ETS: the EU’s flagship climate tool

The ETS reform creates a fund to help the EU’s poorest members to upgrade their energy systems. This in turn creates jobs and promotes innovation, a clear priority for the EPP Group.

The EU is taking further steps towards achieving the goals set by the Paris Agreement and its long-term objectives to cut emissions. At a plenary session in Strasbourg in February, MEPs will approve the reform of the Emissions Trading System (ETS) for 2021-2030.

The ETS is the cornerstone of EU climate policy. Its reform aims to ensure that it remains the most efficient way to cut emissions in the decade to come.

A reformed ETS is key in terms of the EU’s commitment to deliver on the target to reduce greenhouse gas emissions by at least 40% by 2030

The EU ETS system applies to more than 11,000 industrial sites in Europe and is crucial to achieving a significant reduction in emissions. It is the most important instrument we have to keep global warming below 2 degrees Celsius - as agreed at the United Nations climate conference in Paris in 2015.

What is the reform all about?

A reformed ETS is key in terms of the EU’s commitment to deliver on the target to reduce greenhouse gas emissions by at least 40% by 2030.

The ETS works through the auction and distribution of a fixed amount of tradable allowances (EUAs) to emit the greenhouse gas CO2 into the atmosphere. By putting a cap on emissions and reducing this cap over time, the price for emitting CO2 will increase, encouraging companies to reduce their emissions output. Companies will be encouraged to use renewables instead of fossil-based energy sources and to invest in innovative clean production.

The system will focus on approximately fifty sectors at the highest risk of relocating their production outside the EU due to climate policies

With the new reform in place, carbon leakage rules will be more targeted, to protect EU industry. The system will focus on approximately fifty sectors at the highest risk of relocating their production outside the EU due to climate policies. An estimated amount of 6.3 billion allowances will be allocated to companies over the 2021-2030 period.

The revised EU ETS will provide stronger incentives for innovation and continue to ensure that European industries remain competitive in international markets

Finally, the revised EU ETS will provide stronger incentives for innovation and continue to ensure that European industries remain competitive in international markets.

ETS is a market-based system, which means it can only work if companies have an economic incentive to lower their emissions. However, this incentive has been lacking, as prices have been low for some years, slowing the transition to renewable energy and making it harder to achieve the EU climate policy goal of reducing greenhouse gas emissions by 40 percent in 2030.

Job creation goes hand-in-hand with Climate protection

The final agreement on the ETS reform between the European Parliament and Member States will not only have an impact on climate policy and global warming, but it will also be of great importance for the competitiveness of European industry, and thus on jobs and growth prospects across Europe.

Particularly relevant in this domain is the Modernisation Fund, created with the ETS reform to help the EU’s 10 poorest members, all in Central Europe, to upgrade their energy systems.

The aim of the Modernisation Fund is to help the EU’s 10 poorest members to upgrade their energy systems

The aim of the Modernisation Fund is to support lower-income Member States in meeting the high investment needs relating to energy efficiency and the modernisation of their energy systems. All Member States will contribute to the fund, which will benefit 10 Member States with a GDP per capita of less than 60% of the EU average (in 2013). The countries eligible to receive support from the Modernisation Fund are: Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia.

Throughout the negotiations the EPP Group kept one goal in mind: steadily reducing CO2 emissions while safeguarding jobs and European competitiveness

The EPP Group believes that, without this ambitious reform, it would be impossible to achieve the Paris goals. Throughout the negotiations we kept one goal in mind: steadily reducing CO2 emissions while safeguarding jobs and European competitiveness.

We are therefore satisfied with achieving a balanced outcome on ETS. This is how we made sure that climate policy in the EU goes hand-in-hand with the protection and creation of jobs. We expect the compromise reached to be adopted in the forthcoming plenary session on 6 February and we are looking forward to seeing the ETS reform fly.