Emissions Trading DirectiveOesterreichs Energie welcomes the general increase in the CO2 savings target in the EU ETS sector, as well as the proposal to achieve this target by raising the linear reduction factor (LRF) from 2.2% to 4.2%.
We also take a positive view of the extension of the EU ETS to include maritime transport. With a view to achieving an efficient EU ETS that is required to reflect actual costs, the complete abolition of all free aviation allowances by 2027 is also to be welcomed.
The industry expressly supports the proposal to earmark all revenues from the EU ETS for measures aimed at combating climate change.
According to the proposed legislation, the exemption for electricity generating plants will be abolished for installations with a total rated thermal input of over 20 MW, putting them on an equal footing with industrial installations. Consequently, free allowances for such installations will become increasingly scarce, ultimately resulting in them receiving no free allowances by 2030. This means that heat produced at CHP stations will be put at a significant disadvantage against competing, uncoupled heat generating plants. There is a risk that heating customers will switch to other, inefficient heat supply options, and heating providers will feel obliged to switch to uncoupled heat generation in order to remain competitive against decentralised fossil fuel-based supply options. Both of these scenarios would lead to higher emissions in the energy system as a whole, as it would no longer be possible to capitalise on the efficiency advantages of CHP generation. Oesterreichs Energie is critical of this proposal, as the resulting burden – in the shape of higher district heating costs – would affect end consumers in the space heating sector, which is not part of the ETS. For these reasons, we are in favour of retaining the free allowance allocation of 30% for district heating.
Production of industrial gases – and thus also of hydrogen – will be included on the carbon leakage list in future. As a result, hydrogen producers will receive free allowances equal to the level of emissions generated during production. This means that fossil hydrogen is not subject to carbon pricing, so there will be no incentive to switch to low-emission alternatives.
In addition, the Commission’s draft directive opens up the possibility of electrolysis plant operators receiving free allowances, provided the plant has a minimum production capacity of 25 tonnes of H2 per day. This is intended to create incentives to convert steam methane reformers into zero-emission electrolysis plants. Oesterreichs Energie basically welcomes moves aimed at promoting the expansion of electrolysers, but takes a critical view of the chosen approach for two reasons:
- Allocating free allowances for zero-emission plants contradicts the basic principle behind the EU ETS and will flood the EU ETS market with non-emissions-related allowances, which will ultimately lead to an artificial reduction in the EU ETS price. In addition, operators that have not previously operated steam methane reformers would have to receive allowances when they build a new electrolysis plant, in order to avoid any discrimination in favour of operators of steam methane reformers. This would exacerbate the problem of non-emission-related allowances mentioned above.
- Instead of applying an effective carbon price to hydrogen by removing it from the carbon leakage list, a positive incentive has now been created for emission-generating hydrogen producers to switch to electrolysis plants. The costs will be passed on to customers.
For these reasons, Oesterreichs Energie opposes the Commission’s chosen approach and instead calls for hydrogen to be removed entirely from the carbon leakage list. This could be done in the course of reviewing the carbon leakage list following the introduction of a Carbon Border Adjustment Mechanism. This would make sense from a climate and environmental viewpoint, as well as in terms of trading – at present, there is no international market to speak of for hydrogen.
Establishing a new emissions trading system for the building and road transport sectors
The Commission’s proposal for a new emissions trading system for buildings and road transport states that distributors of fuels can purchase emissions trading allowances. Oesterreichs Energie is in favour of establishing this separate system for emissions trading, as it could create a level playing field between the various fossil-fuel-based heating systems.
The integration of the new emissions trading system for road transport and buildings into the current EU ETS Directive could delay the adoption of the entire EU ETS reform. In turn, this could call into question the attainment of targets, in view of the short timeframe for implementation (by 2030). Therefore, depending on the progress made in negotiations, EU institutions should consider separate legislation for the emissions trading system for the road transport and building sectors.
If these sectors are transferred to a new ETS from 2026, but remain part of the effort sharing regulation, we believe there is a possible risk of double regulation.