EU COVID-19 stimulus plan – EU ETS impacts and environmental policy developments

This article was originally published on 28 July 2020 in our ‘Irish energy market bulletin’ publication.  

Two weeks ago saw the European Commission’s proposed €750bn stimulus plan and revised €1.1tn proposal for the EUs next long-term budget (2021-2027) agreed upon by EU member states at the European Council.

The plan dubbed – Next Generation EU – sees the Green Deal at the heart of the recovery package, below we have picked out what the deal means for the future of the Emissions Trading Scheme (ETS) and wider EU environmental policy.

The overall recovery and budget package will total €1.8tn (€750bn recovery plan, plus the revised €1.1tn budget). Based upon the overall package, 30% has been earmarked for climate action, supporting the objectives of EU climate neutrality by 2050 and the Unions 2030 climate targets. The report noted that by the end of the year the EU will raise the ambition of its 2030 target – currently set to “at least 40%” below 1990 levels. For some context of what the target could be revised to, Germany has recently come out in support of a 50-55% target.

In order to address the social and economic consequences of the EUs 2050 neutrality target, a Just Transition Mechanism, including a Just Transition Fund, will be created. The fund will support fossil fuel reliant regions towards net-zero. The budget for the fund was originally proposed at €40bn, though a €17.5bn budget out to 2027 was agreed upon. Member states who have not committed to net-zero by 2050 will only be able to access 50% of their allotted allocation.

The report went on to add a number of developments impacting the ETS. The first of these was the commitment to introduce proposals in the first semester of 2021 on a Carbon Border Adjustment Mechanism (a carbon border tax) to help avoid carbon leakage. This will start with a number of selected sectors and gradually be extended over time. The plan outlined the potential start date of no later than 1 January 2023.

In the same spirit the Commission will also put forward a proposal on a revised emissions trading scheme – potentially exstending it to account for aviation and maritime sectors.

The full document from the special meeting of the European Council and be accessed here.

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