• Federley seeks expanded carbon market innovation fund
  • EU Parliament's industry committee to consider report May 23

The European Union should boost an innovation fund under its emissions cap-and-trade program in the next decade to help companies embrace clean energy technologies, according to a proposal by European Parliament member Fredrick Federley.

Federley, who is a lead lawmaker on the carbon market reform in the Parliament’s industry committee, wants to top up 400 million allowances proposed by the European Commission for the innovation fund with 150 million unallocated allowances. They would be made available to producers and not to electric utilities. Revenues from the sale of those extra permits would be valued at 861 million euros at benchmark carbon permit prices on Friday.

“The additional allowances would be made available for non-power heavy industry,” Federley said in an interview. “If we are to shift to green growth then we should help businesses that want to use truly innovative solutions but may find their costs too high.”

The EU emissions trading system is Europe’s flagship policy tool to reduce greenhouse gases blamed for climate change. It imposes decreasing pollution caps on around 12,000 installations owned by manufacturers and utilities. The bloc’s 28 national governments and the EU Parliament started work last year on the commission’s proposal to adjust the world’s biggest cap-and-trade program to tougher 2030 emission-reduction targets.

Political Agreement

The EU aims to deepen its carbon-cut goal to at least 40 percent in 2030 from 20 percent in 2020 compared with 1990 levels. A political agreement on the new target, reached by EU leaders in October 2014, now needs to be translated into law, which requires qualified majority support from member states and majority backing from the EU Parliament to enter into force.

Federley, a Swedish member of the European Parliament from the Liberal group, is tasked with drafting a report in the industry committee as a part of the assembly’s legislative work on the EU ETS reform. He said his proposal will be sent to the Parliament’s lawyers for checks later on Friday before being considered by his committee on May 23.

The European Commission proposed in July 2015 earmarking 400 million allowances to extend existing support for demonstration projects of innovative renewable energy technologies and of carbon capture and storage. The EU aims to boost the share of energy from renewables in consumption to 20 percent by the end of this decade and at least 27 percent by 2030. The level was 16 percent in 2014, almost doubling from the 8.5 percent in 2004, according to the bloc’s statistical agency Eurostat.

Carbon Permits

The innovation fund proposed by the commission would support up to 60 percent of project costs. The operational rules for the fund, including eligible technologies and methods of auctioning of the carbon permits, will be decided at a later stage. Federley said the extra allowances he sought would not be subject to geographical limits.

Federley will also propose modified rules on handing out allowances to companies prone to relocating to regions without pollution curbs, a phenomenon known as carbon leakage. The Swedish lawmaker wants to introduce a tiered approach, or varying levels of free permit allocation to companies depending on how big a risk they face.

The report he will present to the industry committee will stop short of recommending changes to the commission’s proposal to earmark 57% of allowances for auctioning and 43% for free allocation after 2020.

“I decided that it’s not the competence of the industry committee to propose changes in that area, but it doesn’t mean that the issue will not be discussed at all,” Federley said. “The environment committee, which is the lead committee on the ETS reform, may look at the issue.”

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