Fit for 55: Strengthening and shielding the EU ETS

Patrick Bauduin shares the response from the energy trading community to the EU’s ‘Fit for 55’ proposal.

In the wake of the European Commission’s ‘Fit for 55’ proposal focusing on the revision of its climate, energy and transport-related legislation, the European Federation of Energy Traders, in collaboration with Enlit Europe, organised a panel discussion to contemplate the various aspects of this package.

During the discussion, it quickly became clear that the pricing of carbon and the EU Emissions Trading System (ETS) has been put front and centre in this policy to reduce emissions by 55% by 2030 and to reach carbon neutrality by 2050. Hans Bergman, Head of Unit, ETS Policy Development, DG Climate Action at the European Commission, commented: “We needed to strengthen the ETS. Carbon pricing is a key instrument to reach carbon neutrality.”

About the release of the proposal, Bergman said: “We have a huge challenge ahead of us and I think this package contributes to this. This package will also send out an international signal. It already has, actually.”€ Hæge Fjellheim, Head of Carbon Research at Refinitiv, added, “It is difficult for the market to oversee the interplay between the different policy design options. We have a complex puzzle ahead of us”.

According to Fjellheim, the package is strengthening the EU ETS, but it is also an attempt to shield it. EU ETS is working, given the current price signals and the package wants to make sure it stays a key tool to reduce emission with 55% in 2030. Moreover, Fjellheim highlighted some of the proposals such as sharing the burden with non-EU ETS sectors, a separate ETS for transport and buildings, a stronger market stability reserve, a beefed-up modernisation and innovation fund and a gradual phase-out of free allocation with a moderate CBAM proposal.

“These are the proposals. We will still have several years of discussions to go.” Peter Vis, Senior Research Associate: European University Institute, thinks that it is a wise decision to protect the main ETS. “Going forward there are 3 pressure points in the package,” he said. “Extension of the ETS to the buildings and transport sectors is centre of controversy.

Secondly, the experiment around free allocation; we have to see how the major players will react. The third pressure point is the inclusion of the maritime sector which extends to incoming and outgoing voyages, but only half of those voyages. I can that will be controversial with some of our international partners.”€ He adds: “If any of those experiments were to fail, the main ETS is going to remain safe and will stay a key instrument in delivering climate change policies.”

Paul Dawson, Head of Regulatory Affairs at RWE Supply & Trading, represented the industry’s take on the proposal and called the Fit for 55 package “exciting stuff”€. “It bridges the existing ETS with other sectors like the buildings and transport sectors,”€ he said. “The only thing missing still, is the future role of carbon reduction technologies. We would like to see more on that element as we go forward.”

Moderator Peter Styles, Executive Vice-Chair of the EFET Board, also asked the panellists about potential future overlapping policies from national governments. Both Dawson and Fjellheim responded that ETS gives us a commitment and that national policies are not overlapping but complementary to that. And as Peter Vis concluded: “It is important for companies to know what is to be expected with these proposals. They need to start preparing for the future.”

This story was originally published in Smart Energy International


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