Tomorrow, the European Parliament is set to approve the new Emissions Trading System (ETS), covering around 50% of all greenhouse gas emissions in the European Union. This will be an essential tool to bring our emissions from electricity and heat generation, energy-intensive industries, aviation and soon also the maritime sector in line with the EU’s climate goals.

During tough negotiations with the right-leaning side of the European Parliament, as well as with EU governments, the S&D Group weighed in on an ambitious ETS package that strengthens the ‘polluter-pays-principle’, and that is fair towards EU industries and impacted workers.

One of S&Ds’ main achievements on the file was to reduce the oversupply of C02 allowances to the industry, as this caused the carbon price to be too low in the past and thus limited incentives to pollute less and decarbonise. To make it possible, we strived for and obtained an earlier phase-out of free pollution permits, as well as for a higher annual decrease of total CO2 allowances available on the market, compared to the Commission proposal. We also managed to bring an additional industrial sector – the maritime sector – within the scope of the ETS much faster than initially planned.

Our Group managed to buffer vulnerable households from potential negative side effects of a higher carbon price in the buildings and transport sectors, and to increase the share of ETS revenues, among other sources, which will feed into the Social Climate Fund.

The European Parliament is also set to agree on the new ETS for aviation. We have pushed for an earlier phase out of free allowances to incentivise this increasingly polluting sector to rapidly shift to cleaner alternatives as well as to begin the monitoring, reporting and verification of the non-CO2 effects of aviation, which are at least as important as those of CO2 alone.

S&D rapporteur on the EU Emissions Trading System, Mohammed Chahim, said:

“The latest IPCC* report on climate change is again a stark reminder that the window of opportunity to secure a liveable and sustainable future for all is rapidly closing. The EU must lead by example and rapidly slash emissions from all sectors including its industry. To do so, the S&D Group has successfully fought to decrease total CO2 allowances available on the market and to phase out free allowances even faster than the Commission originally foresaw. Faced with the climate emergency, we cannot tolerate free permits to pollute.

“Many other improvements were made compared to the Commission’s proposal. The maritime sector will be included much faster within the ETS scope. We have also created more incentives for innovation through an increased Innovation Fund and the introduction of stricter conditionality on industries not doing their homework. All of this will contribute to better fairness throughout the industries, and create more means to help them shift away from fossil fuels towards renewable energy sources.

“We also managed to significantly limit the potential social effects of rising energy prices in the buildings and transport sectors, while securing funding for the Social Climate Fund. With a price cap, a delay for households, an emergency break and requirements on oil majors to bear at least half of the cost, we are convinced this will be a win-win situation for both the climate and for the energy bills. We also got the notion of a just transition into the conditions for free allowances: you must respect and work together with workers to get your free allowances.”

S&D MEP negotiator on the EU Emissions Trading System for aviation, Milan Brglez, said:

“Thanks to our relentless efforts, we have successfully pushed for a faster phase-out of free allowances. This would also enable an estimated €400m in ETS revenue under the Innovation Fund after 2026 to support actions contributing to the decarbonisation of the aviation sector.

“We have also achieved to – finally – start addressing the non-CO2 effects of aviation, which are at least as important as those of CO2 alone and have so far been ignored by the ETS aviation system. The Commission will set up a monitoring, reporting and verification scheme for non-CO2 emissions from aviation with reporting, starting in 2025. A report in 2028 should be accompanied with a legislative proposal by the Commission that is expected to expand the scope of the EU ETS to cover such effects.”

* Intergovernmental Panel on Climate Change, a scientific group assembled by the United Nations to monitor and assess all global science related to climate change.