The way EU emissions trading system (ETS) carbon allowance allocations are calculated can have a "delaying effect" on industrial decarbonisation in the region, member of the European Parliament (MEP) Mohammed Chahim said today.
Free EU ETS allowances are allocated to sectors covered by the scheme that are deemed at risk of carbon leakage — whereby companies relocate to other jurisdictions to avoid carbon costs — according to benchmarks. These are calculated on a product-by-product basis, according to the average emissions of the most efficient 10pc of installations in the region.
But as the benchmarks are defined based on current technology, new technologies are not fully accounted for by the system, meaning that they sometimes do not incentivise innovation, Dutch socialist MEP Chahim warned.
Speaking at an event hosted by non-governmental organisation Carbon Market Watch, he pointed to the lack of clear position in the ETS for steel produced using hydrogen, as well as to the cement sector, where he said the introduction of cleaner production processes sometimes leads to firms losing free allocations.
Free allowances can either be put towards a firm's own compliance requirements, or sold. Benchmark front-year EU ETS allowances have been assessed by Argus at an average of €69.25/t of CO2 equivalent so far this year.
The EU should try to accelerate new technologies, rather than just looking at historical emissions, Chahim said. The faster the EU develops industries that can function as part of the energy transition, the stronger the region's competitiveness will be, Chahim said. The measure is designed to tackle carbon leakage by applying an equivalent carbon price to goods imported into the EU in sectors subject to the ETS. Chahim was parliament's lead negotiator on the bloc's carbon border adjustment mechanism.
The European Commission is in the process of updating the rules for EU ETS benchmarks as part of the implementation of wider reforms to the system adopted in April last year. Feedback on the draft regulation closed on 2 January.
