EU plans for funding energy transition to spark opposition
Commission wants to raise money by selling €20bn worth of surplus carbon allowances
Carbon cash cow
Brussels is never short of ideas on how to raise extra funds and is proving quite creative with its most recent one: selling surplus carbon emissions permits to raise €20bn that could, inter alia, cover some of Hungary’s energy transition costs (and thus unblock the sixth Russia sanctions package), write Andy Bounds in Brussels and Alice Hancock in London.
Yet a less desirable side-effect of this plan is that by lowering the carbon price and making it cheaper to burn fossil fuels, it will risk thwarting the bloc’s climate policies, which aim at reducing carbon emissions by at least 55% by 2030, compared to 1990 levels.
The conundrum wasn’t lost on Luxembourg energy minister Claude Turmes: “The most important is how to keep on track on climate change in a moment where you have this huge security-of-supply issue?”
While the commission is considering a measure that would delay the application of its Fit for 55 package, the European parliament is going in the opposite direction when it comes to carbon allowances. Members of its environment committee approved — by a margin of 49 to 33 votes — to phase out free carbon emissions allowances for heavy industry by 2030. That is six years sooner than the commission proposed.
In addition, MEPs voted to accelerate the introduction of the carbon border adjustment mechanism (CBAM), a way of charging companies importing into the EU for their carbon emissions.
Eurofer, which represents European steel producers, said that the “disruptive vote” by the parliament’s environment committee put 30,000 jobs under threat and endangered €31bn in investments that would go into low carbon projects. Cepi, the paper and pulp industry body, said the proposals would make it “very challenging” for the sector to decarbonise.
CBAM and the end of free allowances under the EU’s emissions trading system are one of the most contested areas of Brussels’ efforts to decarbonise. Industrial executives also argue that plans for CBAM do not yet account for exports from the EU, making European industry wildly uncompetitive compared to global peers with lower and less expensive environmental regulations.
Industry groups may soon rejoice at the commission’s carbon-allowance selling plans, which would drive down the price of carbon and make it easier for them to adjust.