of the sectors covered by the EU ETS of -61 % compared to 2005 is considered as best reflecting the 2030 Climate Target Plan results and is taken as the EU ETS ambition contributing to an overall target of at least -55 % compared to 1990. Increasing the EU ETS’s environmental contribution entails adjusting primarily the total number of allowances issued under the EU ETS (the ‘cap’). However, a reduced amount of allowances available to the market affects other pillars of the EU ETS and the carbon price. It impacts core principles such as the need for market stability, the protection against the risk of carbon leakage, the carefully balanced distributional effects between Member States, and the availability of funds for the increased investment needs in low-carbon technologies. At the same time as the EU ETS is brought in line with the overall target of at least -55 % compared to 1990, this increased climate ambition also needs to be reflected in the contribution to the EU’s climate efforts of sectors currently outside of the EU ETS. The impact assessment accompanying the 2030 Climate Target Plan found that in the absence of additional measures, emissions in certain sectors would not decrease as much as required to be on a path to achieve an economy-wide 55 % reduction in emissions. In fact, in maritime transport, emissions today are higher than in 1990, and maritime transport emissions are expected to grow further in a business-as-usual scenario . All pathways assessed as part of the 2030 Climate Target Plan and the Sustainable and Smart Mobility Strategy 7 envisage 80-82 % emissions reductions from international shipping by 2050 relative to 1990 (equivalent to 88-89 % emissions reductions relative to 2008) 8 , in order to be consistent with the increased level of climate ambition. Therefore, the European Commission undertook the commitment to extend the EU ETS to maritime transport as part of a basket of EU measures to address emissions from maritime transport , along with action agreed within the IMO. In this context, the Commission welcomes the progress that the European Parliament and the Council have made since 2019 on the proposal to amend Regulation (EU) 2015/757 9 in order to take appropriate account of the global data collection system for ship fuel oil consumption data ( COM(2019) 38 final) and the Commission takes note of the European Parliament’s Plenary support for the extension of the EU’s Emissions Trading System (EU ETS) to cover maritime transport emissions from 2023. Emissions from maritime transport should be included in the existing emissions trading system. To ensure a smooth transition, a phase-in period should be introduced where shipping companies would only have to surrender allowances for a portion of their verified emissions, gradually rising to 100 % over 4 years. As only around 90 million tons of CO 2 would be added through the extension to maritime transport to the existing ETS, the impact on the availability of allowances for other sectors covered would remain limited. To take into account the inclusion of the maritime sector in the EU ETS, Regulation (EU) 2015/757 should be amended, in particular as regards the reporting of aggregated emissions data at company level and considering the role of administering authorities in respect of shipping companies. These amendments complement those proposed in COM(2019) 38 final. As specified in the 2030 Climate Target Plan, the building sector is currently responsible directly and indirectly for 36 % of energy-related greenhouse gas emissions in the EU and has a large cost-effective potential to reduce emissions. More than half of those emissions are already covered by the existing ETS, notably the provision of electricity for use in buildings and most emissions of district heating. However, many homes are still heated with outdated systems that use polluting fossil fuels such as coal and oil. The sector of road transport also has a significant cost-effective reduction potential. Today, road transport accounts for a fifth of the EU’s greenhouse gas emissions and increased its emissions by over a quarter since 1990. As already considered in the European Green Deal Communication, the Commission is proposing to include the building sector and road transport into emissions trading. The coverage of these sectors by emissions trading, when put in the context of other appropriate regulatory and investment measures for the sectors in question, would provide for increased and more harmonised economic incentives to reduce emissions across these sectors in the EU and increased certainty of delivery of the emission reductions for those sectors. Emissions trading for the buildings and road transport sectors should be introduced through separate but adjacent emissions trading. This will avoid any disturbance of the well-functioning emissions trading system for stationary installations and aviation, given the different reduction potentials in those sectors and different factors that influence the demand. Any possible merger of the two systems should be assessed only after a few years of functioning of the new emissions trading, based on experience. The extension to buildings and road transport requires an upstream approach to regulated entities. Market stability is crucial for the EU ETS to function correctly to achieve its targets. To ensure market stability, Decision (EU) 2015/1814 10 established the market stability reserve (MSR). It began operating in January 2019. The objectives of the MSR are to tackle historical supply-demand imbalances and to make the EU ETS more resilient to major imbalances. The mechanism must preserve regulatory stability and ensure long-term predictability. Article 3 of the Decision requires the Commission to review the functioning of the reserve within three years of the start of the operation. This review needs to be considered together with the effects for market stability of increasing the ambition of the EU ETS, so the necessary amendments to the reserve are proposed together with the amendments to the EU ETS with this proposal. In this context, this proposal, as part of the Fit for 55 package, has the following specific objectives: – strengthening the EU ETS in its current scope in order to provide the appropriate contribution to an overall target of at least -55 % GHG emissions compared to 1990; – ensuring continued effective protection for the sectors exposed to a significant risk of carbon leakage while incentivising the uptake of low-carbon technologies; – addressing the distributional and social effects of this transition, by reviewing the use of auctioning revenues and the size and functioning of the low-carbon funding mechanisms; – ensuring that the other sectors than those currently included in the EU ETS contribute cost-effectively to the emission reductions needed in line with EU targets and Paris Agreement commitments notably by including emissions from maritime transport and emissions from buildings and road transport under the rules of the EU ETS while ensuring synergies with other policies targeting those sectors; – reviewing the monitoring, reporting and verification system of CO 2 emissions from maritime transport to take into account the inclusion of the maritime transport sector in the EU ETS; – reviewing the market stability reserve in line with the corresponding legal obligation and examining possible amendments to its design, to fulfil the legal objectives in the MSR decision and to address any issues that may be raised in the context of the increased ambition.
Revised version (Article 10c Option for transitional free allocation for the modernisation of the energy sector):
1. By way of derogation from Article 10a(1) to (5), Member States which had in 2013 a GDP per capita at market prices (in euros) below 60 % of the Union average may give a transitional free allocation to installations for electricity generation for the modernisation, diversification and sustainable transformation of the energy sector. The investments supported shall be consistent with the transition to a safe and sustainable low-carbon economy, the objectives of the Union's 2030 climate and energy policy framework, and reaching the long-term objectives expressed in the Paris Agreement. The derogation provided for in this paragraph shall end on 31 December 2030. By way of derogation from Article 10(1) and without prejudice to the last sentence of paragraph 1 of this Article, in the event that an investment selected through the competitive bidding process is cancelled or the intended performance is not reached, the earmarked allowances may be used through a single additional round of the competitive bidding process at the earliest one year thereafter to finance other investments. By 30 June 2019, any Member State intending to make use of optional transitional free allocation for the modernisation of the energy sector shall publish a detailed national framework setting out the competitive bidding process, including the planned number of rounds referred to in the first subparagraph, and the selection criteria, for public comment. Where investments with a value of less than EUR 12,5 million are to be supported with free allocation and are not selected through the competitive bidding process referred to in this paragraph, the Member State shall select projects based on objective and transparent criteria. The results of this selection process shall be published for public comment. On this basis, the Member State concerned shall, by 30 June 2019, establish, publish and submit to the Commission a list of investments. Where more than one investment is carried out within the same installation, they shall be assessed as a whole to establish whether or not the value threshold of EUR 12,5 million is exceeded, unless those investments are, independently, technically or financially viable. 3. The value of the intended investments shall at least equal the market value of the free allocation, while taking into account the need to limit directly linked price increases. The market value shall be the average of the price of allowances on the common auction platform in the preceding calendar year. Up to 70 % of the relevant costs of an investment may be supported using the free allocation, provided that the remaining costs are financed by private legal entities. 4. Transitional free allocations shall be deducted from the quantity of allowances that the Member State would otherwise auction. The total free allocation shall be no more than 40 % of the allowances which the Member State concerned will receive, pursuant to Article 10(2)(a), in the period from 2021 to 2030, spread out in equal annual volumes over that period. 5. Where a Member State, pursuant to Article 10d(4), uses allowances distributed for the purposes of solidarity, growth and interconnections within the Union in accordance with Article 10(2)(b), that Member State may, by way of derogation from paragraph 4 of this Article, use for transitional free allocation a total quantity of up to 60 % of the allowances received in the period from 2021 to 2030 pursuant to Article 10(2)(a), using a corresponding amount of the allowances distributed in accordance with Article 10(2)(b). Any allowances not allocated under this Article by 2020 may be allocated over the period from 2021 to 2030 to investments selected through the competitive bidding process referred to in paragraph 2, unless the Member State concerned informs the Commission by 30 September 2019 of its intention not to allocate some or all of those allowances over the period from 2021 to 2030, and of the amount of allowances to be auctioned instead in 2020. Where such allowances are allocated over the period from 2021 to 2030, a corresponding amount of allowances shall be taken into account for the application of the 60 % limit set out in the first subparagraph of this paragraph. 6. Allocations to operators shall be made upon demonstration that an investment selected in accordance with the rules of the competitive bidding process has been carried out. Where an investment leads to additional electricity generation capacity, the operator concerned shall also demonstrate that a corresponding amount of electricity-generation capacity with higher emission intensity has been decommissioned by it or another associated operator by the start of operation of the additional capacity. 7. Member States shall require benefiting electricity generating installations and network operators to report, by 28 February of each year, on the implementation of their selected investments, including the balance of free allocation and investment expenditure incurred and the types of investments supported. Member States shall report on this to the Commission, and the Commission shall make such reports public.
Article 11 National implementation measures
1. Each Member State shall publish and submit to the Commission, by 30 September 2011, the list of installations covered by this Directive in its territory and any free allocation to each installation in its territory calculated in accordance with the rules referred to in Article 10a(1) and Article 10c. 2. By 28 February of each year, the competent authorities shall issue the quantity of allowances that are to be allocated for that year, calculated in accordance with Articles 10, 10a and 10c. 3. Member States may not issue allowances free of charge under paragraph 2 to installations whose inscription in the list referred to in paragraph 1 has been rejected by the Commission.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The European Green Deal Communication 1 launched a new growth strategy for the EU that aims to transform the EU into a fair and prosperous society with a modern, resource-efficient and competitive economy. It reaffirms the Commission’s ambition to increase its climate targets and make Europe the first climate-neutral continent by 2050. Furthermore, it aims to protect the health and well-being of citizens from environment-related risks and impacts. The necessity and value of the European Green Deal have only grown in light of the very severe effects of the COVID-19 pandemic on the health, living and working conditions and well-being of the Union’s citizens. Tackling climate change is an urgent challenge. In line with the scientific findings of the Intergovernmental Panel on Climate Change (IPCC) Special Report, global net-zero CO 2 emissions need to be achieved around 2050, and neutrality for all other greenhouse gases as soon as possible later in the century. This urgent challenge requires the EU to step up its action and demonstrate global leadership by becoming climate neutral by 2050. This objective is set out in the Communication ‘ A Clean Planet for all ’ - A European strategic long-term vision for a prosperous, modern, competitive and climate-neutral economy’ 2 . Based on the European Green Deal strategy and a comprehensive impact assessment, the Commission’s Communication of September 2020 on Stepping up Europe’s 2030 climate ambition 3 (‘2030 Climate Target Plan’) proposed to raise the EU's ambition and put forward a comprehensive plan to increase the European Union’s binding target for 2030 towards at least 55 % net emission reduction, in a responsible way. Raising the 2030 ambition now helps give certainty to policymakers and investors, so that decisions made in the coming years do not lock in emission levels inconsistent with the EU’s objective to be climate neutral by 2050. The 2030 target is in line with the Paris Agreement objective to keep the global temperature increase to well below 2°C and pursue efforts to keep it to 1.5°C. The European Council endorsed the new EU binding target for 2030 at its meeting of December 2020 4 . It also called on the Commission “ to assess how all economic sectors can best contribute to the 2030 target and to make the necessary proposals, accompanied by an in-depth examination of the environmental, economic and social impact at Member State level, taking into account national energy and climate plans and reviewing existing flexibilities ”. To this end, the European Climate Law 5 , as agreed with the co-legislators, makes the EU’s climate neutrality target legally binding, and raises the 2030 ambition by setting a target of at least 55 % net emission reductions by 2030 compared to 1990. In order to follow the pathway proposed in the European Climate Law, and deliver this increased level of ambition for 2030, the Commission has reviewed the climate and energy legislation currently in place that are expected to only reduce greenhouse gas emissions by 40 % by 2030 and by 60 % by 2050. This ‘ Fit for 55 ’ legislative package, as announced in the 2030 Climate Target Plan, is the most comprehensive building block in the efforts to implement the ambitious new 2030 climate target, and all economic sectors and policies will need to make their contribution. The European Council also invited the Commission in December 2020 to consider exploring ways to strengthen the EU Emissions Trading System (EU ETS), while preserving its integrity and taking into account the need to address distributional concerns and energy poverty. The European Council also invited the Commission to consider proposing measures that enable energy-intensive industries to develop and deploy innovative climate-neutral technologies while maintaining their industrial competitiveness. The current ETS legislation was revised in 2018 to deliver a 43 % reduction in EU ETS emissions by 2030 compared to 2005, coherent with an EU economy-wide emissions reduction target of at least 40 % by 2030 compared to 1990. More recent analysis by the Commission services, however, indicates that, if the legislation remains unchanged, the sectors currently covered by the EU ETS would instead achieve emission reductions of -51 % in 2030 compared to 2005 6 . Even though this would mean outperforming the contribution of -43 % referred to above, it would still be an insufficient contribution to an overall target of at least -55 % compared to 1990. Therefore, the general objective of this initiative is to revise the ETS Directive in a manner commensurate with the 2030 climate ambition to reach at least 55 % net greenhouse gas emission reductions by 2030 below 1990 levels and with a gradual and balanced trajectory towards climate neutrality by 2050, in a cost-effective and coherent way while taking into account the need for a just transition and the need for all sectors to contribute to the EU’s climate efforts. As explained in the impact assessment, contribution of the sectors covered by the EU ETS of -61 % compared to 2005 is considered as best reflecting the 2030 Climate Target Plan results and is taken as the EU ETS ambition contributing to an overall target of at least -55 % compared to 1990. Increasing the EU ETS’s environmental contribution entails adjusting primarily the total number of allowances issued under the EU ETS (the ‘cap’). However, a reduced amount of allowances available to the market affects other pillars of the EU ETS and the carbon price. It impacts core principles such as the need for market stability, the protection against the risk of carbon leakage, the carefully balanced distributional effects between Member States, and the availability of funds for the increased investment needs in low-carbon technologies. At the same time as the EU ETS is brought in line with the overall target of at least -55 % compared to 1990, this increased climate ambition also needs to be reflected in the contribution to the EU’s climate efforts of sectors currently outside of the EU ETS. The impact assessment accompanying the 2030 Climate Target Plan found that in the absence of additional measures, emissions in certain sectors would not decrease as much as required to be on a path to achieve an economy-wide 55 % reduction in emissions. In fact, in maritime transport, emissions today are higher than in 1990, and maritime transport emissions are expected to grow further in a business-as-usual scenario . All pathways assessed as part of the 2030 Climate Target Plan and the Sustainable and Smart Mobility Strategy 7 envisage 80-82 % emissions reductions from international shipping by 2050 relative to 1990 (equivalent to 88-89 % emissions reductions relative to 2008) 8 , in order to be consistent with the increased level of climate ambition. Therefore, the European Commission undertook the commitment to extend the EU ETS to maritime transport as part of a basket of EU measures to address emissions from maritime transport , along with action agreed within the IMO. In this context, the Commission welcomes the progress that the European Parliament and the Council have made since 2019 on the proposal to amend Regulation (EU) 2015/757 9 in order to take appropriate account of the global data collection system for ship fuel oil consumption data ( COM(2019) 38 final) and the Commission takes note of the European Parliament’s Plenary support for the extension of the EU’s Emissions Trading System (EU ETS) to cover maritime transport emissions from 2023. Emissions from maritime transport should be included in the existing emissions trading system. To ensure a smooth transition, a phase-in period should be introduced where shipping companies would only have to surrender allowances for a portion of their verified emissions, gradually rising to 100 % over 4 years. As only around 90 million tons of CO 2 would be added through the extension to maritime transport to the existing ETS, the impact on the availability of allowances for other sectors covered would remain limited. To take into account the inclusion of the maritime sector in the EU ETS, Regulation (EU) 2015/757 should be amended, in particular as regards the reporting of aggregated emissions data at company level and considering the role of administering authorities in respect of shipping companies. These amendments complement those proposed in COM(2019) 38 final. As specified in the 2030 Climate Target Plan, the building sector is currently responsible directly and indirectly for 36 % of energy-related greenhouse gas emissions in the EU and has a large cost-effective potential to reduce emissions. More than half of those emissions are already covered by the existing ETS, notably the provision of electricity for use in buildings and most emissions of district heating. However, many homes are still heated with outdated systems that use polluting fossil fuels such as coal and oil. The sector of road transport also has a significant cost-effective reduction potential. Today, road transport accounts for a fifth of the EU’s greenhouse gas emissions and increased its emissions by over a quarter since 1990. As already considered in the European Green Deal Communication, the Commission is proposing to include the building sector and road transport into emissions trading. The coverage of these sectors by emissions trading, when put in the context of other appropriate regulatory and investment measures for the sectors in question, would provide for increased and more harmonised economic incentives to reduce emissions across these sectors in the EU and increased certainty of delivery of the emission reductions for those sectors. Emissions trading for the buildings and road transport sectors should be introduced through separate but adjacent emissions trading. This will avoid any disturbance of the well-functioning emissions trading system for stationary installations and aviation, given the different reduction potentials in those sectors and different factors that influence the demand. Any possible merger of the two systems should be assessed only after a few years of functioning of the new emissions trading, based on experience. The extension to buildings and road transport requires an upstream approach to regulated entities. Market stability is crucial for the EU ETS to function correctly to achieve its targets. To ensure market stability, Decision (EU) 2015/1814 10 established the market stability reserve (MSR). It began operating in January 2019. The objectives of the MSR are to tackle historical supply-demand imbalances and to make the EU ETS more resilient to major imbalances. The mechanism must preserve regulatory stability and ensure long-term predictability. Article 3 of the Decision requires the Commission to review the functioning of the reserve within three years of the start of the operation. This review needs to be considered together with the effects for market stability of increasing the ambition of the EU ETS, so the necessary amendments to the reserve are proposed together with the amendments to the EU ETS with this proposal. In this context, this proposal, as part of the Fit for 55 package, has the following specific objectives: – strengthening the EU ETS in its current scope in order to provide the appropriate contribution to an overall target of at least -55 % GHG emissions compared to 1990; – ensuring continued effective protection for the sectors exposed to a significant risk of carbon leakage while incentivising the uptake of low-carbon technologies; – addressing the distributional and social effects of this transition, by reviewing the use of auctioning revenues and the size and functioning of the low-carbon funding mechanisms; – ensuring that the other sectors than those currently included in the EU ETS contribute cost-effectively to the emission reductions needed in line with EU targets and Paris Agreement commitments notably by including emissions from maritime transport and emissions from buildings and road transport under the rules of the EU ETS while ensuring synergies with other policies targeting those sectors; – reviewing the monitoring, reporting and verification system of CO 2 emissions from maritime transport to take into account the inclusion of the maritime transport sector in the EU ETS; – reviewing the market stability reserve in line with the corresponding legal obligation and examining possible amendments to its design, to fulfil the legal objectives in the MSR decision and to address any issues that may be raised in the context of the increased ambition.
Revised version (Article 11 National implementation measures):
1. Each Member State shall publish and submit to the Commission, by 30 September 2011, the list of installations covered by this Directive in its territory and any free allocation to each installation in its territory calculated in accordance with the rules referred to in Article 10a(1) and Article 10c. A list of installations covered by this Directive for the five years beginning on 1 January 2021 shall be submitted by 30 September 2019, and lists for each subsequent period of five years shall be submitted every five years thereafter. Each list shall include information on production activity, transfers of heat and gases, electricity production and emissions at sub-installation level over the five calendar years preceding its submission. Free allocations shall only be given to installations where such information is provided. 2. By 30 June of each year, the competent authorities shall issue the quantity of allowances that are to be allocated for that year, calculated in accordance with Articles 10, 10a and 10c. 3. Member States may not issue allowances free of charge under paragraph 2 to installations whose inscription in the list referred to in paragraph 1 has been rejected by the Commission.
Article 11a Use of CERs and ERUs from project activities in the Community scheme before the entry into force of an international agreement on climate change
1. Without prejudice to the application of Article 28(3) and (4), paragraphs 2 to 7 of this Article shall apply. 2. To the extent that the levels of CER and ERU use, allowed to operators or aircraft operators by Member States for the period from 2008 to 2012, have not been used up or an entitlement to use credits is granted under paragraph 8, operators may request the competent authority to issue allowances to them valid from 2013 onwards in exchange for CERs and ERUs issued in respect of emission reductions up until 2012 from project types which were eligible for use in the Community scheme during the period from 2008 to 2012. Until 31 March 2015, the competent authority shall make such an exchange on request. 3. To the extent that the levels of CER and ERU use, allowed to operators or aircraft operators by Member States for the period from 2008 to 2012, have not been used up or an entitlement to use credits is granted under paragraph 8, competent authorities shall allow operators to exchange CERs and ERUs from projects that were registered before 2013 issued in respect of emission reductions from 2013 onwards for allowances valid from 2013 onwards. The first subparagraph shall apply to CERs and ERUs for all project types which were eligible for use in the Community scheme during the period from 2008 to 2012. 4. To the extent that the levels of CER and ERU use, allowed to operators or aircraft operators by Member States for the period from 2008 to 2012, have not been used up or an entitlement to use credits is granted under paragraph 8, competent authorities shall allow operators to exchange CERs issued in respect of emission reductions from 2013 onwards for allowances from new projects started from 2013 onwards in LDCs. The first subparagraph shall apply to CERs for all project types which were eligible for use in the Community scheme during the period from 2008 to 2012, until those countries have ratified a relevant agreement with the Community or until 2020, whichever is the earlier. 5. To the extent that the levels of CER and ERU use, allowed to operators or aircraft operators by Member States for the period from 2008 to 2012, have not been used up or an entitlement to use credits is granted under paragraph 8 and in the event that the negotiations on an international agreement on climate change are not concluded by 31 December 2009, credits from projects or other emission reducing activities may be used in the Community scheme in accordance with agreements concluded with third countries, specifying levels of use. In accordance with such agreements, operators shall be able to use credits from project activities in those third countries to comply with their obligations under the Community scheme. 6. Any agreements referred to in paragraph 5 shall provide for the use of credits in the Community scheme from project types which were eligible for use in the Community scheme during the period from 2008 to 2012, including renewable energy or energy efficiency technologies which promote technological transfer and sustainable development. Any such agreement may also provide for the use of credits from projects where the baseline used is below the level of free allocation under the measures referred to in Article 10a or below the levels required by Community legislation. 7. Once an international agreement on climate change has been reached, only credits from projects from third countries which have ratified that agreement shall be accepted in the Community scheme from 1 January 2013. 8. All existing operators shall be allowed to use credits during the period from 2008 to 2020 up to either the amount allowed to them during the period from 2008 to 2012, or to an amount corresponding to a percentage, which shall not be set below 11 %, of their allocation during the period from 2008 to 2012, whichever is the highest. Operators shall be able to use credits beyond the 11 % provided for in the first subparagraph, up to an amount which results in their combined free allocation in the period from 2008 to 2012 and overall project credits entitlement equal to a certain percentage of their verified emissions in the period from 2005 to 2007. New entrants, including new entrants in the period from 2008 to 2012 which received neither free allocation nor an entitlement to use CERs and ERUs in the period from 2008-2012, and new sectors shall be able to use credits up to an amount corresponding to a percentage, which shall not be set below 4,5 %, of their verified emissions during the period from 2013 to 2020. Aircraft operators shall be able to use credits up to an amount corresponding to a percentage, which shall not be set below 1,5 %, of their verified emissions during the period from 2013 to 2020. Measures shall be adopted to specify the exact percentages which shall apply under the first, second and third subparagraphs. At least one-third of the additional amount which is to be distributed to existing operators beyond the first percentage referred to in the first subparagraph shall be distributed to the operators which had the lowest level of combined average free allocation and project credit use in the period from 2008 to 2012. Those measures shall ensure that the overall use of credits allowed does not exceed 50 % of the Community-wide reductions below the 2005 levels of the existing sectors under the Community scheme over the period from 2008 to 2020 and 50 % of the Community-wide reductions below the 2005 levels of new sectors and aviation over the period from the date of their inclusion in the Community scheme to 2020. Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(3). 9. From 1 January 2013, measures may be applied to restrict the use of specific credits from project types. Those measures shall also set the date from which the use of credits under paragraphs 1 to 4 shall be in accordance with these measures. That date shall be, at the earliest, six months from the adoption of the measures or, at the latest, three years from their adoption. Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(3). The Commission shall consider submitting to the Committee a draft of the measures to be taken where a Member State so requests.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The European Green Deal Communication 1 launched a new growth strategy for the EU that aims to transform the EU into a fair and prosperous society with a modern, resource-efficient and competitive economy. It reaffirms the Commission’s ambition to increase its climate targets and make Europe the first climate-neutral continent by 2050. Furthermore, it aims to protect the health and well-being of citizens from environment-related risks and impacts. The necessity and value of the European Green Deal have only grown in light of the very severe effects of the COVID-19 pandemic on the health, living and working conditions and well-being of the Union’s citizens. Tackling climate change is an urgent challenge. In line with the scientific findings of the Intergovernmental Panel on Climate Change (IPCC) Special Report, global net-zero CO 2 emissions need to be achieved around 2050, and neutrality for all other greenhouse gases as soon as possible later in the century. This urgent challenge requires the EU to step up its action and demonstrate global leadership by becoming climate neutral by 2050. This objective is set out in the Communication ‘ A Clean Planet for all ’ - A European strategic long-term vision for a prosperous, modern, competitive and climate-neutral economy’ 2 . Based on the European Green Deal strategy and a comprehensive impact assessment, the Commission’s Communication of September 2020 on Stepping up Europe’s 2030 climate ambition 3 (‘2030 Climate Target Plan’) proposed to raise the EU's ambition and put forward a comprehensive plan to increase the European Union’s binding target for 2030 towards at least 55 % net emission reduction, in a responsible way. Raising the 2030 ambition now helps give certainty to policymakers and investors, so that decisions made in the coming years do not lock in emission levels inconsistent with the EU’s objective to be climate neutral by 2050. The 2030 target is in line with the Paris Agreement objective to keep the global temperature increase to well below 2°C and pursue efforts to keep it to 1.5°C. The European Council endorsed the new EU binding target for 2030 at its meeting of December 2020 4 . It also called on the Commission “ to assess how all economic sectors can best contribute to the 2030 target and to make the necessary proposals, accompanied by an in-depth examination of the environmental, economic and social impact at Member State level, taking into account national energy and climate plans and reviewing existing flexibilities ”. To this end, the European Climate Law 5 , as agreed with the co-legislators, makes the EU’s climate neutrality target legally binding, and raises the 2030 ambition by setting a target of at least 55 % net emission reductions by 2030 compared to 1990. In order to follow the pathway proposed in the European Climate Law, and deliver this increased level of ambition for 2030, the Commission has reviewed the climate and energy legislation currently in place that are expected to only reduce greenhouse gas emissions by 40 % by 2030 and by 60 % by 2050. This ‘ Fit for 55 ’ legislative package, as announced in the 2030 Climate Target Plan, is the most comprehensive building block in the efforts to implement the ambitious new 2030 climate target, and all economic sectors and policies will need to make their contribution. The European Council also invited the Commission in December 2020 to consider exploring ways to strengthen the EU Emissions Trading System (EU ETS), while preserving its integrity and taking into account the need to address distributional concerns and energy poverty. The European Council also invited the Commission to consider proposing measures that enable energy-intensive industries to develop and deploy innovative climate-neutral technologies while maintaining their industrial competitiveness. The current ETS legislation was revised in 2018 to deliver a 43 % reduction in EU ETS emissions by 2030 compared to 2005, coherent with an EU economy-wide emissions reduction target of at least 40 % by 2030 compared to 1990. More recent analysis by the Commission services, however, indicates that, if the legislation remains unchanged, the sectors currently covered by the EU ETS would instead achieve emission reductions of -51 % in 2030 compared to 2005 6 . Even though this would mean outperforming the contribution of -43 % referred to above, it would still be an insufficient contribution to an overall target of at least -55 % compared to 1990. Therefore, the general objective of this initiative is to revise the ETS Directive in a manner commensurate with the 2030 climate ambition to reach at least 55 % net greenhouse gas emission reductions by 2030 below 1990 levels and with a gradual and balanced trajectory towards climate neutrality by 2050, in a cost-effective and coherent way while taking into account the need for a just transition and the need for all sectors to contribute to the EU’s climate efforts. As explained in the impact assessment, contribution of the sectors covered by the EU ETS of -61 % compared to 2005 is considered as best reflecting the 2030 Climate Target Plan results and is taken as the EU ETS ambition contributing to an overall target of at least -55 % compared to 1990. Increasing the EU ETS’s environmental contribution entails adjusting primarily the total number of allowances issued under the EU ETS (the ‘cap’). However, a reduced amount of allowances available to the market affects other pillars of the EU ETS and the carbon price. It impacts core principles such as the need for market stability, the protection against the risk of carbon leakage, the carefully balanced distributional effects between Member States, and the availability of funds for the increased investment needs in low-carbon technologies. At the same time as the EU ETS is brought in line with the overall target of at least -55 % compared to 1990, this increased climate ambition also needs to be reflected in the contribution to the EU’s climate efforts of sectors currently outside of the EU ETS. The impact assessment accompanying the 2030 Climate Target Plan found that in the absence of additional measures, emissions in certain sectors would not decrease as much as required to be on a path to achieve an economy-wide 55 % reduction in emissions. In fact, in maritime transport, emissions today are higher than in 1990, and maritime transport emissions are expected to grow further in a business-as-usual scenario . All pathways assessed as part of the 2030 Climate Target Plan and the Sustainable and Smart Mobility Strategy 7 envisage 80-82 % emissions reductions from international shipping by 2050 relative to 1990 (equivalent to 88-89 % emissions reductions relative to 2008) 8 , in order to be consistent with the increased level of climate ambition. Therefore, the European Commission undertook the commitment to extend the EU ETS to maritime transport as part of a basket of EU measures to address emissions from maritime transport , along with action agreed within the IMO. In this context, the Commission welcomes the progress that the European Parliament and the Council have made since 2019 on the proposal to amend Regulation (EU) 2015/757 9 in order to take appropriate account of the global data collection system for ship fuel oil consumption data ( COM(2019) 38 final) and the Commission takes note of the European Parliament’s Plenary support for the extension of the EU’s Emissions Trading System (EU ETS) to cover maritime transport emissions from 2023. Emissions from maritime transport should be included in the existing emissions trading system. To ensure a smooth transition, a phase-in period should be introduced where shipping companies would only have to surrender allowances for a portion of their verified emissions, gradually rising to 100 % over 4 years. As only around 90 million tons of CO 2 would be added through the extension to maritime transport to the existing ETS, the impact on the availability of allowances for other sectors covered would remain limited. To take into account the inclusion of the maritime sector in the EU ETS, Regulation (EU) 2015/757 should be amended, in particular as regards the reporting of aggregated emissions data at company level and considering the role of administering authorities in respect of shipping companies. These amendments complement those proposed in COM(2019) 38 final. As specified in the 2030 Climate Target Plan, the building sector is currently responsible directly and indirectly for 36 % of energy-related greenhouse gas emissions in the EU and has a large cost-effective potential to reduce emissions. More than half of those emissions are already covered by the existing ETS, notably the provision of electricity for use in buildings and most emissions of district heating. However, many homes are still heated with outdated systems that use polluting fossil fuels such as coal and oil. The sector of road transport also has a significant cost-effective reduction potential. Today, road transport accounts for a fifth of the EU’s greenhouse gas emissions and increased its emissions by over a quarter since 1990. As already considered in the European Green Deal Communication, the Commission is proposing to include the building sector and road transport into emissions trading. The coverage of these sectors by emissions trading, when put in the context of other appropriate regulatory and investment measures for the sectors in question, would provide for increased and more harmonised economic incentives to reduce emissions across these sectors in the EU and increased certainty of delivery of the emission reductions for those sectors. Emissions trading for the buildings and road transport sectors should be introduced through separate but adjacent emissions trading. This will avoid any disturbance of the well-functioning emissions trading system for stationary installations and aviation, given the different reduction potentials in those sectors and different factors that influence the demand. Any possible merger of the two systems should be assessed only after a few years of functioning of the new emissions trading, based on experience. The extension to buildings and road transport requires an upstream approach to regulated entities. Market stability is crucial for the EU ETS to function correctly to achieve its targets. To ensure market stability, Decision (EU) 2015/1814 10 established the market stability reserve (MSR). It began operating in January 2019. The objectives of the MSR are to tackle historical supply-demand imbalances and to make the EU ETS more resilient to major imbalances. The mechanism must preserve regulatory stability and ensure long-term predictability. Article 3 of the Decision requires the Commission to review the functioning of the reserve within three years of the start of the operation. This review needs to be considered together with the effects for market stability of increasing the ambition of the EU ETS, so the necessary amendments to the reserve are proposed together with the amendments to the EU ETS with this proposal. In this context, this proposal, as part of the Fit for 55 package, has the following specific objectives: – strengthening the EU ETS in its current scope in order to provide the appropriate contribution to an overall target of at least -55 % GHG emissions compared to 1990; – ensuring continued effective protection for the sectors exposed to a significant risk of carbon leakage while incentivising the uptake of low-carbon technologies; – addressing the distributional and social effects of this transition, by reviewing the use of auctioning revenues and the size and functioning of the low-carbon funding mechanisms; – ensuring that the other sectors than those currently included in the EU ETS contribute cost-effectively to the emission reductions needed in line with EU targets and Paris Agreement commitments notably by including emissions from maritime transport and emissions from buildings and road transport under the rules of the EU ETS while ensuring synergies with other policies targeting those sectors; – reviewing the monitoring, reporting and verification system of CO 2 emissions from maritime transport to take into account the inclusion of the maritime transport sector in the EU ETS; – reviewing the market stability reserve in line with the corresponding legal obligation and examining possible amendments to its design, to fulfil the legal objectives in the MSR decision and to address any issues that may be raised in the context of the increased ambition.
Revised version (Article 11a Use of CERs and ERUs from project activities in the EU ETS before the entry into force of an international agreement on climate change):
3. Units referred to in paragraph 1, points (a), (b) and (c), may be used if arrangements are in place for authorisation by the participating parties, timely adjustments are made to the reporting of anthropogenic emissions by sources and removals by sinks covered by the nationally determined contributions of the participating parties, and double counting and a net increase in global emissions are avoided. The Commission shall adopt implementing acts laying down detailed requirements for the arrangements referred to in the first subparagraph of this paragraph, which may include reporting and registry requirements, and for listing the States or programmes which apply those arrangements. Those arrangements shall take account of flexibilities accorded to least developed countries and small island developing States in accordance with paragraph 2 of this Article. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 22a(2). 5. To the extent that the levels of CER and ERU use, allowed to operators or aircraft operators by Member States for the period from 2008 to 2012, have not been used up or an entitlement to use credits is granted under paragraph 8 and in the event that the negotiations on an international agreement on climate change are not concluded by 31 December 2009, credits from projects or other emission reducing activities may be used in the EU ETS in accordance with agreements concluded with third countries, specifying levels of use. In accordance with such agreements, operators shall be able to use credits from project activities in those third countries to comply with their obligations under the EU ETS . 6. Any agreements referred to in paragraph 5 shall provide for the use of credits in the EU ETS from project types which were eligible for use in the EU ETS during the period from 2008 to 2012, including renewable energy or energy efficiency technologies which promote technological transfer and sustainable development. Any such agreement may also provide for the use of credits from projects where the baseline used is below the level of free allocation under the measures referred to in Article 10a or below the levels required by Union legislation. 7. Once an international agreement on climate change has been reached, only credits from projects from third countries which have ratified that agreement shall be accepted in the EU ETS from 1 January 2013. 8. The Commission shall adopt implementing acts listing units which have been considered eligible by the ICAO Council and that fulfil the conditions set out in paragraphs 2 and 3 of this Article. The Commission shall also adopt implementing acts to update that list, as appropriate. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 22a(2).