The European Commission wants to give heavy industry more time to curb CO2 emissions. This became apparent on Friday during the presentation of the long-awaited reform of the European Emissions Trading System (ETS1).

Companies in the most energy-intensive sectors – chemicals, cement, steel, glass, etc. – have for years been required to pay for the CO2 they emit into the atmosphere. However, that system will be phased out over the coming years, forcing the industry to switch to lower-emission production processes.

The system has indeed halved emissions in these sectors. However, in recent years, the industry has stepped up its lobbying for a relaxation of rules, seeking more breathing room in the cutthroat competition with third countries that have less ambitious climate policies. “Otherwise, there is a risk that investments will go elsewhere in the world,” the argument goes.

‘More business-friendly approach’

That is why the Commission wants “a more business-friendly approach.” It aims, for instance, to reduce the total number of emission allowances on the market more slowly over the coming decade and to continue auctioning allowances beyond 2040 – something not currently envisaged – without jeopardizing the overall climate target for 2040.

The Commission also aims to extend the market to other sectors. It proposes requiring the waste incineration sector to pay for CO2 emissions and further integrating the shipping and aviation sectors.

Aviation sector

In aviation, for instance – a sector where emissions are still rising – coverage is currently limited to flights within the EU. From 2029, this will be expanded to include all flights landing within a 5,000-kilometer radius of Frankfurt. The Commission also wants all private flights to contribute to the costs.

The aviation industry regrets the expansion of emissions trading. According to the European airline trade association Airlines for Europe, “European passengers will pay more without any guarantee that their money will be reinvested in decarbonization.”

Shipping sector

The ETS system is also being extended to smaller ships in the shipping sector. According to the European Commission, ETS revenues would be reinvested in sustainable fuels, and the proposal also offers targeted support to small island developing states and least developed countries to help them decarbonize their maritime sectors.

Agoria, the employers’ organization for technology companies, has reacted with cautious optimism to the reform of the European emissions trading market. “The emissions trading system is being better aligned with the economic reality of companies,” Agoria said in a press release on Friday.

Chemical industry

Essenscia, the Belgian federation for the chemical industry, believes that Europe is “missing opportunities” with the ETS reform. “The European Commission is correcting some shortcomings in the system but is not addressing the core of the European industry’s competitiveness problem,” the federation stated in a press release on Friday.

Also, the industry itself is unconvinced. “The European proposal completely ignores the reality companies face,” said Markus Kamieth, CEO of the German company BASF, Europe’s largest chemical group. The industry wants the planned reform to lead to a less prescriptive climate policy and to strengthen its competitiveness.

Industry not impressed

The European industry is not impressed by the reform of the emissions trading system. Companies can obtain additional free emission allowances by investing in Europe. However, the industry fears administrative red tape.

Climate Action Network (CAN), the European umbrella organization for climate groups, is critical of the revision of the European Emissions Trading System. The organization describes it as a “significant watering down” and a proposal that was “heavily influenced by lobbying.”

CAN is also critical of the expansion of free emission allowances. The European umbrella organization opposes the inclusion of carbon capture. While it may play a role in capturing hard-to-avoid emissions, “it must never become an excuse to delay emission reductions at the source.”

‘Starting point’

Finally, the Flemish employers’ organization Voka views the reform as a “starting point” for a new policy. “The ETS reform must be the starting point for a policy that links decarbonization to strengthening industrial competitiveness,” Voka concludes. Voka also calls for all ETS1 revenues to be channeled back to the industry.

The reform must now be approved by the European Parliament and the member states, which have been squabbling for months over the future of ETS1.

Italy, the Czech Republic, and Poland, among others, are pushing for maximum easing of restrictions, while the Scandinavian countries and Spain want to preserve the system as much as possible. Belgium is adopting a wait-and-see approach.