The future of the EU Emissions Trading System (EU ETS) divides the European Union into three distinct camps as Brussels prepares to unveil its reform proposal on July 17. Poland, along with other member states, has called for freezing benchmark values and slowing down the linear reduction factor to protect industry.
According to an analysis by the Institut Jacques Delors, European capitals can be grouped into three categories based on their stance on the depth of changes to the EU ETS: 'Defenders’ (seeking to preserve current rules), 'Reformers’ (pushing for far-reaching modifications), and 'Moderates’ (taking nuanced positions depending on the issue). The debate revolves around three key elements: benchmark values, the Linear Reduction Factor (LRF), and the use of ETS revenues.
Three camps, three visions
The first camp, including Poland, the Czech Republic, Greece, and Romania, demands freezing benchmark values at 2021-2025 levels. In exchange, they propose that industry reinvest the saved funds into emission reductions. The second camp, led by countries like Denmark, the Netherlands, and Spain, is open to discussing LRF adjustments but only after 2036. The third camp, comprising mainly Western European states, insists on maintaining the current decarbonisation trajectory and even tightening the rules.
Benchmarks are updated every five years and based on the emissions of the top 10% most efficient installations per sector. This creates pressure on hard-to-abate industries like chemicals. The European Commission recently backed away from a 50% cut in benchmarks for 2026–2030, but some capitals want more concessions.
The benchmarks and LRF tug-of-war
The LRF determines the annual reduction of total allowances in the system. Currently set at 4.3% (rising to 4.4% from 2028), it is meant to reach zero by 2039. Poland proposes lowering the LRF to 2.4%, Germany suggests starting the reduction only from 2036, and France wants to extend the LRF horizon to 2050. According to Institut Jacques Delors, reducing the LRF to 3.4% from 2031 would result in an additional 1.1 billion tonnes of CO2 emissions; cutting it to 2.4% would mean 3.2 billion extra tonnes – roughly equivalent to Poland’s total emissions over a decade.
A group of ten countries, led by Poland and Italy, wants to extend free allowances beyond the current schedule. Meanwhile, a separate group of nations sees room for negotiation on LRF but only after 2036. The EU ETS generated €153 billion in revenues between 2021 and 2024, with €112 billion going to national budgets. However, only 8% of that (€4 billion) was spent on industrial decarbonisation, while most went to indirect cost compensation – effectively subsidising costs without driving transformation.
Revenue control and the future of free allowances
Brussels is now considering requiring that 30% of ETS revenues be channelled into the EU budget for the 2028–2034 multiannual financial framework. This proposal has met strong opposition from member states unwilling to cede control of billions to the Commission. On the table are two possible reforms: adjusting benchmarks to grant more free allowances to certain sectors, and intervening in the Market Stability Reserve (possibly suspending the cancellation of allowances).
As of mid-July, no leaks indicate the exact scope of the Commission’s proposal. The more reformist the initial approach, the higher the expectations for opening the ETS regulation. Yet after months of anticipation, Brussels appears unlikely to pursue radical changes. The outcome will depend on how far the Commission is willing to go – and on the delicate balance between protecting industry and meeting climate targets.
Źródło: WNP.PL, Fot. EPA / OLIVIER MATTHYS / PAP
