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.

Related thinking

Low carbon generation

Energy System Reform: Ofgem shares plans for Britain’s energy system

Against the backdrop of record high and volatile energy prices, Ofgem set out on 8 July its view on key aspects of the GB energy system where it considers significant reform is required to deliver a resilient, low cost, low carbon energy sector. Recent developments in the energy market, such...

Energy Market Design

Can we fix the wholesale energy market this winter to lower prices and should we want to? 

The Review of Electricity Market Arrangements (REMA) is intended to discuss and decide on appropriate market arrangements for 2035 in a Net Zero, low marginal cost, renewables-dominated market. It is unlikely it has the scope or capability to intervene in the market arrangements ahead of this winter. Therefore, some new interventions...

Commercial and market outlook

Two thirds of energy industry professionals think the market needs to be drastically reformed

A survey conducted of over one hundred leading energy market professionals from across the investment and advisory community, by Cornwall Insight, from the attendees of its Financing Net Zero forum, has shown nearly two thirds (63%) of people working in the energy industry1 believe the UK market needs to be...

Commercial and market outlook

Reaction to BEIS consultation on the Review of Electricity Market Arrangements

Confirming the Review of Electricity Market Arrangements (REMA) opens the prospect of a complete overhaul of the electricity market in Great Britain for the first time in over 20 years. The scope is very wide and the perceived need for reform clear from BEIS in the consultation document, with much...

Low carbon generation

A collection of resources on net zero – Net Zero Week 2022

For Net Zero Week 2022, we released a range of resources to help you on your journey to net zero. For convenience, we have put them all together in a handy Resource Report. To read the full collection of resources, please log in to your account or sign up for...

E-mobility and low carbon

Another one bites the dust: Plug-in car grant ends

Last week the government announced the plug-in car grant scheme for electric vehicles (EVs) closed, having previously confirmed funding until 2022-23. Why? Well, the government stated it would allow it to concentrate funding towards what it called the main barriers to the EV transition, including public charging and supporting the...

Home supply and services

Windfall taxes are not the only solution to the energy crisis

The energy market is in a state of transition, with geopolitical concerns threatening to undermine energy security and subsequent wholesale energy rises pushing up bills. It is inevitable that policymakers will look at how best to deliver an affordable energy system for consumers. The temporary, targeted energy profits levy, or...

Announcement

2021/22 Australian energy insights report

Analytics on key current developments in the Australian energy industry are available Cornwall Insight Australia has released a compilation of Australian energy insights, charts, and analyses. The report includes the topics of energy storage and flexibility, generation (all technologies), power prices, low carbon generation, FCAS, policy and regulation, and transmission...