Policy Overview

The EU Emissions Trading System Directive 2003/87/EC (EU ETS) governs the world’s largest carbon market: a cap-and-trade system covering key energy intensive sectors, accountable for 41% of EU emissions. In light of the European Green Deal and the EU’s new 2030 GHG target, the EU Commission proposed increasing the ambition of the EU ETS in September 2020. The EU ETS update will review the 2030 targets for ETS sectors (currently 43%) to ensure the responsibility for reaching the EU's overall emission reductions is balanced with sectors not covered by the scheme. It will also update rules governing the free allocation of emissions allowances, including the Linear Reduction Factor (LRF) (the annual decrease of allowances provided to the market) and the Market Stability Reserve (MSR) rules (the mechanism for dealing with surplus/unallocated emission allowances in the market). Another key concern is the need for a mandate for auction revenues to ensure they are spent on climate action.

Policy At Risk

After intense negative policy engagement from industry, efforts to reform the EU Emissions Trading System (EU ETS) in line with Europe's 2030 climate targets are at risk, with the EU Commission, Council and Parliament proposals maintaining a significant rate of free emission-allowance allocation to heavy industry sectors.

InfluenceMap Query

Emissions Trading

Policy Status

Under consideration: proceeding to trilogues after votes in EU Parliament and Council.

  • European Parliament: Environment (ENVI) Committee
  • Rapporteur: Peter Liese (European People’s Party)
  • European Council: Environment Council and Working Party on the Environment

Evidence Profile

107580156149330

European Commission

European Parliament

European Council

Lobbying Overview

Overview of Corporate and Industry Lobbying

The aggregated evidence of corporate and industry lobbying on the update of the EU ETS shows intense, negative engagement from energy intensive ETS sectors (cement, steel, etc), while energy and utility interests have supported greater ambition.

Long-term Lobbying Trends

Energy intensive industry fought to retain free emission allowances, voicing the most opposition to EU ETS reform and utilizing narratives stressing risks concerning the loss of industrial competitiveness and the need for increased 'carbon leakage' protection. For example, CEMBUREAU (Cement) and Eurofer (Steel) opposed raising the GHG emissions target for ETS sectors above 43%, and challenging any mechanism to reduce the flow of free emission allowances. Cross-sector industry groups such as BusinessEurope and International Federation of Industrial Energy Consumers, appeared largely aligned with the sector-specific groups, despite voicing some increased support for LRF adjustment.

Energy and utility sectors have pushed for greater ambition, including actors such as Royal Dutch Shell, EDF and WindEurope which were the most supportive of reforms to the EU ETS in order to align the policy with the new 2030 and 2050 targets in 2020.

Since the EU Commission's 2021 Proposal

Energy intensive industry has strongly opposed the EU Commission proposal with several heavy industry actors, namely the VCI, Eurofer and thyssenkrupp, opposing virtually all the EU Commission proposed reforms to the EU ETS between October-November 2021. Since March 2022, Confindustria has repeatedly advocated for a suspension of the EU ETS due to the energy crisis and the conflict in Ukraine.

Cross sector and heavy industry associations stated particular opposition to the proposed reforms to the Market Stability Reserve and the rebasing of the emissions cap, including BusinessEurope, IFIEC and Cefic. However, in May 2022 energy intensive industry associations, including CEMBUREAU and FuelsEurope supported a strengthened Linear Reduction Factor.

A significant majority of negative lobbying advocated against reducing the current level of free allocation of emissions allowances or indirect cost compensation before 2030, including from the International Association of Oil and Gas Producers (IOGP), Eurometaux, Eurofer and Cefic. In addition, heavy industry and cross-sector actors, including CEMBUREAU, BusinessEurope, IFIEC and Air Liquide also opposed a proposed reform to make the free allocation of emissions allowances conditional on decarbonization efforts.

May and June 2022 saw a significant uptick of lobbying around the EU Parliament’s vote on the proposal for the reform of the EU ETS, Members of European Parliament stating there had been a “tsunami of lobbying”. The Chair of the Environment Committee Pascal Canfin singled out Eurofer’s lobbying to influence Members of European Parliament (MEPs) to oppose rebasing the emissions cap as particularly intense. Heavy industry sector entities signed several open letters to EU Parliament before key votes, including companies Holcim, thyssenkrupp, Norsk Hydro, and Repsol in June 2022 advocating for policymakers to oppose the Environment Committee’s ambitious proposal for EU ETS reform in the plenary vote.

Utilities and renewable players remain strong backers of EU ETS reform, with entities including WindEurope, Iberdrola and EDF strongly supportive of the Commission's proposed reforms, particularly strengthening the MSR, the LRF and rebasing the emissions cap, to align it with the EU’s increased 2030 Climate Target.

Lobbying Impacts on Policy Ambition

By considering the potential scenarios in the EU Commission's original Impact Assessment Report for EU ETS reform, and comparing this to the final proposal, a gauge of the impact of industry lobbying can be taken. In this case, intense engagement from heavy industry appears to correlate to the adoption of several weaker positions by the EU Commission, Parliament and Council.

EU Commission Proposal

  • Emissions reductions target for ETS sectors: The proposed target (61% GHG reduction by 2030) is in the lower band of options considered by the EU Commission in the 2030 Climate Target Plan impact assessment

  • The Linear Reduction Factor (LRF) (the annual decrease of allowances provided to the market): The recommended increase of the Linear Reduction Factor was to 4.2%, up from 2.1%, accompanied by a one-off cap reduction (rebasing). However, the rebasing amount is at the lower end of the EU Commission’s original ambition range.

  • The Market Stability Reserve (MSR) (the mechanism for dealing with surplus/unallocated emission permits in the market): The EU Commission appears to have adopted a lower ambition option proposed in the Impact Assessment Report for the MSR, with the intake rate at which the MSR absorbs surplus allowances maintained at 24% until 2030. However, the proposal does include a strong position on reform of the MSR's 'invalidation mechanism' for determining surplus allowances, basing the level of invalidation not on the previous year’s auction volume but capping the reserve level at 400m allowances to improve predictability.

  • Free allocation of emissions allowances : Free allocation is proposed to reduce at a rate of 10% annually between 2026 and 2035, and rules would be revised to become more targeted according to sectors’ benchmarks. The proposal mandates that free allowances become conditional on companies’ decarbonization efforts and that all auction revenues are used for climate action.

EU Parliament Proposal

The Environment Committee proposal on the EU ETS reform, voted on in May 2022, greatly increased the ambition of the policy relative to the EU Commission’s proposal. It proposed to phase out free allowances between 2026-2030, and increase the 2030 emissions reduction target to 67%. The EU Parliament adopted its proposal for EU ETS reform on 22 June after it was rejected by MEPs on 9 June in the plenary, with several elements weakened compared to the EU Parliament Environment Committee proposal.

  • Phase out of free allowances: the proposal marginally accelerates the phase out compared to the EU Commission proposal, starting in 2027 and phasing out completely by 2032, with 7% reduction in 2027 scaling up to 25% in 2031-32.

  • 2030 emissions reductions target: the reform would slightly increase the target to 63%.

  • Linear Reduction Factor: the proposal would scale up the LRF from 4.4% in 2024 to 4.6% in 2029.

  • Market Stability Reserve: thresholds to trigger the MSR are proposed to be reduced to 700 and 921 million, and the intake rate would be maintained at 24%.

  • Conditionality: the proposal mandates that ETS installations would receive a reduction in free allowances of 50% if emissions are above the 10% of worst performers.

EU Council Proposal

The EU Council adopted its position on the EU ETS reform on 29 June, representing a reduction in ambition relative to the EU Commission's proposal, including:

  • 2030 emissions target: The proposal maintained the ambition of the overall emissions reductions target of 61% by 2030 in line with the Commission.

  • Linear Reduction Factor: The EU Council replicated the Commission's proposal of a fixed 4.2% rate and one-off rebasing of the emissions cap.

  • Market Stability Reserve: The proposal maintained an intake rate of 24% until 2030, as per the EU Commission.

  • Free allocation of emissions allowances: The EU Council significantly weakened the trajectory for the phase out of free allowances, reaching only 17.5% reductions by 2030 compared to 50% in Commission proposal, then proposing a sharper decline to 100% reductions by 2035

  • Conditionality requirements: The proposal deleted requirements for free allowances to be made conditional on implementing energy efficiency audits.

The EU Council, Commission and Parliament will now enter into negotiations to finalize the legislation in trilogues, with the EU Parliament taking the most ambitious position on the file.

InfluenceMap Query

Emissions Trading

Policy Status

Under consideration: proceeding to trilogues after votes in EU Parliament and Council.

  • European Parliament: Environment (ENVI) Committee
  • Rapporteur: Peter Liese (European People’s Party)
  • European Council: Environment Council and Working Party on the Environment

Evidence Profile

107580156149330

European Commission

European Parliament

European Council

Live Lobbying Alerts

Eurofer supports the EU ETS and CBAM reform with exceptions

06 July 2022

In a press release, published on 1st July 2022, Eurofer’s Director General Axel Eggert supported the EU Council’s proposal for the Carbon Border Adjustment Mechanism and the reform of the EU Emissions Trading System (EU ETS), but suggested that the proposal needed strengthened carbon leakage protection measures and export rebates. He also stated that reforms such as rebasing the emissions cap and strengthening the Market Stability Cap should be avoided.

CEMBUREAU voices disappointment on failure to pass ETS reforms

17 June 2022

In press releases published on the 8-9th June, CEMBUREAU expressed disappointment at the failure of the EU Parliament Plenary to agree on proposals for the reform of the EU Emissions Trading System (EU ETS) and the Carbon Border Adjustment Mechanism (CBAM). CEMBUREAU stated support for "some key issues" within both the ambitious Environment Committee draft and the weaker EU Parliament draft, but did not specify its position on the phase-out timeline for free allowances.

BusinessEurope opposes increased ambition to the ETS and CBAM

25 May 2022

In a press release on 18th May, BusinessEurope Director, General Markus J. Beyrer, stated opposition to the EU Parliament Environment Committee’s vote to increase the ambition of the EU Emissions Trading System (EU ETS) and the Carbon Border Adjustment Mechanism by speeding up the phase out of the free allocation of emissions allowances in the EU ETS. He also did not support the proposal to make free allowances conditional on decarbonization efforts.

EU industry associations unsupportive of CBAM and EU ETS reforms

18 May 2022

In a joint statement published on 11th May, energy-intensive industry associations including Eurofer, CEMBUREAU, FuelsEurope and International Federation of Industrial Energy Consumers did not support reforms to the EU Emissions Trading System (EU ETS), including the proposal to strengthen the Market Stability Reserve and rebase the emissions cap. The associations also did not support the EU Commission’s proposed Carbon Border Adjustment Mechanism (CBAM), suggesting that the free allocation of emissions allowances in the EU Emissions Trading System (EU ETS) should be maintained until 2030.

Corporate Leaders Group states support for ambitious EU Emissions Trading System reforms

23 June 2022

In a press release published on 8th June, the Corporate Leaders Group (CLG) supported an ambitious agreement on the EU Emissions Trading System (EU ETS) in the EU Parliament plenary. It stated that the free allocation of emissions allowances cannot continue in its current form, but suggested that they should only be phased out as fast as possible for sectors which do not face low-carbon competition from overseas on a large scale.

VCI opposes the EU ETS reforms

17 June 2022

Ahead of the plenary votes in the EU Parliament on the EU Emissions Trading System (EU ETS) reform and the Carbon Border Adjustment Mechanism (CBAM) on 8th June, the Verband der Chemischen Industrie (VCI) published a press release in which director general Große-Entrup stated the association's opposition to the proposed ETS reforms and emphasized the potential negative impacts of CBAM on the chemical sector.

thyssenkrupp opposes ambitious EU ETS reform reform

25 May 2022

In a press release on 23rd May, thyssenkrupp stressed that the reform of the EU Emissions Trading System (EU ETS) must not be too ambitious, in response to the EU Parliament Environment Committee’s vote to increase the ambition of the policy reform. The company was also unsupportive of the decision to speed up the phase out of the free allocation of emissions allowances alongside a Carbon Border Adjustment Mechanism (CBAM), and suggested that companies investing in decarbonization should be exempt from this phase out.

ArcelorMittal Europe CEO unsupportive of EU ETS reform and CBAM

18 May 2022

Speaking at a conference on 12th May, ArcelorMittal Europe’s CEO and President of Eurofer, Geet Van Poelvoorde, did not support proposed reforms to the EU Emissions Trading System (EU ETS), stressing high costs and advocating for a transition phase. Van Poelvoorde also did not support the EU Commission’s proposed Carbon Border Adjustment Mechanism (CBAM), advocating to maintain the free allocation of emissions allowances until 2030. However, he supported a regulatory framework for green hydrogen.

Entities Engaged on Policy

The table below lists the entities found to be most engaged with the policy. InfluenceMap tracks over 350 companies and 150 industry associations globally. Each entity name links to its full InfluenceMap profile, where the evidence of its engagement can be found.

Influencemap Performance BandOrganizationEngagement Intensity
C-General Electric31IndustrialsNorth America
C-Shell63EnergyEurope
CBP60EnergyEurope
CVolkswagen Group54AutomobilesEurope
C-TotalEnergies52EnergyEurope
D-BusinessEurope53All SectorsEurope
C-European Chemical Industry Council (Cefic)58ChemicalsEurope
CEuropean Round Table for Industry (ERT)20All SectorsEurope
D+European Automobile Manufacturers Association (ACEA)40AutomobilesEurope
D-International Federation of Industrial Energy Consumers (IFIEC)35All SectorsEurope