EC eyes one-off cut in EU ETS carbon cap, plus higher yearly cuts: draft

The European Commission is considering proposing a one-off reduction in the EU Emission Trading System emissions cap before 2030 as part of efforts to cut EU emissions more quickly, according to an unofficial EC document.

The EC is expected to propose a stricter 2030 EU CO2 cut target of "at least 55%" below 1990 levels on Sept. 16, up from the current 40% cut target, in line with its goal to make the EU climate neutral by 2050.

Achieving this more ambitious target will require increasing the 2.2% linear reduction factor which gradually reduces the ETS emissions cap each year, according to the unofficial EC document published on Sept. 14 by EU media Euractiv.

This could be combined with a one-off reduction in the cap to bring it down closer to actual emissions, the document said.

Any reductions in the ETS cap are likely to boost EU carbon prices.

The EC intends to assess how to tighten the cap taking account of its plans to extend the ETS to all fossil fuel use, including in transport and buildings, and the review next year of the market stability reserve, the document said.

The EU introduced the market stability reserve mechanism at the start of 2019 gradually to reduce surpluses of ETS allowances over time.

Transport and buildings sectors currently fall under the EU's effort sharing regulation, which sets a binding 2030 national CO2 reduction target for each of the 27 EU nations, focused on non-ETS sectors.

The existing ETS covers heavy industry, including power stations, refineries and furnaces, and intra-EU aviation.

The EC also plans to assess the impact of a tighter cap on the amount of free allowances available to industrial sectors at risk of carbon leakage -- being forced to move to regions with weaker carbon constraints to maintain their global competitiveness.

The EC's preliminary analysis suggests "a significant amount of free allocation would still be available," even under a tighter cap, the document said.

The EC is also working on introducing a carbon border adjustment mechanism for some sectors as an alternative to free allowances.

It plans to make formal EU legislative proposals in all these areas in June 2021.

Action on aviation, shipping

The EC also wants to take "urgent" action on emissions from aviation and shipping, which have grown more than 50% since 1990, the document said.

In the context of the EU ETS, the EC will propose reducing free allowances to airlines for intra-EU flights to boost carbon price signals, the document said.

It also plans to include at least intra-EU shipping into the EU ETS.

The EU had to suspend its original ETS coverage of flights into and out of the EU after strong opposition from other regions.

The EC continues to monitor progress on international efforts to cut aviation and shipping emissions by the International Civil Aviation Organization and the International Maritime Organization.

It plans to "give fresh political consideration" to the international aspects of the EU ETS, taxation, and fuel policies for aviation and shipping in order to ensure all EU-related transport fuel use is gradually decarbonized, the document said.

The EC wants to cut overall EU transport emissions by 90% by 2050 as part of its European Green Deal policy to make the EU climate neutral.

It plans to adopt a Sustainable and Smart Mobility Strategy to support this by the end of this year.