Commission plans to prevent carbon leakage from the EU economy during the green transition

Subject: Commission plans to prevent carbon leakage from the EU economy during the green transition

Core energy-intensive industries are strategically important for the EU economy and safeguarding their competitiveness is of paramount importance. More particularly, they account for around 20% of the added value generated in the Bulgarian economy.

The Commission has given pride of place to conducting ‘climate diplomacy’ to ensure the same high standards applied in the EU are also applied in third countries, thus averting carbon leakage. However, this approach has yet to yield meaningful results. At the same time, ambitious measures are being proposed under the Green Deal and the Climate Act to reduce emissions in the EU.

In the light of the above and with a view to averting carbon leakage from the EU, can the Commission state:

1. Whether it intends to retain the current allocation of free quotas for core industries in phase four of the ETS, with the annual allocated amount continuing at 100% of their requirements, rather than scaling this back over the coming years?

2. Whether it is considering retaining, and even expanding, the range of sectors eligible for payment of compensation for indirect emissions costs by all Member States, so as to ensure a level playing field in the internal market?

3. Whether there are plans to work towards an integrated energy market reflecting the specific differences between regions and hence a just low-carbon transition?

Answer given by Executive Vice-President Timmermans on behalf of the European Commission (25 August 2020)

1. Under the EU Emissions Trading System (1) (ETS), sectors exposed to a risk of carbon leakage receive allowances for free equivalent to 100% of the relevant benchmark. For phase 4 (2021-2030), a new list of sectors considered to be at risk of carbon leakage was published in May 2019 (2). For installations in other sectors, free allocation will amount to 30% until 2026 and will decrease to zero by 2030. As set in the Green Deal, the Commission will propose to increase the EU’s climate ambition for 2030 and will review the ETS by June 2021.

2. In phase 4, Member States will continue to be able to compensate the most electro-intensive sectors for increases in electricity costs (3). The Commission is revising the EU ETS State aid guidelines setting the rules for indirect cost compensation. Interested parties could express their views on the draft guidelines (4) that list the sectors preliminarily considered to be at risk of carbon leakage (5). The revised guidelines cannot extend compensation to all Member States, as the ETS Directive leaves freedom to Member States to implement indirect cost compensation schemes or not. The Commission is finalising the assessment of the results of that consultation and aims to adopt the revised ETS State aid guidelines in 2020.

3. Not all regions and sectors have the same capacity to deal with the costs of adjusting to the transition to a climate-neutral economy. To help the most vulnerable regions deal with the socioeconomic and environmental impacts of the transition, the Commission proposed a Just Transition Mechanism consisting of three pillars: a Just Transition Fund (6), a just transition scheme under InvestEU (7) and a public sector loan facility (8). The Mechanism is part of the European Green Deal investment Plan (9). The Commission has proposed to strengthen the Just Transition Fund as part of the Next Generation EU proposal (10).

⋅1∙ Article 10b of the EU ETS Directive https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32018L0410

⋅2∙ Commission delegated Decision 2019/708 https://eur-lex.europa.eu/legal-content/EN/TXT/?

uri=uriserv:OJ.L_.2019.120.01.0020.01.ENG&toc=OJ:L:2019:120:FULL ⋅3∙

Article 10a(6) of the EU ETS Directive.

⋅4∙ https://ec.europa.eu/competition/consultations/2020_ets_stateaid_guidelines/index_en.html

⋅5∙ https://ec.europa.eu/competition/consultations/2020_ets_stateaid_guidelines/draft_ets_guidelines_en.pdf

⋅6∙ https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52020PC0022

⋅7∙ https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2018%3A439%3AFIN

⋅8∙ https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52020PC0022

⋅9∙ https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52020DC0021

⋅10∙ https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2020:456:FIN