Peter Liese, the European Parliament rapporteur for the EU Emissions Trading System (ETS) reform and a member of the CDU, advocates for loosening the planned requirements compelling companies to invest in climate protection measures. This stance comes from a parliamentary report, which was reported by the German business magazine “Handelsblatt”.
Currently, businesses receive free CO2 certificates, but this free allocation has been partially curtailed as part of the EU’s “Fit for 55” climate package. This package aimed to steer the EU away from a projected warming path of over four degrees Celsius toward a trajectory that could limit climate change to slightly over two degrees Celsius. To mitigate any competitive disadvantages resulting from this change, the Carbon Border Adjustment Mechanism (CBAM) was established, which functions as a tariff on CO2-intensive imports.
The EU Commission’s latest proposal suggests continuing the free allocation of certificates beyond 2030. However, a condition for receiving these certificates would be that the funds are reinvested into decarbonization.
Liese, the EU Parliament rapporteur, proposes limiting these “conditionalities” only to the freely allocated certificates that will be introduced into the system starting in 2031. He suggests that the conditions should gradually become stricter toward the end of the 2030s. Furthermore, he argues that simply possessing a transformation plan extending until 2039 will not suffice; businesses must begin implementing initial steps much earlier.
Liese also aims to place greater responsibility on the Member States. His proposal calls for EU countries to dedicate 75 percent of the revenue generated by the ETS toward decarbonization, which is higher than the 50 percent proposed by the Commission.
The existing European Emissions Trading System for the industry and energy sectors (ETS-1) requires affected companies to purchase certificates corresponding to the CO2-equivalents emitted, typically by burning coal, oil, and gas. The annual supply of these certificates decreases, creating a fixed cap on total CO2 emissions for the energy and industry sectors. If companies reduce their emissions and thus their demand more slowly than the supply decreases, the price of certificates rises. This mechanism is designed to give climate-friendly production a cost advantage over more polluting methods.
Regarding the emission cap, the EU Commission intends to lower the annual issuance of certificates much more slowly. The current reduction rate is 4.3 percent, increasing to 4.4 percent in 2028. Under the new Commission proposal, the reduction rate is slated to slow down to 3.7 percent in 2031 and further to 1.7 percent in 2036.
Liese, conversely, proposes allowing industry to emit more CO2 initially than the EU Commission plans, in exchange for mandating greater CO2 savings starting in 2036. According to his report, the reduction factor should stand at 3.4 percent starting in 2031 and fall to 2.3 percent in 2036. This would result in a larger initial allowance period followed by a significantly smaller one.
Additionally, Liese suggests that the rules should be much clearer, compared to the Commission’s current approach, allowing industry to benefit from climate protection projects carried out in third countries. There are no planned changes for the international aviation sector.
