The European parliament (EP) has passed a new law to strengthen the European Union (EU) curbs on industrial CO2 emissions as per the 2015 Paris climate agreement. The new law will increase the yearly reduction of emission allowances to be placed on the market by 2.2% starting from 2021, up from the current 1.74% linear factor. This “linear reduction factor” may be further increased by 2024 at the earliest.
Besides, the ETS market stability reserve capacity will be doubled and when triggered, it will absorb up to 24% of excess allowances each auctioning year during the first four years. The new law will accelerate the withdrawal of emissions allowances currently available on the ETS market, which covers 40% of the EU greenhouse gas (GHG) emissions.
In addition, two funds will be established to help spur the transition to a low-carbon economy. A modernisation fund will help to upgrade energy systems in lower-income EU member state; coal-fired projects will be excluded from the fund, except for district heating in the poorest member states.
An innovation fund will provide financial support for renewable energy, carbon capture and storage (CCS) and low-carbon innovation projects.
Finally, to avoid "carbon leakage" (i.e. relocating industrial production outside Europe due to emission reduction policies), ETS will be allocated for free to exposed industrial sector (100% for the sectors at the highest risk and 30% for less exposed sectors).
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