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EU leaders open to adding aviation, shipping to ETS to raise funds

24 July 2020 | Trading

Part of efforts to fund Eur750 billion recovery fund

Could raise Eur10 billion/year from ETS auctions

Leaders also interested in carbon border, plastic taxes

EU leaders are ready to consider adding aviation and shipping to the EU Emissions Trading System as part of efforts to raise money to help fund the bloc's recovery from the pandemic lockdowns, they said on July 21.

The goal is to give the European Commission access to direct revenues, known as "own resources," to help it pay for the Eur750 billion ($859 billion) Next Generation EU recovery fund that EU leaders also backed on July 21 after meeting in Brussels.

The EU ETS already covers intra-EU flights, and the EC always wanted it to eventually cover all flights arriving and leaving the EU, as well as shipping, as part of its efforts to cut emissions and achieve the EU's climate goals.

The EC estimated in May it could receive Eur10 billion a year from an own resources system based on receiving revenues from ETS allowance auctions including new aviation and shipping sectors.

EU leaders invited the EC to propose a revised ETS, "possibly extending it to aviation and maritime," as a new own resources option.

They said the proceeds from the new own resources introduced after 2021 would be used to speed up repayments on the money the EC borrows to finance the NextGenEU recovery plan.

The EU had planned to include international aviation in the ETS from 2012, but major political opposition, including from China, Russia and the US, forced it to rethink.

It then froze the idea and focused on working with UN aviation association ICAO on a global approach.

Carbon border, plastic taxes

EU leaders also invited the EC to propose next year a carbon border adjustment mechanism and a digital levy, with a view to introducing them at the latest by January 1, 2023.

The EC has estimated a carbon border adjustment mechanism could raise Eur5 billion-Eur14 billion a year from putting a carbon price on imports.

The aim of the mechanism is to ensure that the EU's energy-intensive industrial sectors, including power generation, steel, oil refining and heavy manufacturing, are not undercut by competition from countries with weaker carbon constraints, such as China and the US.

Any import mechanism would have to comply with World Trade Organization rules.

EU leaders also backed a new own resource for the EC based on taxing non-recycled plastic waste, to apply as of January 1, 2021.

The EU leaders' views are not binding, and have to be enshrined into legislation to take effect.


Source: S&P Global