Committee on the Environment, Climate and Food Safety HEARING
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ENVI European Parliament
Follow its sittingsEleanor Batilliet
Of course, I apologize. So to be able to reduce those process emissions, which are unavoidable, this 60% that you see at the bottom of the graph, we need investments in breakthrough technologies, in our case CCS. And we have invested into the first CCS plant in Europe, in Norway, and we have investment plans in the rest of Europe, but for those investments to be viable, we need a strong ETS cost and regulatory stability. So we're already delivering results, we have an objective of reducing our emissions by 47% by 2030. As I said, we've already deployed our first CCS plant in Norway and we have FID'd a second full-scale CCS facility in the UK.
But deep decarbonization requires long-term and high-risk capital-intensive investments in CCS, often with long lead times and long investment cycles. And that's why future ETS costs are an important factor for our investment planning in those CCS projects. So as I mentioned, these investment decisions depend directly on credible and stable ETS price expectations. This is an example of the CCS project that I mentioned in Norway, so the first of the kind to be operational since last year, so June 2025, where we are capturing 4,000 tons of CO2 per year. And we have other plans in the rest of Europe, as you can see here, an example of the projects that we have planned in the EU, some of them also have received funding from the Innovation Fund.
So we are driving those projects in the sector, but of course a strong and predictable carbon price is not optional for us, it is the condition for those investments. At the same time, to limit the cost of the transitions, these investments, and I'm speaking here for the entire sector and not just our company, these investments should happen in the next decade. So if you see here an example for our sector, delays in CO2 transport and storage, and this is a research from the PIK Institute in Germany, delays in CO2 transport and storage, and the researchers also include hydrogen infrastructure, would severely drive up abatement costs. So again, a point to show the ETS is central to de-risking investments into CAPEX-intensive technologies and we need these investments to happen in this decade to be able to limit the costs of the transition, both for the energy transition and the industry transition. But at the moment, we struggle at the same time with a lack of investment visibility and enabling conditions.
So we see current structural uncertainty based on weakening the ETS signal, high and volatile energy costs, slow deployment of CO2 and transport infrastructure and also uncertainty around funding instrument and timelines. These conditions are also hampering important transformation projects. So we need to strengthen the ETS as a strong investment framework. And here I added a couple of our recommendations or how we would see the ETS could be strengthened from our perspective. First looking into an ETS being able to deliver a long-term price signal and regulatory stability.
So a first-mover strategy for which we are in our sector having invested into the CCS plant requires sustained long-term pricing, EUA pricing, and also regulatory stability.
We need to avoid ad hoc changes in the ETS reviews. So from our perspective, any amendments, any changes to the ETS must be aligned with existing climate targets and also based on a solid impact assessment that ensures and protects long-term investments. At the same time, we also need timely and transparent benchmark setting for our sector, but also all sectors. We have three main priorities for the ETS review. The first one being we need a credible outlook beyond 2040.
So in that case, for a sector that has unavoidable process emissions, we will still have emissions after 2039. And we need a predictable and workable allowance supply beyond 2039-2040 to reflect this level of emissions. This of course needs to be consistent with the EU climate neutrality objectives. So that means adjustment to the LRF to address the residual emissions from 2039. We'd also need the recognition of carbon removals.
From our perspective, the permanent technical removals as and companies should be able to use those certified removals directly for compliance to support decarbonization efforts where emissions cannot be fully avoided. But we can think about a hybrid system where those allowances are accounted for separately than the current allowances in the market. And this could happen as of 2030. A second priority is a fully effective CBAM. We support the CBAM phase-in by 20, well the full CBAM phase-in, it's already started, but by 2034 it will be phased in fully.
But at the same time, investment certainty requires a CBAM that fully reflects ETS rules. So that means covering imports and exports and also effectively preventing circumvention and resource shuffling. The EU for instance could define clear KPIs and...
Eleanor Batilliet
I will conclude. The third priority is reinvesting ETS revenues, that was already mentioned. Revenues must be earmarked exclusively for industrial decarbonization as we see that very little revenue so far has been earmarked into this transition. So to conclude, to deliver cost-effective decarbonization, the EU must preserve a strong ETS price signal, provide long-term visibility for investors, align also with complementary policies, so CBAM, infrastructure development, developing lead markets for low-carbon products, funding, and only then the ETS can remain Europe's key engine for industrial decarbonization and competitiveness. Thank you.
Pierfrancesco Maran
Thank you so much. Now next speaker is Daniel Tamchyna, president of the Association of Chemical Industry of the Czech Republic. You have eight minutes. Thank you.
Daniel Tamchyna
Okay, good morning. Thank you very much for having a chance to talk to you and it's my great pleasure to be here. Presentation, oh it's running. My name is Daniel Tamchyna, I am the president of the Czech Chemical Association and I've been in a chemical business for more than 30 years and I'm currently executive CEO of mid-size chemical group in the Czech Republic. Our company has the sales about 700 million euros and we employ more than 3,000 employees.
Oops, oh it's working. So how do we see the targets in Europe? Safety, sovereignty, resilience, these targets cannot be achieved without strong European chemical industry. Chemical industry is energy-intensive industry and then we cannot exist without competitive and globally comparable energy prices. And we think that the energy prices cannot exist within the current EU ETS and the CBAM system.
Chemical industry, we call it chemical industry, industry of industries. I have a little problem to... I'm sorry, I'll go... This one. Okay.
So, it's a... we are at the beginning of 95% of the value chains. So, if there is an expensive energy, everything down in the value chain is then more expensive. We cannot be replaced for critical industries like food, medical, energy, electronics and defense. What can we see in the chemical industry? There is a massive number of closures.
37 million tons of product were closed, and unfortunately, majority of this volume was imported, is currently imported from China, from US. So, from countries with higher CO2 footprint, US three times, China two times, because their energy mix. So, we are increasing CO2 footprint globally by removing chemical industry from Europe. And what is very alarming is that the new investment, to... to survive in the industry you need to invest, the investment decreased in chemical industry by 90%. Some challenges on EU ETS.
Certainly, allowances cannot be financial instrument. Unfortunately, the trading activity is becoming more important than decarbonization incentives. Price is extremely high. We started 5, 30 euro, 70 euro today, extremely high. I don't want to go to big details, I want to show the really the business case on company I run.
We have two or three major products, two major products, one is epoxy resin and one is nitrocellulose. On epoxy resin, we supply epoxy resin system to Ukraine. They make drones out of it. How does it look the epoxy market today? It's completely dominated by Asians.
Five years ago, the market was controlled by Europeans. 70% was served from European local production. Today everything is imported, there is only 30% of local production and there are expected some other closure. Last year, two producers closed their production. We... we work hard on CO2 footprint.
On our epoxy resin we decreased by 50% of the 2021 CO2 footprint. Our CO2 footprint is lower than Chinese, Koreans and... and US. If I go to the market and I ask, dear customer, would you buy that for me? They said, yes. Would you... would you somehow influence the... the CO2 footprint?
No. You are too expensive. I know I'm expensive because my CO2 footprint is lower. Nobody wants to buy from me because of the CO2 footprint. They want to have a price.
That's the market of epoxy resin. We are completely eliminated from the market. And we are critical industry for defense. The same is a nitrocellulose, we are the largest producer nitrocellulose in Europe. This is really the bottleneck.
The all our nitrocellulose is in NATO ammunition.
But to produce nitrocellulose, I need sulfuric acid, nitric acid, caustic soda. These things are energy intensive and we need to maintain local European value chain, local European supply chain. If we stop producing these products in Europe, we cannot maintain and we cannot meet all the goals we have in terms of security, sovereignty and resilience. And just example from shareholder perspective, if we build the same plant in the US what we have in the Czech Republic, I would have just on energy 20 million euro higher profit just 1st of January just due to the energy cost. We pay 130 euro last year.
This is our price of energy what we pay. So what do we need, oops, so what do we need, what do we propose? We should think about carbon tax rather than allowance system. Carbon tax would eliminate speculation, trading, financial instrument. We would, we should create individual accounts to accumulate money for the CAPEX.
As I said, we have no available technology for further decarbonization. If we, if we redefine EU ETS system, we should once again eliminate trading speculation, we should delay the phase-out of the free allocation until CBAM is working, we should maintain current benchmarks and benchmark must be linked to proved and validated technology, not on a lab or pilot scale technologies. So at the end, I would like to ask all of you to help securing chemical industry in Europe, to maintain local European production, because this is a must for us and it comes only with the cheaper energies and with the pragmatic and realistic decarbonization target. Thank you very much.
Pierfrancesco Maran
Thank you so much. The speaker is Mathilde Pan-Charles, chargée d'affaires européennes, Électricité de France, EDF. Eight minutes. Thank you.
Mathilde Pan-Chau
Thank you, Mr President. I'll be speaking in French. Monsieur le Président, Mesdames et Messieurs les députés, je vous remercie pour cette invitation à intervenir aujourd'hui. L'ETS est un mécanisme européen clé, il contribue de manière décisive à la décarbonation du secteur électrique européen. Pour atteindre les prochaines étapes de la décarbonation, il est essentiel qu'il demeure robuste, prévisible et qu'il soit mieux articulé avec les politiques de soutien à la décarbonation et en particulier à l'électrification.
L'enjeu n'est pas seulement climatique comme cela a été souligné par les précédents intervenants, il est aussi économique, industriel et bien évidemment géopolitique. Une Europe qui électrifie son économie avec une électricité bas carbone réduit sa dépendance aux importations fossiles, protège ses entreprises contre la volatilité des prix et renforce sa souveraineté. Quelques mots d'introduction rapide sur... Quelques mots d'introduction rapide sur le groupe EDF, Électricité de France. Donc nous sommes le premier producteur d'électricité bas carbone au niveau mondial.
Notre mix combine énergie nucléaire et énergie renouvelable avec également de l'hydroélectricité. Donc ce que je voudrais souligner aujourd'hui, c'est que le secteur électrique européen connaît une transformation profonde. Depuis plusieurs années, les émissions des installations couvertes par ETS diminuent fortement.
Cette baisse est en grande partie tirée par la décarbonation de la production d'électricité que vous pouvez voir ici représentée sur le graphe en rouge. Le secteur électrique était historiquement le secteur ETS le plus émetteur et il a divisé approximativement ses émissions de deux en dix ans. L'ETS a joué un rôle très clair en fixant un plafond d'émissions et en donnant une valeur au CO2. En particulier depuis la mise en œuvre de la réserve de stabilité du marché en 2019, il a ainsi orienté les décisions économiques vers les solutions les moins émettrices dans le secteur électrique. Il est donc important de ne pas affaiblir le marché du carbone au moment où il commence à produire des résultats visibles.
Au contraire, il faut préserver sa crédibilité et sa capacité à orienter les investissements. Cette dynamique dans le secteur électrique se voit très clairement lorsqu'on regarde l'évolution du mix européen. Cette slide illustre la mutation du mix électrique européen. Le recul de la production fossile est très net, une augmentation, une forte augmentation des énergies renouvelables et le maintien d'une base pilotable et stable avec l'énergie nucléaire qui représente près d'un quart de la production électrique. Le mix électrique européen est désormais décarboné à hauteur de 72 %.
C'est un changement majeur et donc ce graphe montre que la décarbonation du secteur électrique est en cours et elle est massive. L'électricité devient aussi une solution de décarbonation pour les autres secteurs. La prochaine étape consiste donc à utiliser cette électricité décarbonée pour remplacer, pour remplacer les usages fossiles, notamment dans l'industrie. Le rôle de l'ETS doit donc embrasser cette réalité. Il doit permettre de poursuivre la réduction des émissions du secteur électrique mais aussi d'encourager l'électrification des usages là où elle est techniquement possible et économiquement efficace.
Moins notre économie repose sur des importations gaz et pétrole, moins notre économie est sensible à la volatilité des fossiles. Pour comprendre pourquoi le signal prix carbone reste essentiel dans cette transformation, il faut regarder son effet sur le secteur électrique. Afin de réduire les émissions à moindre coût, le fuel switching est particulièrement efficace, c'est-à-dire le fait que les centrales au gaz sont appelées avant les centrales à charbon. Le fuel switching consiste donc à remplacer une source d'énergie très émettrice comme le charbon ou le fuel par une source moins émettrice comme le gaz naturel ou l'électricité bas carbone. Toutefois, lorsque le prix du carbone est trop faible, le charbon peut tout à fait rester compétitif.
Ce que l'on note, c'est qu'en dessous d'environ 80 euros par tonne, le basculement reste partiel. Lorsque le prix se situe entre 80 et 100 euros par tonne, le passage du charbon vers le gaz devient plus structuré pour un plus grand nombre d'installations. Ce mécanisme est important car il permet des réductions d'émissions rapides et à moindre coût. La véritable cible sur le long terme est une économie fondée sur une électricité bas carbone produite en Europe avec un recours limité aux fossiles. Il faut donc terminer la décarbonation du mix électrique mais déjà avec un mix décarboné à hauteur de 72 %, l'électrification fait sens dans tous les secteurs et en particulier dans l'industrie.
L'électrification est l'un des leviers effectivement les plus efficaces pour réduire les émissions. Pourquoi ? Parce que remplacer une chaudière fossile ou un usage thermique carboné par une solution électrique permet de réduire fortement les émissions. Cette slide montre que les investissements liés à l'électrification figurent parmi les options de décarbonation les moins coûteuses et les plus efficaces. C'est particulièrement vrai pour certains usages industriels et pour la chaleur industrielle à basse température. Une part très importante des émissions industrielles provient de la chaleur nécessaire pour la production industrielle, or une partie significative de cette chaleur peut déjà être électrifiée avec des technologies disponibles ou en cours de déploiement.
Trois conditions nous semblent donc importantes pour accélérer la décarbonation du secteur industriel. Il faut un ETS robuste avec un signal prix suffisamment clair pour rendre les solutions fossiles les moins attractives. Il faut une visibilité de long terme car les investissements se décident pour plusieurs décennies. Et il faut utiliser les revenus ETS de façon la plus intelligente possible pour diminuer les risques liés aux investissements, notamment les coûts importants au départ et les frais de fonctionnement. L'ETS ne produit pas seulement un signal prix, il génère aussi des revenus importants.
C'est un sujet qui a déjà été mentionné. Effectivement, les États membres reçoivent une grande partie des revenus et il est important que les revenus d'ETS soient utilisés de manière plus systématique pour soutenir la décarbonation de l'industrie. Cela a été fait de façon très limitée jusqu'à présent. Nous saluons par ailleurs la création de la banque de la décarbonation et l'Investment Booster qui sera présenté très prochainement. Ces éléments doivent soutenir l'électrification des processus industriels afin de permettre un déploiement rapide des technologies déjà matures et un déploiement à grande échelle.
Et enfin, le fonds d'innovation doit permettre de soutenir le déploiement de technologies innovantes pour les secteurs difficiles à décarboner. Dans le cadre de la prochaine révision, il est important de consolider cette dynamique positive tout en préservant la stabilité et l'ambition du marché du carbone. Je vous remercie pour votre attention.
Pierfrancesco Maran
Thank you. Last speaker of the first group is Lidia Tamellini, expert on EU industrial decarbonisation, Carbon Market Watch. You have eight minutes. Thank you.
Lidia Tamellini
Thanks, Chair, for the invite to speak today and thank you to the members of this house. I'm here indeed speaking for a climate NGO. We're here today to defend the ETS from the attacks that have been, well, the ETS has seen as protagonist in the past months. And we want to make sure that it is clear during this discussion how important ETS has been in the past, well, two decades for decarbonisation and how important it will be in the decades to come. We know that it is the cornerstone indeed of our climate policy.
And today I'll be focusing on three key components: on the cap, on the system of free allocation and on the revenues. Here, just a few reminders of why it is so important that we stay the course of the ETS and I'll focus especially today on why it is important that we stop our long-lived dependence on fossil fuels which are proving more and more expensive and more and more volatile. So, starting with the cap. The cap being the amount of CO2 that we can emit under this system. And here, this is probably well known, the trajectory of decarbonisation for key sectors under the EU ETS is quite different.
We know that electricity and power have decarbonized quite consistently, but not the same can be said for heavy industry and aviation, if anything has slightly increased their emission. This is an important piece of information, again quite well known, but what happens under this cap, what happens really under this decarbonization trajectories? I think we need to focus on this figure. Here we can see that as of 2024, 82% of stationary emissions still come from combusting fossil fuels. So this is, this means that the low-hanging fruits that have been already mentioned are still well, well to be picked, so to speak.
We're nowhere near having to tackle difficult, hard-to-abate emissions or residual emissions. We really have a lot of fossil fuels to get rid of before we get there. And I wanted to show this because there is already a conversation ongoing on changing the linear reduction factor that should bring us to zero by the end of the 2030s or maybe after if it's changed. And I want to make a point clear that we don't see the need to change the linear reduction factor in the short term. Again, there is a lot of low-hanging fruit.
Tinkering with the LRF, even of course minorly, would have massive impacts on the carbon budget. You can see from the graph, just decreasing it to 3.4% would release one gigaton of emissions into the atmosphere, not even speak to lowering to 2.4%. So we don't see a need at the moment, the ETS is still oversupplied and still will be for a few years. We don't see a need to change this linear reduction factor at least until the second half of the 2030s. There is a discussion ongoing about needing more emission space.
Well, we think that more emission space can be obtained by extending the scope to waste incineration as it is in the mandate of the Commission, to more flights, all private flights and to departing and returning flights in the EEA, and to more vessels, so to small vessels and international voyage. And finally, of course, there is a conversation to be had about the residual emissions that I mentioned, but this is not a conversation that is urgent for the next decade at least. As I mentioned, this is something, a worry that we need to prepare for now, but we don't need to create space for the residual emissions immediately. We need to define these residual emissions, we need to understand what, which of these emissions are societally important, and we need to make sure that these definitions are dynamic as new technologies come up. And once this has been done, we can allow for some more space, again after the second half of the 2030s, to allow for these emissions to take place.
Second point will be the system of free allocation, which still persists. And we know, and we have been saying this for a long time, but it's not really only us, that it's been a wasteful failure. There's still sectors, you can see here, that receive way more allowances than the emissions that they produce into the atmosphere. There are reasons for that, of course, use of heat and just the way that the calculation for distribution of free allocation takes place. But you can see this is for many sectors is not the case that they are overburdened by this price.
Really, they have not been paying for the price until now. This changes a lot, of course, from company to company, from subsectors to subsectors, but we need to be very aware that we're not quite yet in a situation where the carbon price have been really a burden for most of of the sectors under the ETS for industrial sectors. So I said this has been a massive failure, and of course we as climate NGO have been saying that, but this has been said also by the Court of Auditors, famously in 2020. And we have wasted in between 2008, 2021 around 200 billion in value of free allocation distributed. And we know that many companies have made profits by receiving for free these these allowances.
And this is simply that we simply cannot accept anymore, cannot afford anymore on our way to get rid of fossil fuels and to reach carbon neutrality as we set ourselves the goal for. We our our recommendation is to get rid of it, to maintain the CBAM timeline. It is very important and to align also the phase-out timeline for non-CBAM sector to 2034. Even if we do that, we will still hand out, and I know it's optimistic, but we will still hand out 2.3 billion allowances. This is the value could be staggering again, depending on the price that we're talking over 200 billion most likely.
So for any residual free allocation that we still hand out, we need to they need to come with strings attached. They need to come with conditionalities and companies who receive installations that receive this free allocation need to set themselves goals for investments and for decarbonization milestones of values that are of a value that is comparable to the value that they receive for free through these allocations. And this will show that they are willing to invest in the future of Europe, in a future of a decarbonized Europe. So this is our recommendation for the way forward for a coming revision. Finally, the revenues, well, this is an obvious point, right?
If we have more free allocation, we have the less revenues we have. And we need these revenues to fund the transition. I want to make also one point clear. This you can see here, this is our own calculation based on E3G data. The net carbon cost borne by industries in the 2021 to 2024 is around 3.1 billion, but the direct support through Innovation Fund and Member State support is around 14 billion.
So we're still we are supporting industry, of course, it needs to be more targeted support. We are absolutely we absolutely agree on that, but we need to be aware that support is already out there. So what do we recommend for the use of revenues? Well, again, get rid of free allocation and we will have more revenues. And we need to stop subsidizing fossil fuels with the with the when using ETS revenues.
And we need to prioritize emission reductions. We need to get rid of indirect cost compensation as it is and support electrification through the conditionalities that I mentioned earlier and through the newly announced Industrial Decarbonization Bank. Thank you.
Pierfrancesco Maran
Thank you. Now we open the floor for a Q&A session with the political group. Every speaker has one minute and 30. We start with EPP. Peter Liese is connected remotely.
You have the floor. Please, you are the first, so one minute and 30 for real.
Peter Liese
Yes, thank you for the speakers, very different perspectives. I think and many in EPP think we need to definitely change the ETS.
In English you say tight is right, too tight is broke. So when you put the screw too tight then it breaks and we are about to break the screw. Maybe in the past indeed there were many free allowances but the trajectory is is really tight. On the other hand, we also say efforts must be rewarded. And I was in a meeting with the German Chancellor yesterday, that's the reason why I'm not in Brussels.
And he clearly said those that have started their investment and that they are on their way to climate neutrality, they shouldn't be punished. So my question to the speakers, maybe except the last speakers because the answer of the last speaker would be very clear, just keep the ETS very, very ambitious. But for the other speakers, when we when we get to a bit more flexibility, more free allowances, more allowances whatsoever, what can we do to really reward the frontrunners? So not to punish those that have already started their investment. Thank you.
Tiemo Wölken
Thank you very much, Chair, and thanks to all experts here. So, as was already pointed out in the beginning, I think the ETS is a crucial system and proved that it can work. So it's also a very well-working system. So I think we have to make sure that the ETS performs in the 2030s, obviously aligned with the newly set target for 2040, and ensure clean tech investments remain viable and the industrial jobs of the future are created right here in Europe. And I would also second Peter's question.
If we change the ETS, how do we make sure that the ones who already invested billions of euros in the for the transformation to secure jobs also in the future are not the ones who have to pay the price in the end? So how do we protect them? And then I would like to raise a question to our second speaker today, and Mr. Tomčany, you pointed out correctly that the high energy prices are the main hindrance, the main hindrance to the competitiveness of the European chemical industry. So could you explain what share of ETS costs is in your energy costs and how you expect it to develop? So of course according to the data we found, in Czechia the share of ETS costs in industrial electricity is about 9%.
That is certainly substantial, sure, but not the main price driver, especially in the recent geopolitical escalation. So in addition, how does the scheme for indirect costs compensation, which your country also applies, affect your energy costs? So I would be happy to to hear the two answers. Thank you very much.
Marie-Luce Brasier-Clain
Merci Monsieur le Président. Merci aux experts pour leur présentation. Dans mon pays, la France, les émissions industrielles n'ont baissé que de 1,4 % en 2024, bien loin de nos engagements climatiques, et ce recul s'explique avant tout par la baisse de la production liée notamment au prix de l'énergie. C'est une situation que vient aggraver le marché du carbone. Il plombe le prix de l'électricité, surtout en période de crise, en augmentant le coût des centrales fossiles, notamment au gaz, qui fixent souvent le prix marginal sur le marché européen de l'électricité.
Il pèse sur les factures énergétiques des entreprises et donc sur leurs marges et leurs capacités d'investissement.
C'est un marché artificiel qui impose de fortes contraintes de décarbonation aux entreprises et on s'étonne qu'elles souhaitent délocaliser en sachant très bien que le mécanisme d'ajustement carbone aux frontières ne pourra pas compenser la fin des quotas gratuits. Selon les objectifs du pacte vert, le prix du carbone devrait tripler pour réaliser la transition énergétique des différents secteurs comme le transport maritime, l'acier, le ciment et autres. Certes, il y a quelques secteurs qui tirent leur épingle du jeu, notamment la production électrique, mais pour beaucoup, il est évident qu'ils perdent en compétitivité parce qu'ils ne peuvent pas s'électrifier et se passer de fossiles et donc rester rentables face à la concurrence chinoise ou américaine. Alors on nous parle d'instruments européens censés atténuer les risques comme le fonds pour l'innovation. Mais face à des cycles d'investissement longs pour l'industrie qui ne s'accordent pas avec notre calendrier vert, est-ce qu'il y a un scénario réaliste de décarbonation sans recours massif à la dette commune?
Je vous remercie.
Alexandr Vondra
Thank you very much. So I was listening carefully and somehow you remind me I had a privilege to grow up in the late communism when, you know, the big plans were not matching the reality on the ground. So there were some dogmatics who were still we must continue even more radical and then there were the businessmen who were look wait a minute it's it's ineffective. And the fact is that the decarbonization in Europe is too expensive, that we are losing the ground with China, US and others. So decarbonization must not become the deindustrialization.
So here the Commission made the first step, welcome MRV modification to have some firepower, but we need to do much more. First, we need to correct the linear reduction factor. Most people do not realize that the ETS was deliberately engineered to drive carbon prices up indefinitely and this is not a side effect, it's a design feature. Secondly, we need to maintain the industrial competitiveness and thus we recommend considering a slower phase out of the free allowances, of course aligned with the variable verifiable decarbonization investment plans. And finally, we also support the modernization fund which should be continued beyond 2030 and the investment booster should be made accessible to the energy sector too.
Pierfrancesco Maran
Thank you so much. Before giving the floor to Emma Wiesner from Renew, I open the catch the eye, so you can tell us and Emma Wiesner please.
Emma Ytterell
Thank you so much, Chair. I think the the greatest sign that the ETS is being successful is the fossil crisis that we are in and the report showing that if the ETS was not active these past 20 years, the situation would have been much worse and energy prices far higher in Europe. For more than 20 years, there has been a clear investment signal, a well-designed, transparent, clear system in place that have been driving investments in many industries. I'm really glad to have guests here representing those industries, cement, steel, mining, etc., where industries have been acting upon this signal.
So my my worry and my alarm bell goes when people want to redesign the whole system or change the fundamental, change its core. I saw on one of the slides we should not have ETS, we should have a carbon tax instead. Well, that was tried more than 20 years ago, but with the consensus in EU policies, it was found impossible. And this was the system that we chose, and I think we should definitely stick to it and defend it because it's driving a lot of good change in Europe. So my questions are to Mr. Tamchya from the chemical industry, because you're one of the loudest industries right now in Brussels asking for these redesign and reshaping of the industry.
And you say that you have hard, very hard challenge lying ahead. So my questions are just to understand a little bit better your perspectives and also listen to your perspectives, because I want to understand why just the chemical industry is so concerned at the moment. I have three questions. What have been done in terms of investments in the chemical industry since 2005 when this system was launched? What emissions are hardest to abate in the chemical industry and why?
And how is the access to capital to reduce your emissions? How would you find that situation? Is it easy to access the capital to do the changes, or is that also one of the reasons, of course, that changes have not been done? Because you have been living with this system more than 20 years, and I'm wondering what has been done when now the time when it's been in place.
Michael Bloss
Yeah, thank you very much. Thank you very much to all of you and to the colleagues. I also and we believe that ETS is a very powerful tool to drive transformation and to drive modernization and investments. And it's a market-based tool which needs to work, of course, always in a context of a policy mix, but it actually needs to work. And we see that where the price is being paid by economic actors in the energy side, transformation is really happening and we get the considered output.
Now, in the industry side, this modernization has not yet taken up. And the most important thing of the ETS is really to create a stable investment environment so that if you know you do this big investments, they actually make sense. Now, in the 2030s, it's not about the endgame. It's about a lot of industrial actors that need to modernize, they need to make this investments. So the investments environment needs to stay up until 2035 at least unchanged because otherwise these investments will not work and it creates instability and that means that that well, you look somewhere else.
So for me, one question, for instance, to Heidelberg Materials is, maybe you can tell us a little bit about what happened to your shares, your market to your shares when the announcement came from Friedrich Merz in the Commission that the free allocation should continue. They were dropping. So what what kind of investment environment do you need for your projects to work? And then for the chemical industry from Czech Republic, for me there's one big question mark. We have been, I mean, these free allocations were there since a long time and these free allocations were not used in order to modernize and to invest.
And I have a bit of a different reading. I just come now from China. I was with the Parliament's delegation there. And there's so much new plants, so much new investments, so much modernization happening that I'm really afraid that with our old industries we will not be we will we are just not competitive. So if you ask for a continuation of the free allocation, why would you act differently than in the last 20 years where you made where you took this free allocation profits, gave it to your shareholders, but did not use it for investments?
Why would you behave now differently?
Michael Bloss
Ja, vielen Dank allen. Ich werde in Deutsch sprechen. Trotz der Behauptung, dass das Emissionshandelssystem, also die Bepreisung von Emissionen, eine kosteneffiziente Dekarbonisierung ermöglicht, sehen sich viele Bürgerinnen und Bürger steigenden Energiepreisen, viele Beschäftigte wachsenden Unsicherheiten im Zusammenhang mit industriellen Umstrukturierungen gegenüber, während einige große Emittenten weiterhin kostenlose Zertifikate erhalten und überschüssige Emissionsrechte im Wert von Milliarden Euro anhäufen konnten. Viele warnen vor übermäßigen Zuteilungen, Ausnahmen bei drohenden Emissionsverlagerungen und Übergewinnen im Emissionshandelssystem, insbesondere im Zusammenhang mit energieintensiven Industrien. Die Klimaziele rücken in weite Ferne.
Beispielsweise hat ArcelorMittal angekündigt, Investitionen in grünen Stahl an den Standorten Bremen und Eisenhüttenstadt zu verschieben, obwohl das Unternehmen rund 1,3 Milliarden Euro an deutschen staatlichen Beihilfen erhalten hat, um den Übergang zur grünen Stahlproduktion zu unterstützen. Gleichzeitig hat ArcelorMittal allein im Jahr 2023 Berichten zufolge etwa 3,8 Milliarden Euro an kostenlosen Verschmutzungszertifikaten im Rahmen des EU-Emissionshandelssystems erhalten. Die derzeitige Funktionsweise des Emissionshandelssystems verstärkt die Wahrnehmung, dass die Kosten der Klimawende sozialisiert werden, während viele der finanziellen Vorteile bei großen Industrieakteuren konzentriert bleiben. Es besteht die Gefahr, dass das Vertrauen der Öffentlichkeit in die EU-Klimapolitik zu untergraben, insbesondere wenn Haushalte und Gemeinden aufgefordert werden, höhere Kosten und tiefgreifende industrielle Veränderungen zu akzeptieren, ohne dass klare soziale und ökologische Vorteile sichtbar werden. Frau Tamellini, was können wir dagegen tun?
Wie müssen wir das ETS-System reformieren oder gar andere Wege suchen, um dies zu vermeiden?
Anja Arndt
Danke, Herr Vorsitzender, und herzlich willkommen, liebe Gäste. Man verkauft uns den Emissionshandel als marktwirtschaftliches Meisterstück. Das ist die größte begriffliche Lüge dieser absurden Klimapolitik. Beim ETS ist jeder Hebel ein politischer Beschluss: die Menge, die Verknappung und selbst die Marktstabilitätsreserve, darüber wird der Preis bestimmt. Das ist die Lehrbuchdefinition für Planwirtschaft, es wurde gerade schon von Herrn Vondra angesprochen, und Ihre Logik ist ebenfalls sozialistisch-kommunistisch.
Erst entziehen Sie dem Bürger und der Industrie das Geld, dann legen Sie es in festgelegte grüne Technologien um. Das ist nichts anderes als eine Umverteilung von unten nach oben. Sie zerstören unsere Industrie und BlackRock und Co. verdienen daran, weil ein von Brüssel garantierter Markt das sicherste Investment der Welt ist. ETS zerstört unsere Industrie, ETS zerstört unsere Arbeitsplätze, ETS zerstört Europa. Und die Emissionen entstehen dann woanders, das wurde hier auch schon erwähnt.
Sie schaden Europa und erreichen nicht einmal das, was Sie selbst erreichen wollen, nämlich Ihr Klimaziel. Deshalb fordert die ESN-Fraktion: Sprengen Sie die Ketten, die ETS und CBAM unserer Wirtschaft angelegt haben, und zwar schnell und vollständig.
Meine Frage an Sie alle drei lautet: Wie wollen Sie aus dieser Zwickmühle herauskommen? Bei einem CO2-Preis, der der Wirtschaft nicht schaden würde, hat ETS keine Wirkung. Bei einem hohen ETS-Preis ruinieren Sie Industrie und Bürger. Welches Scheitern bevorzugen Sie?
Pierfrancesco Maran
Thank you. Now for the catch-the-eye, all the MEPs have one minute each. We start with the EPP, Niels Hansen, for one minute.
Niels Flemming Hansen
Thank you very much, and thank you for the great panel to be here. I have to say I am a huge fan of the ETS and I love the model and I can't wait for the ETS 2 to come as well. But one of the questions that puzzles me a little bit is that the carbon market raises billions every year from companies that pollute. The money goes to governments, and in Denmark we made a deliberate choice to invest it back into clean energy and industry. But across Europe, the picture is a lot more patchy, so to speak.
So my question to the panel is very simple: should companies that pay into the system have more of a say on how the money is spent? And do you think that voters or workers in the industry actually know where the money goes? Thank you.
Annalisa Corrado
Good point. Annalisa Corrado from S&D, one minute. So, ECR first, Paolo Inselvini from ECR.
Paolo Inselvini
Grazie, Presidente. Anche io credo, come alcuni colleghi hanno appena detto, che purtroppo, a differenza di quanto è stato detto da alcuni dei relatori, questo tipo di meccanismo stia creando sempre più oneri nei confronti dei nostri settori industriali, e questo è quello che ravvisiamo quando andiamo sul territorio a parlare con gli imprenditori e con coloro che vivono di fatto le conseguenze negative di questo tipo di meccanismo. Ma la domanda che vorrei porre è questa: l'ETS è ancora uno strumento che cerca di aiutare l'ambiente o è diventato semplicemente un enorme mercato finanziario? Perché nel 2023 sono state scambiate ben 10 miliardi di quote di CO2 per un valore di circa 700 miliardi di euro. E nel frattempo, il prezzo della CO2 è passato da meno di 10 euro per tonnellata nel 2018 a circa 80 euro.
Una crescita impressionante che pare essere speculazione e non un meccanismo per salvaguardare l'ambiente. Un qualcosa che potrebbe portare evidentemente allo scoppio di una bolla finanziaria. E per questo quindi vi chiedo se non è il caso, e questa è la posizione di ECR, di revisionare profondamente questo sistema per limitarne l'attività speculativa, perché qui non si sta parlando di scambi fra aziende che emettono, ma evidentemente di speculazione finanziaria attraverso derivati. Quindi vi chiedo se voi non ravvisate questo pericolo. Grazie.
Zala Černilec Tomašič
Thank you. Well, unlike my colleague from Denmark and Slovenia, we share a different view of ETS, so I'm not a fan, although we come from the same local group. So when I talk to our industry, the picture is very much the one that Mr. Tamccina presented to us today. So I have a very short question for the other three speakers, and that is: how can our industry be competitive when we have more expensive electricity? And the most optimistic number that I found is that we have three times more expensive electricity than China, but the numbers vary between five to ten times more expensive.
And a big part of that is ETS. So how can our industry compete? And also, if everything is going great as we heard, then why is our industry uncompetitive? And it's not just the chemical industry, I get this from many other kinds of industry that they just cannot compete. And we can't forget the EU is not isolated.
So I think all our industry is saying: we want to comply, we want to take care of the environment, we all want to live in the clean environment, but I think we're in the position where we need the ETS revision if we want to keep the industry competitive and if we want to keep it in the EU.
Anna Zalewska
Bardzo dziękuję. Chciałabym zwrócić na kilka kwestii uwagę. Rzeczywiście jest to rynek, który wymknął się spod kontroli, absolutnie są to spekulacje, manipulacje, Komisja Europejska tak naprawdę nie ma wpływu na kształtowanie się cen ETS-u. ETS postrzegany jest w całej Unii Europejskiej, oprócz może polityków w Parlamencie Europejskim, którzy żyją w swojej bańce, jako ten, który wyklucza jakąkolwiek konkurencję. Potrzebna jest głęboka reforma, co najmniej powrót do tego, co było przed 2014, to znaczy podziękowanie za funkcjonowanie na rynku instytucjom finansowym, bo to one odpowiadają za takie wzrosty.
Nie ma żadnego usprawiedliwienia, to widzimy we wszystkich raportach, nawet w raporcie Draghiego, on wprawdzie nie mówi o ETS-ie, wprawdzie nie mówi o Zielonym Ładzie, ale pokazuje upadek europejskiej gospodarki. Proszę zauważyć, że ETS przestał służyć już temu, na co był czy dla czego był zaplanowany, jest tylko i wyłącznie biznesem. Dość powiedzieć, że większość firm, które uczestniczą w tym rynku jest zarejestrowanych w rajach podatkowych. Tak naprawdę nie mamy kompletnie kontroli. Dziękuję.
Pierfrancesco Maran
Thank you. Last speaker is from ESN Volker Schnurbusch. Sorry.
Volker Schnurbusch
Yes, thank you very much. It's a difficult name. Thank you Chair, thank you to our guests. I'm very grateful to the industry representatives for pointing out that the path to net zero is a path into economic crisis. In the automotive construction and chemical sectors, we are already experiencing a crisis of unprecedented proportions with mass layoffs and plant closures or relocations.
No matter how hard our industry tries to reduce emissions, this only leads to competitors from the US and the Far East taking over the market. The examples Mr. Tampkins cited show that the Commission's demands are extremely contradictory. How can a resilient European industry survive if its excellent products are no longer competitive? It's no wonder that Heidelberg Cement built its flagship CCS plant in Norway. There are also CCS projects in Germany, including one by Holcim in my federal state.
But what good is CCS if storage, transport are too unsafe and too expensive and hydrogen isn't marketable? I understand that industry needs security and that's why my question to Ms. Battegay and Mr. Tampkins is, would it be better for you if the ETS was suspended or at least if free emission allowances were issued for a longer period of time? Thank you.
Pierfrancesco Maran
Thank you. We have a full of consideration and question, so we can go back to our four guest. You have four minute each for the answer. We start with Eleonore Battegay.
Thank you, I'll try to thank you very much for the questions. I'll try to address most of them.
Eleanor Batilliet
Maybe first touching on the overall competitiveness risks as this has been touched on by several speakers. Understandably, we have a critical situation happening in Europe and I'm here not only talking about the cement industry of course, but all energy-intensive industries. And carbon price is frequently cited as a major competitiveness disadvantage. But we have several studies, one of them I was looking at yesterday, recently coming out from a LIFE-funded project, from the TRANSCENCE project on the competitiveness of the chemical industry, showing that this cost is certainly part of the equation, but they're rather small compared to other production costs. And this message is highlighted again by several other studies and several other speakers here today.
And the evidence shows that the primary pressure going towards industry do not necessarily arise from carbon costs but from, and this has been mentioned, high and volatile energy costs, infrastructure bottlenecks, and investment uncertainty. And of course, the ETS cannot solve all these issues, but it is certainly part of the equation. From our perspective, what the ETS does is that it creates the business case to invest in Europe in the first place. From our perspective, without it, there's no incentive to decarbonize industrial production. And the real issue from our perspective is, A, ensuring a full effective CBAM as it helps tackle carbon leakage risks that come with the phase-out of free allowances.
And of course, we currently still see loopholes within CBAM with resource shuffling and indirect circumvention, but this can be resolved with the review of CBAM. And ensuring competitive framework conditions, so that means lowering energy costs and infrastructure development. And on top of this, we currently have the Industrial Accelerator Act, which is being discussed, which will be helpful in creating lead markets. So from our perspective, indeed there are competitiveness risks, but you can touch on these issues and tackle these issues through the different packages that we have and the ETS. Of course, will not solve all of them, but it is a good signal for us in terms of investment certainty.
We had the question of the first mover and what do we need as a first mover? Well, of course, from our perspective, uncertainty is killing the business. This was mentioned that as there was announcement from Chancellor Merz, which I think was misunderstood in the media, on the revision of the ETS, our shares dropped significantly, which goes to show that whilst investors have faith in our decarbonization pathways, they also look of course into the evolution of the ETS. So we need long-term certainty when it comes to the ETS. We also need to avoid ad hoc changes, so any reviews or any amendments needs to be embedded in an impact assessment, a solid impact assessment that can ensure the protection of our long-term investments.
So we need transparency, we need certainty, and we need those changes to happen within the current framework that allows impact assessment. There was a question on funding and what do we need on top of the ETS for this to work? And of course, we need, and this is currently being discussed, a dedicated deployment instrument to support large-scale rollout of infrastructure. So there's the ETS Investment Booster, which is currently being discussed, Industrial Decarbonization Bank. They're very essential and they're urgent from our perspective.
We also will need to recycle the EU ETS revenues back into our sectors. There was a question on whether the sectors that pay into the ETS can decide where the money goes. From our perspective, this ETS needs to be, the revenues need to be allocated sectorally and in proportion to the ETS contributions to support industrial decarbonization. And I will stop here, thank you.
Daniel Tamchyna
Thank you, now Daniel Tamkino.
So I have three, four questions if I write it down correctly. The first one was the reward of frontrunners. I don't know, I mean, who are the frontrunners? I think we all believe that the carbon-free technology will bring price down. That's not correct.
We ask for the big CAPEX help, but we need for all these projects huge incentive to subsidize the OPEX because it's expensive.
And I'm asking, I mean, we need to see global look and European look. And just to be honest, we have not, we have not inspired other countries. We stayed alone. US, they don't care about CO2 footprint, China is with a different timeframe. What I'm saying is what kind of reward I got in my company?
We develop our technology from polypropylene to bio-based material. Okay, so we are not fossil-based product. We are buying certificates for no emission for nuclear power station, so my price is 30% higher than Chinese price. What kind of reward I've got? Nothing, I lost market share and I will have to shut down my company because I am not competitive on the market.
Secondly, there was a question on the price of the allowances. Clearly, on the coal is 70 euro and on the gas is 35, half of that. You have a compensation program, yes. But the compensation will give you only fraction or the part of the money you pay for allowances into the system. Question number three was, yeah, carbon tax.
I'm not saying that this is the right, maybe right approach. The only issue I have is that allowance is the financial instrument. I think, I mean, I don't know why we are fine that 60% of owners of allowances are financial institution and funds outside Europe. This is the ESMA report. You did this report.
You have it in your hands. 60% is outside Europe. So that's I think alarming for me. And what kind of investment? I mean, I spent in our company 200 million euro over the last decade to maintain, to maintain operating permit.
We have a new electrolysis, we spent 100 million into water treatment, we decreased emission of nitric oxide. We don't have only CO2, we have all other things which where we need to invest. And finally we done it, we were supposed to be competitive, we are CO2 advanced compared to the rest of the world, and we are losing market share. And the last question was on the CO2, yes, I mean, we would like to have this free allowances as long as we have technology available. Once again, for my technology, and we are number two in European epoxy resin, okay, for my technology there is no electrification process ready to install it in the production and to be carbon neutral.
So yes, we need to delay this and of course it's hand to hand with the CBAM and with the protection of Europe which doesn't work, but it's the different discussion. So yes, we would like to keep the free allocation as long as possible, basically until the moment we have a technology available. And we need to make sure that money we pay into the system, we can accumulate this money and I can use them once I have the technology available. So far I'm paying and I cannot get anything back from the system.
Thank you.
Mathilde Pan-Chau
Oui, merci beaucoup pour les questions. Je voudrais tout d'abord réagir sur le point lié au prix carbone dans la facture d'électricité. C'est une composante qui est liée à la partie énergie, mais il y a d'autres composantes aussi dans le prix total de la facture, notamment la fiscalité où il y a une situation inéquitable où l'électricité est taxée beaucoup plus que certaines autres sources, notamment les énergies fossiles. Il y a de fortes disparités aussi sur les prix entre les différents États membres qui est bien évidemment lié aussi à la décarbonation des différents mix. Mais ce qui récemment a surtout renchéri le prix de la facture, c'est la volatilité des sources fossiles.
Ce qui est important pour les industriels, effectivement, c'est d'avoir une prévisibilité, de pouvoir donner un accès à l'électricité de manière abordable. Et là, les contrats de long terme ont un rôle très important à jouer, notamment les PPA. Et nous, enfin en tout cas en tant qu'énergéticien, nous faisons tout pour déployer ce type de contrat avec les industriels. Voilà. Sur je pense que sur la question des frontrunners, remettre en cause le marché carbone, c'est risqué de transformer une stratégie de transition en une série de demi-mesures.
Donc un peu d'électrification, un peu de technologie décarbonée, un peu de soutien public, mais pas assez de signal économique pour sortir réellement des fossiles. Et donc finalement, en étant engagé à moitié, on sera doublement exposé, notamment sur notre dépendance aux énergies fossiles et tout en pénalisant ceux qui se sont engagés dans la décarbonation. Donc il y a des outils, des outils complémentaires. Il faut bien évidemment un CBAM efficace, une meilleure utilisation des revenus sur les sur le CAPEX comme pour pour l'OPEX. Voilà pour les points que je voulais partager.
Merci.
Lidia Tamellini
Thank you. A lot of questions to address and I'll fear I'll have to return to the basics on some things. And thanks MEP Liese for the question on the early movers that I know was not addressed to me, but I would like to point out that ETS is structurally made to support the early movers in decarbonizations. Many companies already base their business case on a carbon price that slowly but steadily goes up. And if we prevent the carbon price from doing that, we are factually undermining their business case, the business case of companies who are investing in decarbonization and in Europe.
So this and not only that, the fact is that the carbon price that at the moment, I repeat, is not being really paid by most of intensive industries, carbon intensive industries, is not nearly as much as the social cost of carbon. This we're just asking for polluters for a contribution to social cost of carbon, which the latest studies say amounts to around 1,200 dollars per ton of CO2. We're talking about health among many others. We're talking about the health of of our citizens. This where this is just means putting a price on a huge externality that at the moment is unpriced, simply.
So again, we're just asking for a contribution from many companies who emit CO2. And then again, for those who pay, I have some data, what is the actual cost on the end consumer? I'm taking data from also other NGOs as well, and the calculation says that once we enter a full pricing, maybe in around eight years, a wind farm will see a price increase of 0.65% due to the carbon price. A car, which like a new car, what we can say around 20k, 25k, will see a price increase of 60 to 80 euros. This is an increase, of course it's an increase, but is it that relevant of an increase among the other increases that we're seeing?
Is this what is making us less competitive towards China, towards the US? Has this loss of competitiveness already taken place, and if so, was it really the fault of the ETS? I also want to point out there were some questions about the chemical industry and also petrochemical industry, I will specify. We've seen that in the between 2021 and 2025, which again, the carbon price was barely paid by these companies, however, value was redistributed to shareholders through share buybacks for a value of around 65 billion for the three biggest petrochemical companies, Total, Shell and Yara. So this is capital that could have been reinvested in the decarbonization of the plants, in the decarbonization of Europe, and this has simply not happened.
So I think it's important that we really take a step back and realize what is making us less competitive and if climate policy is really the element that is preventing us from really be competitive on global markets and from providing also a good life for our workers and for citizens. Yes, thanks everyone, and I really want to finish by saying the ETS is not perfect, indeed we have many suggestions on how to improve it, but it has worked. It is ultimately a market-based instrument that is delivering what is promised to deliver. So let it do its work.
Pierfrancesco Maran
Thank you so much to all of you. Now we skip to the second panel, called Next Step for EU ETS Revision in view of the EU 2040 target. We have four speakers even in this case. Robert Jeske, Deputy Director for Emission Management from KOBiZE, the National Center for Emission Management. Stefan Savonen, Vice President for Energy and Climate, LKAB, that is easier.
Chiara Di Mambo, Director for Italy and Europe Strategy at ECCO. Jakob Graichen, Senior Researcher Energy and Climate at Oeko-Institut. You have eight minutes each. We start with Robert Jeske.
Robert Jeszke
Chair, honorable members of the European Parliament, and ladies and gentlemen, thank you very much for invitation to this public hearing. I'm personally dealing with the climate change and climate policy more than 25 years and with the ETS from 2007. So let me start with the clear message. The ETS has worked and this is true, it has delivered emission reduction and it remains the central market-based instrument of European climate policy. But the real question is whether ETS is now the ETS the framework of governance and it's still ready for next phase of reduction and decarbonization process in Europe.
A phase that will be more expensive, more political sensitive as we hear and much more dependent on industrial investments. So I would like to focus on three um on three on four issues. Market stability and the role of MSR, industrial availability in benchmark and CBAM, electricity price pass-through and ETS investment booster. So first, the market stability reserve has been one of the most important um once one's most important stabilizing mechanism in the EU. But its role evolved.
So it's no longer only a tool for managing historical surplus, but now shapes scarcity market expectation and investment conditions. That is why we should treat MSR as a stabilization and liquidity mechanism, not only as an automatic supply removal mechanism. So Commission proposal stop on stop automatic invalidation of allowances above 400 million is a good step in a good direction. It increases the future firepower of the reserve, but it does not by itself solve the problem of price predictability, liquidity of the cost of ETS pass-through into electricity prices, which are we observing today. The current ETS review we should therefore look beyond the TNAC indicator alone.
The market should also be assessed through liquidity, hedging demand, price volatility, forward curves and industrial investment signals. The same applies to the future removal of international credits. Europe will need flexibility for hard-to-abate emissions, but it cannot be left to fragmented private use alone. That would repeat all the mistakes and undermine trust. So we need to avoid that.
This is why the idea of European Central Carbon Bank and or EU Carbon Management Agency deserve serious consideration. Such institution could act as a single EU gateway for certified removals or high integrity international credits. It could manage tenders, eligibility rules, registry control, buffers and delivery risk. The objective would be to protect the cap while creating controlled and transparency integrity-based flexibility mechanism. So ECB should be treated as a not the offset loophole but the governance solution.
So I would focus on the governance in in all my speech. Second, benchmark, CBAM and free allocation. European industry support decarbonization, but the cost pressure reaching a critical threshold. Benchmark are becoming stricter, CBAM phase-in in sectors facing and the gradual phase-out of free allocation, while industrial investment cycles and infrastructure deployment move much more slowly. This concern a longer limited to industrial alone.
Several member states have recently expressed concerns about the current proposal. Some called for freezing or softening benchmark revision. At the same time, I understand the concerns which are raised also here that warn against weakening the ETS and penalizing companies that have already invested in cleaner production.
It becomes a cost shock. And if free allocation declines before CBAM is fully proven in practice, including its effectiveness against circumvention and export risk, the results may not be faster transformation, the result may be loss of production in Europe. This is why benchmark should reward transformation, not punish the absence of infrastructure. Third, electricity prices. We can no longer say that ETS costs in electricity prices is marginal.
Robert Jeszke
Okay. Thank you. So, with electricity prices, we can no longer say that ETS, I think I switched one too much. Yes. No.
We can no longer say that ETS costs in electricity prices is marginal. In member states with carbon intensive energy system, the ETS becomes a structural component of electricity prices. This affects industry, household and political acceptance. Let me give you a simple example. At EU price of 70 euros per ton, the estimated average CO2 cost in electricity generation is around 30 euros per megawatt hour for the EU 27 average.
But in Poland is almost 39 euros per megawatt hour, Estonia 41 euros. So it clearly shows that cost of exposure of ETS differs significantly across member states, depending on their energy mix. Therefore, the ETS review should include a targeted mechanism addressing electricity related cost exposure, especially in member states with the structural carbon intensive energy system. Such mechanism should be temporary, targeted and conditional. It should be funded with the ETS infrastructure without weakening the cap.
It should avoid double funding and remain compatible with the state aid rules. It could support exposed industry or vulnerable consumer in structural high ETS cost systems through electricity bill or contract for difference, but only under clear conditions linked to the reinvestment in decarbonization energy efficiency. It was also mentioned to the previous speech on using incomes from ETS on good solutions. Four, the ETS investment booster. It was also mentioned in previous presentation.
The booster can accelerate industrial decarbonization, but only if access reflects real transformation needs across member states. If the booster works mainly on the logic of best prepared project win or first come first serve, it will benefit those who have already the strongest administrative capacity, lowest capital cost and most mature project pipelines. That would reinforce structural asymmetries inside the single market. Recent results for several competitive innovation found instruments show the recurring pattern. Funding tends to flow primarily to countries with the stronger project pipelines, lower capital cost and a better access to clean energy.
Therefore, the ETS investment booster should go where transformation needs are greatest, not only where projects are the easiest to deliver. It should include explicitly cohesion criteria: emission intensity, energy mix, capital cost, investment gaps and infrastructure readiness. It should support not only industrial projects, but also enabling infrastructure which are grids, hydrogen, CCS, clean electricity access. If the booster is to be instrument of speed, it must also be instrument of solidarity. So finishing up and thank you for the additional time, I would point these three messages.
First, ETS review must address ETS pass-through into electricity prices through targeted temporary and conditional mechanism. Second, CBAM benchmark and free allocation must be sequenced realistically. And third, EU needs stronger carbon market governance. ETS should remain the decarbonization engine for Europe, but remain effective and has to be investable, governable and politically durable. Thank you.
Thank you. The second speaker is Stefan Savonen. Eight minutes.
Stefan Savonen
Thank you for the opportunity to speak here today. I represent LKAB, Europe's largest producer of iron ore with mining operations in northern Sweden. Today LKAB accounts for around 80% of all iron ore mined in the EU and we are world leader in highly upgraded iron ore pellets with low carbon emissions. We are working to enable fossil-free iron and steel value chains in Europe. LKAB also has the EU's largest known deposit of rare earth elements and three projects recognized as strategic projects under the Critical Raw Material Act.
But this is more than mining. It is about Europe's competitiveness. It is about the climate transition and it's about Europe's strategic autonomy. We are in the middle of the largest industrial transformation of modern times. For LKAB, this means major investments in new technology, electrification and fossil-free processes.
We are transforming our operations to reduce emissions significantly whilst strengthening Europe's industrial base. As Europe moves from traditional blast furnace-based steel production to climate-efficient production based on direct reduced iron, access to high-quality iron ore becomes a strategic issue for the entire Union. At the same time, LKAB is developing new value chains for phosphorus, critical minerals and rare earth elements, raw materials that are essential for batteries, fossil-free energy, defense technologies and the green transition. This means that the industrial policy, climate policy, environmental policy and security policy are now closely interconnected. My message today is simple.
If the EU wants industry to transform, the conditions must also make the transformation possible. The EU Emission Trading System, EU ETS, is the most important climate policy instrument for driving investment in fossil-free production. If the EU is serious about its 2040 climate targets, the system must give industry three things: long-term certainty and predictability, a sufficiently strong carbon price signal, effective reinvestment of ETS revenues in industrial transformation. That is why the future design of the ETS is crucial for Europe's industrial transition. A tighter emission cap together with ambitious linear reduction factor and strong carbon border adjustment mechanism sends the right signals to the market.
It creates incentives for investments in electrification, hydrogen and fossil-free industrial processes. Without clear policy signals, investment will not happen at the pace required. And it's important to remember this. We must also be realistic. With today's energy prices and with the uncertainty created by the political debate around the ETS, it's difficult to see the ETS delivering the price levels required in the near term.
That means many large industrial investments are not yet commercially viable in the near term. No industry invests billions in new technology if the business risk is too high. No board will take decisions that undermine competitiveness and profitability over a long period of time. When uncertainty increases, investments are delayed, and time is the critical factor in the climate transition. Every year of delay means higher emissions, slower technology development and a greater risk that Europe loses competitiveness.
That is why the ETS must be complemented by instruments that actually make investments possible, especially in the first phase of the transition. This is where carbon contracts for difference have an important role to play. Companies that invest in the transition take major technology risks and face higher energy costs, while competing with producers that do not take the same risks, have lower energy costs and still receive free allocation under the ETS. As a result, many companies want to invest in the transition but still judge the business risks to be too high. A European CCfD system for industry reduces the risk in large fossil-free industrial projects and can make it possible to build a viable business case for investments in new technology.
This is not about permanent subsidies. It's about building a bridge until the market itself makes fossil-free products competitive. But for this to work, the credibility of the ETS must remain intact. A strong ETS also reduces the need for public support over time, because the higher the carbon price, the lower the CCfD premium required. That is why it's important for the EU to stick to the planned phase-out of free allocation, maintain an ambitious linear reduction factor and ensure a strong and dynamic market stability reserve.
If the linear reduction factor is weakened, the carbon price is weakened as well, and the cost of CCfDs increases. This is not only climate policy. It's also industrial policy, competitiveness and economic security. If companies like LKAB can build fossil-free value chains together with our European customers, from mine to finished steel, we will not only strengthen Europe's climate agenda, we will also strengthen Europe's self-sufficiency and resilience in strategically important raw materials and industrial inputs. This is an opportunity Europe cannot afford to miss.
But it requires the right conditions. We need a strong and credible ETS to provide long-term investment signals. We need grids and competitively priced fossil-free electricity. We need faster and more predictable permitting processes. If investments are to happen in time, Europe's regulatory framework must make them possible.
Otherwise, we risk having ambitious climate targets without a practical way to achieve them. And above all, industry needs to know that the rules of the game will remain stable over time. For investments that stretch over several decades, political credibility is essential.
Europe now has the opportunity to show global leadership. A strong and credible ETS can show that climate transition and industrial competitiveness are not in conflict, but can reinforce each other. If the EU wants industry to deliver on the 2040 targets, policy must create conditions that make investment possible. If it succeeds, Europe can reduce emissions, strengthen its competitiveness and build real strategic autonomy. Thank you.
Pierfrancesco Maran
Thank you. The next speaker, she's connected remotely, Chiara Di Mambo from Ecco Foundation.
Chiara Di Mambo
Hello, good morning everyone and thanks for having us here and thanks to the president, the chair and the environment, the members of the Commission of Environment at the Parliament. I will switch to Italian for giving my speech. I hope you can hear me well. L'ETS è stato detto più volte, è uno degli strumenti più importanti che l'Europa abbia costruito in questi ultimi anni. Non si tratta solo di un mercato del carbonio.
Si tratta del principale segnale economico che sta accompagnando la trasformazione industriale ed energetica del continente in un'ottica di maggiore sicurezza energetica e autonomia strategica. In questi vent'anni il sistema è stato revisionato più volte per adattarlo agli obiettivi del clima, ma anche per renderlo più efficace ed efficiente nel consegnare questi obiettivi in modo tecnologicamente neutrale. Ha contribuito a portare le emissioni al meno il 50% rispetto al 2005 mentre il PIL dell'Unione Europea continuava a crescere. Ha contribuito a portare la quota delle rinnovabili nel sistema elettrico ad oltre il 45% nel 2024. Ha distribuito e generato oltre 260 milioni di euro in proventi delle aste.
Il sistema di per sé funziona. È importante ricordare anche quello di cui l'ETS non è responsabile. Lo squilibrio dei costi energetici tra gli Stati membri non è una questione che riguarda l'ETS, è una questione che riguarda altre componenti della bolletta elettrica. La volatilità dei prezzi è legata alla dipendenza dai combustibili fossili, dalle importazioni, da cui l'ETS prova ad emanciparci. La mancanza strutturale di investimenti in alcuni settori industriali è dovuta alla sovracapacità globale, bassa crescita della domanda interna ed esterna, pressioni competitive.
Basti pensare che l'età media degli impianti di cracking del petrolchimico in Europa è di 45 anni e che non viene costruito un impianto da 30 anni, ben prima che fosse istituito l'ETS. E queste questioni richiedono risposte di politica industriale, di politica energetica ben più ampie dell'ETS e che non possono prescindere dalla costruzione di una vera indipendenza energetica e di politiche comuni europee di indirizzo degli investimenti, di cui l'ETS è un pilastro centrale ma non l'unico pilastro. La domanda quindi oggi non è se l'ETS funzioni. La domanda è come rafforzarlo ancora una volta, adattandolo alle sfide di oggi, garantendo ancora competitività e decarbonizzazione. L'ETS si è dimostrato efficace proprio perché, a nostro avviso, è stato costruito come uno strumento di mercato unico.
Lo stesso segnale di prezzo si applica da Copenaghen ad Atene, da Stoccolma a Palermo. Questa uniformità non è un difetto. Questa uniformità è l'essenza stessa del sistema. Le imprese europee, lo stiamo sentendo, chiedono prevedibilità, segnali di lungo periodo per investire in nuovi processi produttivi, elettrificazione, efficienza, per innovare.
La decarbonizzazione e l'elettrificazione efficiente dei consumi, dove tecnicamente possibile, sono la via più credibile per ridurre la dipendenza europea dai combustibili fossili e rafforzare la competitività e resilienza del sistema produttivo. Proposte volte a neutralizzare l'ETS per la generazione termoelettrica, eccezioni geografiche, deroghe, anche per situazioni emergenziali, non sembrano essere strumenti utili a consegnare un sistema elettrico sicuro, decarbonizzato, competitivo e che renda disponibili i suoi vantaggi ai cittadini e alle imprese europee. Vorrei toccare un punto che non spesso a livello europeo, anche se qui è stato fatto molte volte, riceve poca attenzione: la spesa dei proventi delle aste. In Italia tra il 2012 e il 2024, di circa 18 miliardi di euro raccolti, solo 1.6 miliardi, il 9% del totale, sono stati effettivamente spesi per trasformazione industriale e politiche del clima. La situazione è in parte migliore in altri Stati membri.
Tuttavia le voci di spesa restano spesso poco trasparenti. Si tratta di un elemento cruciale, soprattutto per paesi a ridotto spazio fiscale. Nella revisione occorre rafforzare obblighi di trasparenza sull'uso dei proventi, in un'ottica di coerenza complessiva della spesa pubblica dei paesi, per accompagnare uno sviluppo economico e industriale nel percorso di decarbonizzazione, ma non solo, nel costruire la sicurezza e l'autonomia strategica del continente. Entrando nel merito degli elementi della prossima revisione, questa si confronterà chiaramente con una sfida: le emissioni residue dei settori hard-to-abate. Secondo la Commissione Europea, queste potrebbero essere pari a circa 280 milioni di tonnellate nel 2040.
Il mercato anticipa già oggi questa scarsità. Tuttavia occorre proporzionalità e cautela nella risposta. Un ETS che non esprime scarsità non è un ETS riformato, è un ETS compromesso. E un ETS compromesso mina la certezza degli investimenti di cui l'industria ha bisogno. Sulle assegnazioni gratuite, ogni modifica, qualsiasi ipotesi di modifica del graduale percorso di riduzione deve essere legata ad investimenti verso innovazione e decarbonizzazione in Europa, rafforzando la funzione che già oggi è presente in direttiva.
Nel momento in cui il cap si fa più stringente, tuttavia, è legittimo, plausibile pensare a rivalutare il numero dei benchmark in relazione alla complessità delle filiere produttive, così come caratterizzare meglio i fattori che determinano l'esposizione al carbon leakage delle imprese, misurando capacità di investire effettiva e facendo sì che i piani di transizione diventino concreti piani di investimento. Sul fattore lineare di riduzione occorre cautela a nostro avviso e occorre salvaguardare il segnale di prezzo per chi ha investito, per garantire certezza. La traiettoria dovrebbe essere il più possibile salvaguardata per poi essere rivalutata in base a dati più affidabili su volumi residui, maturità delle tecnologie, disponibilità dei crediti internazionali. Occorre invece favorire il collegamento con altri mercati maturi, come quello del Regno Unito, valutare concretamente l'ampliamento del campo d'applicazione: sono opzioni necessarie e percorribili. Occorre anche una rivalutazione delle eccezioni nazionali che oggi frammentano molto l'azione e disperdono importanti risorse.
Sulla preoccupazione espressa sui costi eccessivi, le attività speculative, sappiamo che la direttiva già oggi prevede monitoraggio e vigilanza per le quote e i loro derivati. Tuttavia si possono prevedere indicatori previsionali per l'integrità e la volatilità dei prezzi, così come avviene anche in altri mercati, compreso il mercato del gas. Sui crediti per la rimozione della CO2 dall'atmosfera, una loro integrazione è necessaria, ma dovrebbe essere condizionata e graduale, con un meccanismo cap-neutral. Sui crediti internazionali, questi restano una leva diplomatica fondamentale. Tuttavia l'esperienza impone prudenza.
Un volume pari al 5% delle emissioni del '90 corrisponde a circa il 30% delle emissioni del 2040, quindi non si tratta di un correttivo marginale, ma di una scelta strutturale, che deve essere adeguatamente calibrata, essere accompagnata da una governance rigorosa e una fase pilota attentamente costruita. Concludendo vorrei lasciarvi con tre messaggi. L'ETS a nostro avviso funziona, non deve essere indebolito, ma deve essere adattato alle nuove sfide. La sua forza risiede nella sua profonda aderenza ai principi del mercato unico, nella prevedibilità del segnale di prezzo, nella credibilità del percorso di decarbonizzazione intrapreso dal continente. L'assegnazione gratuita, come secondo punto, deve evolvere sempre di più in una leva di investimento, nel solco di quello che è già oggi, in cui l'assegnazione gratuita può servire per coprire parte degli OPEX degli investimenti di elettrificazione, la direttiva lo prevede, premiando chi investe nella trasformazione industriale in Europa.
Terzo, occorre garantire un efficace uso dei proventi d'asta, ne va della credibilità del sistema. Senza che ci sia adeguata tracciabilità, una garanzia di un'integrazione coerente della spesa dei proventi d'asta nell'ambito di una spesa pubblica che sia dedicata agli obiettivi di sicurezza energetica e transizione, questo, evitare questo, non farlo, rischia di mettere a repentaglio la tenuta del sistema economico, sociale e produttivo europeo. L'Europa ha costruito il più grande mercato del carbonio ispirando oltre 40 paesi. La revisione è un'occasione per consolidarlo e rafforzarlo. Grazie a tutti.
Jakob Graichen
Thank you very much and thank you for inviting me, I'm Jakob Graichen from Öko-Institut, Environmental Research Institute from Germany. We have heard this morning quite a few times already that a strong and predictable carbon price is necessary for long-term investment and the decarbonization and my presentation will focus exactly on that, how can we ensure a sufficient supply without too much pressure on industry while at the same time achieving our climate targets. And to do that, we need to take a step back, everyone here of course knows that EU's target is a 90% reduction below 1990 and that there's the use of international credits within that target of up to 5%. And in the end ETS is just a tool to achieve the EU's ambition of this emission reduction and climate neutrality by 2050. And when looking at what do we need from the ETS then we did a few calculations based on impact assessment by the emission, what are the remaining ETS 1 emissions by 2040 under different domestic targets and we believe that the ETS 1 needs to do more than 85% because we have high uncertainties in the land use sector, it's unclear whether the LULUCF sector will actually deliver as proposed here in the modeling or the results of this modeling, member states are already struggling today to achieve their targets and climate change is going to make this more difficult.
At the same time, the European Climate Law says a shortfall in the LULUCF sector should not be at the expense of other sectors. So we need to reserve a large share of Article 6 for LULUCF. Member states will want to use them for their national targets as well, which means the ETS 1 needs to achieve emission reduction more in line with 88 to 90% domestic and not rely on Article 6. And looking at the balance of the fifth trading period, so 2031 to 2040, under current rules, so without changing the ETS Directive at all, if we all lay back and do nothing, actually you can see that the supply is already quite close to the expected demand. You have the LRF, the cap, this is the big blue bar on the left, but this is not everything that's available during the fifth trading period.
In addition to that, you have allowances which are in the market already, which are going to be transferred from the fourth to the fifth trading period. You have the Market Stability Reserve, which has 400 million allowances under unchanged rules. And you have the New Entrants Reserve, which is still unused. In contrary, it's been increasing because not used free allocation goes into New Entrants Reserve, which is another 474 million allowances.
Jakob Graichen
Yes, I'm sorry. And if you compare that with the expected demand on the right side, this is an 88% emission target for the ETS, you can see that the quantity of allowances already is around the level what is needed to achieve the emission target or the emission pathway until 2040. And of course, this is a theoretical demand, assuming that the ETS is in line with the 90% target development, but at the same time, if the ETS does not follow such an emission curve, then the EU will not achieve its climate targets. So this is basically what needs to be done from the ETS 1 sectors. Now, as you all know, the Commission proposed to stop invalidation as fast as possible.
If that would be implemented by the end of this year, so there would be no more invalidation from 2027 onwards, then another 400 million allowances would be available in the fifth trading period, making the left bar definitely higher than the emissions or the demand. That doesn't mean that everything is fine already. We have a problem with the timing of supply. Not all of these allowances will enter the market when they will actually be needed. So there would be, in an unchanged ETS, there would be a real scarcity in the middle 30s.
And not necessarily all of these allowances are also going to enter the market. And what happens with the New Entrants Reserve is still open at the moment. There is obviously the idea to finance the investment booster through 400 million allowances from the New Entrants Reserve. That would mean that this light green bar on the top would enter the market until 2040. So, yeah.
If in addition to the supply that we already have and together with the new invalidation rule, the LRF would also be changed, that would increase supply quite considerably and we would look at a new structural oversupply. So on this graph, again, current rules, no invalidation in the MSR starting from January, and the LRF is aligned with an 88.5% domestic emission reduction target by 2040. And the two red lines are basically the emission budget under 90% aligned ETS emission development and an 85% aligned emission development. So somewhere between these two red lines is going to be the emission budget for the ETS 1 until 2040.
And you can see if the LRF is aligned with 85% domestic, even if we keep 4.4 until 2035 and then have 1% from 2036 onwards, the supply already exceeds emissions if you take the investment booster into account as well. Any lower LRF in the beginning, and this is the key crucial parameter, the LRF until 2035, would increase the emission budget considerably, meaning in the end the ETS would not deliver what is needed to achieve the 90% emission reduction target of the EU. And another point we have heard and seen in the morning already is there's still quite a lot of fossil fuels in the ETS 1, there's still a lot of coal in the ETS 1. We assume that emissions are going to decline quicker in the first years until 2035 due to the last coal power plants leaving the market, which would decrease demand and increase the oversupply even more. And these graphs do not yet reflect any contribution of carbon dioxide removals in the ETS, which would also increase the demand.
So with this, we have three key recommendations we want to give you. The first is do not risk a new structural oversupply in the market. It's important to keep the LRF of 4.4 until 2035. The cap should be aligned with 90%, maybe 88% domestic target, but definitely not with an 85% domestic target. And it's very crucial to assess all the proposed options to reform the ETS together.
So do not fast track, for example, the invalidation rule because the full impact can only be measured together with the LRF reform, together with the investment booster and all the other things that will be done to make the ETS strong and fit for purpose until 2040. The next point is the market stability reserve. Currently the definition, the parameter that drives the market stability reserve, the total number of allowances, does not see all demand. In effect, around 300 million actual emissions or not available allowances are calculated in the TNAC number, which means that the MSR is withholding allowances for too long and it's not issuing allowances when they are needed, but it's too slow. So updating the TNAC definition is an important element to ensure that the MSR is fit for purpose as well and can deliver when needed and more timely.
And of course, the MSR thresholds and inflow and outflow quantities, they are all designed for an ETS with over a thousand megatons of emissions per year. If we're looking at 200, then of course all these elements need to be revised and adapted. And the last point we want to give is no short-term interventions. They destabilize the market, they punish early movers. And we have seen in the front-loading under the RRF in the past that even the modest front-loading had a clear impact on the carbon price.
Doing anything larger and short-term would negatively impact the market. Thank you very much.
Pierfrancesco Maran
Thank you so much to all our speakers. Now we open the floor to the political groups for this round, one minute and 30 seconds each. I also ask for the catch the eye so we can better organize our session. We start with Peter Liese that is connected remotely, one minute and a half. You have the floor, Liese.
We can't hear you at the moment. So for S&D, Mohammed Chahim.
Mohammed Chahim
You know, Chair, that it's always a pleasure to listen to Peter Liese, but I can imagine that he's well, that he has some connection problems. So for me, let me try to understand a little bit what we are doing here. Because I understand the pressure to look at certain flexibilities when it comes to ETS, but at the same time, I was very pleased by the study by the Öko-Institut that shows there is a significant probability of oversupplying. And then we're not, will not have anymore the price signal effect that is needed to decarbonize the sector. Because why do we want this?
We want this because we do not want to rely on fossil fuels imports. Because there will be a gas peak every couple of years. This is the new reality that Europe is in. The biggest threat to our industry is not ETS, and everyone who tells you that is, is basically fooling themselves. The biggest threat is the high gas and oil prices.
When I was in Rotterdam and half of the installations was stopped, was, was not operational four years ago, it was because of the high gas prices. And the sooner we go towards a decarbonization, the better these industries are helped. And how do we do that? We do that by first of all talking to Member States and saying, listen, the money that has been collected through ETS should go back to industry to help them decarbonize. I like the ideas to come up with carbon contracts for difference when it comes to other technologies next to electricity, think about hydrogen, think about creating green markets for these sectors through the Industrial Accelerator Act, etc.
Because if not, I'm very, very, very afraid that we will not meet the targets. We will take away the best instrument we have, we will weaken it, that takes, brings us towards the 2040 target. And the more flexibility we introduce in ETS 1, the less we will have in LULUCF, in the MSR, in ETS 2, and I can tell you, I can go on and on and on because everything is connected in order to get the 2040 target. Thank you very much, Chair.
Pierfrancesco Maran
Thank you so much. We go back to Peter Liese, it should work now.
Peter Liese
I couldn't open the microphone. So, thank you to the speakers. I have two questions. First of all, on the revenues. I would really like to get some more clarity on the revenues.
Chiara Di Mambro mentioned a figure concerning Italy, I would ask you to repeat it because I think it's important to everyone. And also I would ask the Commission how, you know, how do you see, can you confirm the figures and what can we do to really make Member States invest in climate? We have the obligation already in the existing legislation, but we may be, we need to be more specific. A specific target for revenues for industry and much more transparency, also that the money shouldn't be spent somehow in the future but as soon as possible. So I would like to listen also in the end from the Commission here.
Then the question on conditionality. I support the conditionality because there are workers that are afraid of losing their job if, you know, and also the trade unions are for changes in the ETS. But if in the end the free allowances doesn't lead to investment, then we have not done our job properly and the workers will be angry with us, rightly so. But on the other hand, you know, I don't agree with the speaker from Czech Republic from the first panel, Mr. Tamchyna, that technology is not there.
Sometimes it's expensive and sometimes conditions are not there, but technology to decarbonize is existing everywhere. But the devil is in the detail and you know, is it maybe an idea to have a partial conditionality? So not all free allowances should be under conditionality, but maybe half or 70%. That would be my proposal and I would like to listen from the panel what they think about this.
Jorge Buxadé Villalba
Sí, gracias presidente, voy a hablar en español. Muchas gracias a todos los panelistas, 32 minutos de intervención, 4 por 8, y no he oído la palabra China, ni la palabra India, ni la palabra empleo, trabajador, sostenibilidad de las familias. Solo la industria siderúrgica ha perdido casi 100.000 empleos como consecuencia de estos costes generados por las políticas del ETS y otras, y la producción ha caído un 30% desde 2008. Para los sectores electrointensivos, el coste de la electricidad puede suponer hasta un 50% del coste de producción. Sectores como el acero, el aluminio, la cerámica o los fertilizantes provocan cierres en las empresas o subida brutal de los precios, afectando a elementos básicos de la cesta de la compra, la comida y la vivienda.
El ETS, el Pacto Verde, el Pacto de Industria Limpia están afectando directamente la economía de las familias. 200.000 empresas europeas reconocen que el aumento de costes energéticos vinculado a las políticas de transición climática afecta significativamente al riesgo de los despidos. Por cada derecho de CO2 que nosotros reducimos, India o China lo triplican, con lo cual ustedes el planeta en realidad no les importa nada. En Marruecos el precio de la electricidad es un 50% inferior del que sufren las empresas españolas. ¿Qué les dicen ustedes?
Porque sus presentaciones y sus escenarios quedan muy bien, pero fuera de este edificio no sirven para nada. Están afectando a las empresas reales. Mi pregunta es: en mayo de 2026, seis países de la Unión Europea han pedido frenar esta alocada carrera de reducción de los derechos gratuitos. ¿Consideran ustedes que hay seis gobiernos de la Unión Europea que no entienden nada o la única cuestión es que a ellos les votan y a ustedes no? Gracias.
Anna Zalewska
No, it's okay. Anna Zalewska, pardon.
Thank you, I will speak Polish. Bardzo dziękuję za kolejne wypowiedzi, za kolejną dyskusję, choć chciałabym prosić Komisję o wyjaśnienie, dlaczego dopuszczamy na spotkanie z parlamentarzystami lobbystów, którzy zainteresowani są jak najwyższymi cenami ETS. To bardzo niebezpieczne. Być może w Komisji Europejskiej jest taki standard, ale ten standard przeradza się później w afery korupcyjne. Natomiast wypowiadając się i podsumowując to wszystko, czego się dowiedzieliśmy, to mamy jakby dwie warstwy.
Każdy z państwa zaczyna od tego, że ETS działa, po czym w każdej swojej wypowiedzi kolejnej udowadnia, że nie działa i że potrzebne są duże korekty, ewentualnie zahamowanie, zatrzymanie.
To po pierwsze. Po drugie, czas, żebyśmy obywatelom powiedzieli, że dekarbonizacja nie polega tylko i wyłącznie na tym, żeby zabić źródło nazywane węglem, nie pozwala się inwestować, żeby na przykład pochłaniać emisje z tego węgla, ale również gaz, gaz skroplony i olej opałowy, bo na tym ma polegać dekarbonizacja. I chcę wszystkim państwu przypomnieć i poprosić o to, żebyście przeczytali raport Trybunału Obrachunkowego, który mówi jednoznacznie: Unia Europejska jest uzależniona w 90% od metali ziem rzadkich, na których to Unia Europejska opiera cały swój Zielony Ład. Po kolejne, kolejne szczyty klimatyczne, i myślę, że ten w tym roku też to przyniesie, pokazują, że Unia Europejska jest sama. Nie ma takich możliwości technicznych, fizycznych, chemicznych, technologicznych, nie mówię o Unii Europejskiej, ale o całym świecie, żeby realizować mrzonki, które są zapisane w niektórych deklaracjach, jak również nie ma na to pieniędzy.
Europa i Unia jest nie tylko zadłużona, ale zadłużone są wszystkie kraje europejskie, w związku z tym nie ma możliwości kolejnych poszukiwań. Stąd jednoznacznie, jesteśmy absolutnie na zakręcie, musimy bardzo poważnie traktować to, co się dzieje na rynku europejskim, a przede wszystkim bardzo poważnie traktować obywateli, którzy mówią: stop ETS.
Emma Ytterell
Thank you so much. Anyone believing that Europe will be competitive, that our industry will be competitive with the power plants and the industries that we built 1950 and 1960 are fooling themselves. We will not compete with US and China with the old industry and the traditional industry we built up after the Second World War. Our industries also needs investment to be modern and to develop and to be competitive with the rest of the world. I just wanted to have that said, that competitiveness, well, it's really about modernising industry and being in the forefront.
And that's why I really liked the intervention from LKAB, hearing that the mining industry is really taking it seriously and how much a stable carbon price is needed for industry in order to do these investments and to have a clear signal to go ahead. Because I think that's the only way of our mining and steel industry, cement and chemicals, to be competitive with the rest of the world. So my question is first to LKAB, can you elaborate a little bit on the carbon contracts for difference that we introduced in the latest ETS reform and how such measures can help you to take these investments decision? Because we have a carbon market and the market is volatile. How can you, how do you see that we can use instruments like the CCFDs to provide a stable investment tool for you?
And my second question is to the Öko-Institut. I really appreciated your very clear recommendations and the message that we're so close to an oversupply of allowances and that we were in that situation for almost 10, 15 years before, and that was not a successful ETS. So I really like your recommendations, but I also appreciate what is not in your recommendations, and that's the international credits and the Article 6 credits. Can you elaborate on the risks that you see including these international Article 6 credits in the emission trading schemes that I know that you in Öko have done studies on? What are the main risks and challenge with this type of inclusion?
Emma Ytterell
Because that was clearly not on your wish list and appreciate that you were very clear on your recommendations.
Michael Bloss
Ja, vielen Dank, Herr Vorsitzender, liebe eingeladene Expertinnen. Herr Graichen, ich habe Ihnen ganz besonders zugehört. Die Debatte über das Klimaziel 2040 und den Emissionshandel verrennen sich zunehmend in eine Sackgasse. Die Sackgasse sicherzustellen, dass die Industrie ausreichend Emissionszertifikate zur Verfügung stehen. Gleichzeitig erhalten viele große Industriesektoren weiterhin kostenlose Zertifikate aufgrund von Bedenken möglicher emissionsbedingter Abwanderung, obwohl seit Jahren Kritik an übermäßiger Zuteilung von Zertifikaten und dadurch bedingte Übergewinne geäußert wird.
Hier besteht seit langem ein grundlegender Widerspruch im Emissionshandelssystem. Einerseits soll das System durch einen starken CO2-Preis Anreize für die Dekarbonisierung schaffen, andererseits werden viele große Emittenten weiterhin davor geschützt, diesen Preis vollständig zahlen zu müssen. Wie nachhaltig ist dieser Ansatz auf lange Sicht ökologisch, wirtschaftlich und sozial? Wie lange kann die EU diesen Ansatz noch rechtfertigen, während Haushalte und Beschäftigte zunehmend die Kosten des Übergangs tragen müssen? Hat das Emissionshandelssystem inzwischen einen Punkt erreicht, an dem seine ursprüngliche Grundidee, ein starken durch Knappheit erzeugten CO2-Preis durch den fortgesetzten Schutz großer Industrieemittenten mittels kostenloser Zertifikate untergraben wird?
Müssen wir nicht langsam über ganz andere Mechanismen nachdenken, um sozialgerecht die Klimakrise zu erreichen? Herr Graichen, mich würde insbesondere von Ihnen hören, wie Sie das sehen.
Anja Arndt
Sehr geehrte Kollegen und vielen Dank für die Vorträge. Jahrelang wurde uns hier der Weltuntergang verkauft. Die Grundlage dafür hieß RCP 8.5, das Horrorszenario, das jede Verschärfung der Dekarbonisierung, jede neue Abgabe, jede Belastung für Unternehmen und Bürger gerechtfertigt hat. Und jetzt, jetzt rückt der Weltklimarat davon offiziell ab. Das Worst-Case-Szenario, auf dessen Drohkulisse unsere gesamte Klimapolitik gebaut wurde, gilt jetzt als unplausibel.
Es war nie realistisch, aber funktionierte hervorragend, um irrationale Ängste einzujagen und das CO2-Emissionshandelssystem, wo direkt oder indirekt jedes Unternehmen und jeder Bürger bis zur Schmerzgrenze zur Kasse gebeten werden soll, zu rechtfertigen. Die Basis, das Horrorszenario, der Weltuntergang wurden nun abgesagt. Deshalb fordern wir, dass das Emissionshandelssystem auf den Prüfstand gehört, und zwar grundsätzlich. Alles andere wäre verantwortungslos. Herr Graichen, Sie zählen zu den profiliertesten Kennern des EU-ETS.
Vor dem Hintergrund, dass das RCP 8.5 wissenschaftlich überholt ist, sehen Sie einen sachlichen Anlass zur Überprüfung des ETS? Es verteuert ja alles, was Menschen zum Leben brauchen. Eine aktuelle Ipsos-Umfrage in Deutschland hat ergeben, dass die allergrößte Sorge, das größte Problem der Bürger jetzt schon die Preissteigerungen sind.
Pierfrancesco Maran
Thank you. Now we have the catch-the-eye, one minute each. First speaker is from EPP, Adam Jarubas.
Adam Jarubas
Thank you, Mr. Chair. I'd like to thank our experts.
As Europe raises its climate ambitions, we face a growing problem. The competitiveness of European industry is declining, while the risk of carbon leakage is becoming increasingly serious. Energy-intensive and high-emission sectors are under mounting pressure, and production together with investment are moving to countries with much lower climate standards. In light of the recently adopted EU climate targets for 2040, I'd like to ask the panelists: how should we redesign the EU ETS so that our energy-intensive enterprises can continue to compete successfully on global markets without having to choose between ambitious climate policy and industrial competitiveness? Is it possible at all?
And finally, what is the single biggest mistake in the current debate on the future of the EU ETS? We need pragmatic solutions to succeed in the green transition. We cannot afford to export European jobs and investments overseas. Thank you.
Oliver Schenk
Thank you very much. I would like to speak in German. Und ich möchte mich erst einmal ganz herzlich bei den Referentinnen und Referenten heute Vormittag bedanken. Viele verschiedene Aspekte sind sehr deutlich angesprochen worden. Und es hat bei mir den Gedanken noch einmal ausgelöst, wie erstaunlich auch der Weg ist, den wir in den letzten drei, vier Jahrzehnten gemeinsam gegangen sind, dieses System überhaupt einzuführen.
Aus einer theoretischen Diskussion, die wir zu Beginn der 90er Jahre, wenn ich an den Gipfel in Rio denke, dass wir heute über Weiterentwicklungen des Systems sprechen können dort. Ein System, was sich aus meiner Sicht etabliert hat. Gleichwohl hört man auch hier heute immer wieder Stimmen, die dieses System grundsätzlich in Frage stellen, es abschaffen wollen. Und deshalb meine erste Frage in diesem Zusammenhang: Welche Rolle sehen Sie, welche Rolle spielt ETS tatsächlich für die aktuelle Wettbewerbssituation? Ist es so, dass wenn man ETS abschaffen würde, sich sozusagen in einem wahnsinnigen Boost die Wettbewerbssituation Europas dramatisch verbessern würde und wir dieses Problem unserer Wettbewerbsfähigkeit, was wir haben und unzweifelhaft haben, damit gelöst wäre?
Und die zweite Frage, wenn wir tatsächlich auf die globale Situation gucken, China, Indien, Vereinigte Staaten, würden Sie heute manche Dinge vielleicht sagen mit einem anderen Tempo, müssen wir sagen manche Dinge korrigieren oder anders machen, weil wir sehen, dass sie uns halt nicht auf diesem Weg so entschlossen folgen oder wir nicht so gemeinsam unterwegs sind und an dieser Stelle tatsächlich ein ökonomisches Problem bekommen.
Annalisa Corrado
Thank you, I will speak in Italian. Prima un commento e poi due domande. Il primo commento è: se vogliamo parlare di motivi seri per cui l'industria europea è veramente in forte crisi dobbiamo parlare del prezzo dell'energia e dobbiamo parlare del fatto che l'ETS sui prezzi industriali dell'energia pesa dallo 0,9% al 15%, ma pesa così tanto nei paesi che non hanno fatto la decarbonizzazione, perché la parte più importante dei costi sta sempre, è sempre legata al gas, anche sulla quota di ETS che poi pesa anche sulle altre fonti. Quindi usare questo come scusa per smontare l'ETS, che invece è quella che ci porta fuori da questa dipendenza, continua a essere a mio avviso folle.
Per quanto riguarda le best practice volevo chiedere ai nostri relatori se possono argomentare meglio quali sono a loro avviso quelle che hanno funzionato meglio e cosa pensano delle condizionalità della decarbonizzazione che legano anche il principio di mantenere il lavoro industriale in Europa e mantenere la quantità di posti di lavoro qui perché ricordiamoci che sono sempre politiche industriali e cosa pensano dell'idea di tra i sistemi per scoraggiare le speculazioni sul mercato ETS quello di prelievi sulle sugli scambi speculativi appunto che possano invece incentivare andare a ingrossare i fondi a disposizione per la decarbonizzazione. Grazie.
Ondřej Knotek
Thank you Mr. Chairman, good morning honorable panelists. The ETS is already more than 20 years in place and it has caused a lot of damage to our industry as it is more expensive than the carbon prices outside the EU. Strategic sectors in EU delay investments due to low investment return or shut down and move production outside the EU, emissions are global emissions are growing. The rate of promised green jobs, new green jobs is lower than the jobs lost. Simply the ETS is a damage to the European economy, European transformation and the climate as such.
I welcome the elements presented by the Commission but it's not enough for the reform, we also need to target the root cause and the root cause is the climate targets that are not realistic. Many of panelists here said that fulfilling of the climate goals and competitiveness go hand in hand together. But more and more people believe it's not true. So question is, what do you think it's more important, to fulfill the goals, climate goals or maintain the competitiveness? Thank you.
Stefano Cavedagna
Thank you President, I would like to speak in Italian. Grazie Presidente, come ripetiamo spesso diciamo che il mondo è uno solo e quindi anche dal punto di vista dell'inquinamento. Sono passati 20 anni ormai dall'introduzione del sistema ETS, un sistema per il quale in poche parole devi pagare una tassa per poter emettere e produrre a livello industriale. Questo sistema è sulla bocca di tutti, ha appesantito le nostre industrie portandole in crisi, continue chiusure, delocalizzazioni, perdita di posti di lavoro di cui ci piacerebbe sentire qualche parola anche da parte di chi siede alla sinistra di questo Parlamento, tutto in favore del Sud-est asiatico, India, Cina, Corea del Sud e non solo. Questo è il preludio della desertificazione economica della nostra Europa e quindi vorrei fare una domanda ai nostri esperti qui presenti.
Avete mai provato a fare uno studio? Avete mai provato a vedere quanto costa per l'ambiente la chiusura di un'industria europea e la rispettiva apertura di un'industria nel Sud-est asiatico in tutti questi paesi citati? Vi renderete conto che non solo state impoverendo l'Europa e la state desertificando, ma stiamo inquinando anche di più. Ed è per questo motivo che di fronte anche alla crisi internazionale che stiamo vivendo e ai conflitti noi dei conservatori chiediamo l'immediata sospensione del sistema ETS e la quanto più rapida revisione di questo sistema. Grazie.
Grégory Allione
Merci beaucoup, je vais m'adresser à vous en français. Monsieur le Président, chers collègues, mesdames et messieurs, en fait je suis pour la décarbonation de nos usages et pour les objectifs qui sont évoqués par nos experts et par la Commission qui répondra à l'issue, mais j'ai une interrogation étant élu municipal sur la valorisation énergétique des déchets municipaux qui pourraient intégrer l'ETS et ça soulève quelques questions, quelques interrogations et j'aurais une réflexion en conclusion. En fait ces installations fournissent une énergie locale et alimentent des réseaux de chaleur essentiels pour de nombreux territoires et dans ce contexte 80 % de leurs émissions fossiles proviennent des plastiques non recyclés et contenus dans des déchets qu'elles reçoivent.
Alors j'ai quelques questions. Dans ce contexte, comment pouvons-nous articuler le futur Circular Economy Act avec l'ETS afin d'éviter des signaux prix contradictoires et de faire peser le coût du carbone sur les producteurs de plastiques non recyclables ? Ensuite, une deuxième question : par ailleurs, quels impacts pouvons-nous anticiper sur la sécurité énergétique de nos territoires et sur les risques de distorsion de concurrence entre États membres ? Et enfin, comment éviter que cette évolution ne conduise à un report vers l'enfouissement alors même que l'Union s'est fixé l'objectif de réduire la mise en décharge des déchets municipaux à moins de 10 % d'ici 2035 ? Vous voyez que ce sujet de l'ETS est aussi un sujet de coordination et de cohérence avec d'autres politiques.
Et enfin, j'ai en conclusion, je voudrais vous soumettre un élément de réflexion. Hier, il y avait ici même dans cette enceinte, et nous étions encore moins nombreux, la proposition d'une stratégie sur la lutte contre les feux de forêt. Et je vais juste vous dire deux chiffres. Le premier chiffre, c'est 1 million d'hectares sont partis en fumée l'été dernier. 1 million d'hectares, c'est 300 millions de tonnes de CO2 qui sont partis dans l'environnement.
300 millions de tonnes, c'est quasiment la production de CO2 en une année de la France. Donc à cette commission où nous devons voter les budgets pour lutter contre les feux de forêt, parfois je souhaiterais qu'on fixe le cap sur d'autres objectifs politiques. Je vous remercie.
Pierfrancesco Maran
Thank you. For ECR, Evžen Tošenovský. So we go back to EPP, Glavak.
Sunčana Glavak
Thank you, I will speak in Croatian. Kada govorimo o sljedećim koracima za ETS u kontekstu klimatskog cilja, dakle za 2040. godinu, smatram da je važno zadržati ravnotežu između klimatske ambicije i konkurentnosti europskog gospodarstva. Do you hear me? Yeah. No?
You don't have translation? Okay. Okay, now it's working. Now it's working. Okay.
Shall I continue or may I start, start again? Okay. So, smatram da je važno zadržati ravnotežu između klimatske ambicije i konkurentnosti europskog gospodarstva. Više kolega je to spomenulo, međutim ključno je da buduća revizija ETS-a podupre dekarbonizaciju, ali istodobno i spriječi gubitak industrijske konkurentnosti i istjecanje ugljika. Posebno je smatram važno voditi računa o sektorima koji još nemaju komercijalno dostupne tehnologije za potpunu dekarbonizaciju te o državama članicama koje su izložene većem riziku od istjecanja ugljika zbog primjerice svog geografskog položaja.
Stoga je moje pitanje i kako u kontekstu revizije ETS-a i cilja za 2040. godinu osigurati da sustav besplatne dodjele emisijskih jedinica i referentne vrijednosti za njihov izračun na odgovarajući način uzmu u obzir i tehnološke mogućnosti pojedinih industrijskih sektora i specifične okolnosti država članica koje su izložene većem riziku od istjecanja ugljika.
U tom kontekstu htjela bih samo reći da je i Hrvatska u posebno osjetljivom položaju jer dijeli granice s trima zemljama koje nisu članice Europske unije i stoga je ključno osigurati da okvir ETS-a na odgovarajući način odražava te posebne okolnosti i podupre uravnoteženu tranziciju prema klimatskoj neutralnosti uz istodobnu zaštitu industrijske konkurentnosti naravno i gospodarske otpornosti. Završit ću samo, svi smo svjesni toga da ne smijemo zaboraviti adresirati i onaj ključni problem, a to je energetsko siromaštvo i jačanje otpornosti naših građana uz naravno ovo o čemu govorimo kada je riječ o industriji. Hvala vam lijepa.
Manuela Ripa
Yes, thank you very much. We already heard it from the previous panel and we heard it from this panel that it is essential that the upcoming reform strengthens the credibility and the predictability of the ETS because investment decisions in climate-neutral technologies were made on the basis of a reliable and predictable policy framework. And I agree with one of the speakers that high energy prices and uncertain political debate on ETS and CBAM are poisonous for industry. In my home region Saarland, the steel industry has launched unprecedented investments in climate-neutral steel production, supported financially by the federal and the state government with the approval of the European Commission. So it has to be clear that early movers must not be put at a disadvantage when they are already driving the transition today.
And my questions are the following, and it would be great if the Commission could answer them as well. How can the ETS reform ensure that companies which have already made substantial investments in climate-neutral technologies are not disadvantaged by the reform? We heard contracts for difference, but should also other instruments be considered, for example by linking the allocation of free allowances more closely to proven investments in industrial decarbonization or to long-term offtake agreements for carbon-free raw materials? Thank you very much.
Pierfrancesco Maran
Thank you. Now we have the remarks from the Commission. No? Before we give the, okay, before we give the floor to our guest speaker for four minutes each, we start again with Robert Jeske.
Robert Jeszke
Yes, thank you for these excellent questions and I think this debate is going very broad perspective. So from one side we are seeing the necessity of using ETS as a decarbonization instrument, but at the same time we see the threat and the cost that is giving to the households and the business cases in Europe. So I think one of the key questions was also made how to prevent the carbon leakage risk and at the same time invest in Europe in decarbonization. So as I pointed in my presentation and I think it's one of the issue that in overall picture we should see is the governance issue. So the ETS give us the reduction and we see this reduction and MSR worked perfectly decreasing the surplus of allowances from the market, but at the same time this is the first time and the Commission announcement from yesterday that the MSR is taking less allowances from the market because it's less than 24% of the surplus because we are going into the phase where the MSR should release some allowances in coming years.
So if we see this in this perspective we see that we need some governance and we have a governance issue with maintaining climate policy in Europe. And if we do this properly and we have a several bunch of several demand and supply part of the game which was presented also by my colleague from Oko, we need to govern it. And the governance issue simply point that we need someone to steering the supply and demand of allowances and and market behavior. So that's why we are coming with the proposal of European Central Carbon Bank which is something bigger than MSR which got a lot of complication parameters inside. But the problem is that the more we are going in decarbonization the cost are much more higher then the complication are permanent part of the ETS.
So we don't need to discuss every detail parameter technicality parameter in ETS, we need someone to govern that. And when we put some reflection what are the parameters are and with benchmarks and we need to wait for a year for changing the benchmark parameters in the directive then is something wrong with the industrial sector and the carbon leakage occur. Whether we have a carbon leakage and CBAM protection or whether we don't have. So overall picture brought us to the governance issue. And I think if we stick to governance solutions that will be the best for ETS and climate policy in Europe.
Thank you.
Stefan Savonen
Thank you. I will start with a question from Emma Wiesner about the carbon contracts for difference. Today we have the EU ETS Innovation Fund that supports green industrial projects through upfront grants but it doesn't address the ongoing operational expenditures. And what we see here is now especially now the unsecurity of what will the carbon price be during the coming decade. And here CCFDs can fill the gap to guarantee a level of earning for companies that actually invest in in low carbon technology fossil-free industrial projects.
So you get a stable carbon price and covering the back the gap between the actual ETS price and the ETS price needed for the project to be cost competitive. That this support is is needed to give the boards actually what they need to take the decision to go for low carbon technology especially in the period of time where we have quite high insecurity about and we have the political debate regarding the future of ETS. Which board would like to take a decision now relying on the ETS that the ETS will deliver the coming 10 20 years or so until we have or that you will have a carbon price that EU still will have the the goals for decarbonization. Industry today is is in a way sitting and wait.
What do you want us to do? We want to invest in Europe. We want Europe to have competitive industry. And if we want that, then we also need to invest. We can't just sit and try to use our existing plants more than they are constructed to.
When we invest in a plant, we have plants that are 50 years old. We need to invest. Shall we invest in coal technology and oil, fossil fuel? Do we really rely on that, especially when we look back what has happened the last years with the energy prices? And we can't mix ETS with energy prices, because especially fossil fuel prices, because the main reason that we are where we are today is that we have the Iran conflict and the Ukrainian war.
If we wouldn't have that, I believe that ETS is counting for about, is it 11% or something like that for electricity costs? I'm not really sure, but it's not the major reason that we have high energy cost. The governments and EU need to fix things with electricity. We need to have grids. We need to have production.
And on that way, we can actually make it possible for the industry to decarbonize and to start using electricity. And then we can produce our own energy. We don't have oil fields. We don't have the gas production. We must use what we have, so we also can have security of supply, both from raw material, industrial inputs and energy.
That is I think the way out for EU and to be self-sufficient. Thank you.
Chiara Di Mambo
Yeah, thanks a lot. Starting from Peter Liese's question on the numbers on the revenues. Well, Italy generated around 18 billion euros from the beginning of the scheme, but looking at the official statistics, only 1.6 billion, 9% of the total, has been effectively spent on industrial transition and other allowed measures. And we actually do not know exactly what's been done with the rest, and that's very relevant for a country with such a low fiscal space as Italy. 18 billion is actually the size, almost the size of a budget law here.
So, and that's very relevant also if we look at the overall, let's say, role of the ETS. What do I mean by this? As said, it overlaps a unique price signal over 27 energy prices. So, do we need to blame the unique form of price signal or the 27 distorted price signals? And why am I talking about distorted price signals?
We will publish a study soon after this meeting, and we've been looking into the taxation system, for example. So let's look at the taxation system over gas and electricity in Italy. Well, excise duty in Italy for electricity are seven to 11 times higher compared to excise duties for gas for enterprises. Is this really fault of the ETS? We're not sure about that.
And about the component of the ETS over the overall energy prices, it's estimated by the European Central Bank 3% for families and 6% for enterprises.
But getting again into the burden taxation system on industries, well, ETS is 1.96 euro cent per kilowatt hour in Italy. If we look at other surcharges, it's double that number. So is it a matter of how taxation or other components of the bill are distributed among the different supply that needs to be looked at? So the ETS is a piece of a full architecture. It cannot be blamed of all other issues in our view.
And if we talk about other pieces of this puzzle, we've been talking about the Industrial Accelerator Act. We've been talking about the Circular Economy Act and again about taxation. All those needs to be looked at carefully in the geopolitical constraint we're facing today. We cannot only look at ETS. Getting to conditionality of free allocation and the way they can be used today and they could be used still tomorrow.
Actually today it is possible free allocation are left also in case an installation gets out of the system, so if it is fully electrified, meaning that it can sustain at least part of the OPEX. There is a clear link with the existence of climate neutrality plans and there is something that should be continued in our view so that the transition plans so-called really become investment plans that need to take into account the capability for investing of installations, investing in cleaner energy, in cleaner production in Europe. And yeah, and I think it's almost all of it. Thanks a lot.
Jakob Graichen
Thank you. And thank you everyone for the questions. I think there were three directed at me and I will start with the comment on competitiveness as we have heard from the last speakers already. The ETS price is not what is driving European competitiveness. It's one element of many and especially the electricity price we have seen it now in the crisis with the Strait of Hormuz.
Those countries where gas is setting the electricity price most of the time have the highest impact and Spain on the other end where gas only sets electricity price 15% of the year had the lowest impact of this increase of fossil fuels. So decarbonizing is protecting our industry and is making us independent and less volatile. And also if you look at China, I think no country is electrifying as radically as fast as China. I think it's very short-sighted to say but China without realizing that a lot is happening there and they are overtaking us in many ways. On the risk of Article 6 in the ETS, there are lots of open questions with Article 6.
We have seen in the past with offsetting and compensation schemes that there was a lot of dubious reductions, fraud, windfall profits from developers and we are uncertain how that's going to work out with under Paris Agreement. The rules are stronger but still there are risks. And when we're looking at a stable and predictable price for the ETS, I think direct integration of Article 6 would be very dangerous because it's so hard to calculate, estimate and foresee what's going to happen there. We see there's a certain room to adjust the LRF, the cap based on Article 6, but we definitely do not believe that operators should directly use credits because we have seen in the past that was one of the reasons for the massive oversupply and it's also then very difficult to react if something does not develop as planned, for example if certain types of credits are not actually additional and decrease emissions.
Social justice solutions, that's a difficult and big question. I think one important consideration is the ETS by itself is not the only tool to drive decarbonization. It's one of the tools, but we have renewable energies policies, we have social policies, we have other instruments like carbon contracts for difference, which all together will need to ensure the decarbonization. If we would do it only through the CO2 price, then yes, that would become very socially unbalanced quickly. But of course, that means there is a carbon price that can affect certain consumers, vulnerable groups, and I think there we do need targeted measures.
I think it's more a topic under the ETS 2 than under the ETS 1, but in the end, the best answer is always help everyone to decarbonize because then you don't pay an ETS price. So that is actually what we need to achieve and strive for. And the last question on the RCP 8.5, that was the worst-case scenario, but also the most positive scenarios staying at 1.5 degrees warming have been discontinued because they're both out of date. The world has moved onward. It's good news that the worst case is not at all realistic anymore, but it's not a fair representation of science to say that climate change is not a danger and we're still facing massive impacts and will have to look at and will have to treat this problem in the future for decades to come.
Thank you.
Pierfrancesco Maran
Thank you to all of our guest speakers. Now we have the remarks by the Commission, Beatriz Yordi, Director from DG CLIMA.
Beatriz Yordi
Many thanks, Mr. Chairman, and many thanks for the invitation to this public hearing. Just to say a number one point, ETS is working. ETS has reduced 50% of the emissions since it has started, with economic growth of around more than 70%. So that's a factual number, clear. The decarbonization has been done in the power sector, radical decarbonization in the power sector with homegrown energies and more shy decarbonization in industry.
ETS, apart from reducing emissions, is central to competitiveness and decarbonization and to reduce fossil fuel dependence. I mean, the bill that Europeans and industry pay, we are talking about last year 340 billion euros paid on fossil fuels. And this bill is not only paid by industry, I insist, also by citizens. Since the Strait of Hormuz closure, we have paid 24 billion extra cost. So we need, we need investing in more homegrown and clean, clean energies.
There has been different perspectives in the panel and I think this is a rich discussion, but we need to keep predictability of the system. We need to protect investment cycles and we need to reward frontrunners. We cannot, of those industries who have started to invest in decarbonization, suddenly change the rules. We need this long-term stability. Let me just say a little bit also on electricity prices.
We understand that industry is suffering higher gas prices and electricity prices, but let me come back to the 340 billion bill and also a geopolitical risk. On average, ETS amounts for 11% of industry retail prices. For households consumers, we are talking about an average of 6%. And let me clarify that when we talk about electricity prices in Europe, there's no one electricity price in Europe. Countries like Slovakia, Sweden or Spain, or even France, has lower, much lower electricity cost and have lower ETS cost in the electricity price.
So of course countries like Poland or other countries with higher, present higher carbon cost because they have a more carbon intensive industry mix, sorry, energy mix. Just to clarify that commodity, the energy cost, grid charges or tax or levies are a much larger protagonist of the electricity price. But what we are trying to do is adapting in this review of ETS to adapt and orient ETS to a cleaner and modern economy and to a cleaner and modern investment industry. One point that it was not mentioned or a little bit mentioned, one speaker mentioned, the solidarity element. ETS is designed to have a solidarity element.
Not only that revenues can be used for social aspects, that they can be used for social aspects, but also a solidarity between Member States. Just to put some numbers on the table of the ETS. ETS since the starting, 20 years life, has raised 260 billion in revenues for Member States and has raised 255 billion for industry in the form of free allowance. Let me just go without giving too many details because I cannot reveal the entire proposal, we are working on that, it needs to pass College approval before going to Council and Parliament. I can tell you some important elements.
One, we want a more manageable decarbonisation pathway. All this keeping the 90% climate law objective. So more manageable compared to current legislative trajectory. We are talking about the linear reduction factor, what the ETS reduces every year. It needs to be in line with the 90% reduction and also in line with the up to 5% international credits contribution.
Second point is not a surprise, Commission has said that we don't want the international credits in the ETS for different reasons, mainly integrity, but it will be a indirect buffer or indirect effect on ETS. Integration on carbon removals. We would like carbon removals in the ETS. We need double, double objective. One is we need, there is, there is a need to cover the hard-to-abate, hard-to-abate emissions.
It's not a substitution of mitigation, it is a complement of mitigation. And then we also there is, we need the creation of a much needed demand of a kickstart and a scale-up of a nascent removal sector. Another point is the Market Stability Reserve. And a strong invitation to the European Parliament to swiftly adopt the position on what we call MSR 1. Every month that passes, 1/12th of the emission, of the allowances in the MSR are cancelled.
So please, let's adopt this co-decision in a swift manner. A message also to the industry speaker. What we would like is to have enough power, enough firepower in the MSR to stabilize the carbon market through the next decade, but only to exclusively use in situations of a scarcity. It was not a flooring, it's a liquidity buffer and not to put the allowances in the market. As in the ETS review, we will look to other parameters of the MSR and not only this invalidation of allowances.
Appropriate carbon leakage. Very important. And I will mention China and Brazil. China has an ETS. We are working very close with them.
They are putting more solid and we would like to construct on them. But if not, we have the CBAM mechanism, which is a clear very good neighbor of the ETS and very good complement. Brazil is starting an ETS and we would like and we are seeing more markets emerging. Without being naive for those countries that they are not implementing a carbon market, we have our mechanism in the border. But we need an appropriate carbon leakage protection and this will be part of the new review.
So we are assessing the continuation of free allowances, but free allowances should not be free cash and need to become investment allowances for industry to decarbonize. We will seek also to ensure indirect cost compensation in the most appropriate manner. And let me also mention benchmark. The Commission has well noted feedback from industry and is committed to develop specific sector-specific fallback for heat and fuel benchmark as part of the revision. Let me just go also to revenues.
The use of revenues. There is an obligation of member states in the that Parliament insisted to include it in the last revision to be transparent and that 100% of the revenues are invested in clean and climate investment. But there we will need to reinforce that. I mean, example of Italy is that the the last report we have is related to 10 years ago use of the revenues. There is use of hydrogen, there is use on energy efficiency, also on public debt services, but we will need to up up refresh the revenues, refresh the revenues clause that we have.
More transparent and more recent reporting from member state. Only 5% of the revenues of member states go to industry. Only 5%. So it is probably time to reinforce this industrial and cleaning of of the of the industry. Second point, Innovation Fund and it was mentioned by one of the panelists.
As you know, is supporting low-carbon technologies in mainly in energy-intensive industry. Is a key investment. We want to also devote and has been announced the new industrial decarbonization bank, the investment booster, redirecting more revenues towards industrial decarbonization. The ETS machine is not only a reduction of emission and security of supply machine, but also modernization of our industry. This the investment booster, we would like a fast track.
We are talking about 30 billion euro. It will be based on the principle of first come first serve. We would like an agile instrument to be in place.
On the, let me just also mention about speculation. We are, ETS is under the control of European Securities and Market Authorities. So it is a financial instrument and is under the control of this, of this European agency where member states are also in the board and control the instrument. Everything, I mean, no anomaly detected in the functioning of the ETS and is working properly. And there are regular, regular report from this agency.
And just to close and not go further than my 10 minutes, just to finalise, the EU ETS should remain a clear, unambiguous, rule-based system. This has created the strong trust required for the carbon market to function, to reward frontrunners and to give a long-term signal driving investment and innovation for the next decade also. Many thanks.
Emma Ytterell
Yes, thank you Chair, I have a point of order because I just want to address that a colleague titled our speakers as lobbyists. And I want to stress that questioning or mocking experts from organisations that we as a committee coordinators jointly invited is really not appropriate behaviour for this committee and I want to apologise to the speaker for questioning your expertise. Thank you.
Pierfrancesco Maran
Thank you, I agree and I share the apologise. Now we conclude our hearing. I thank all our guest speaker. I hope it has been useful for all the colleagues and it will help our debate after the proposal of the Commission. We will continue our work of the committee at 2:30 PM.
Thank you, see you later.
Jean-Pierre Dupont
Before we begin, I would like to remind everyone of the rules of procedure for this hearing. Each speaker will have five minutes for their opening statement, followed by a question and answer session. Please keep your comments brief and focused on the topic at hand. I would also like to remind you that this hearing is being recorded and will be made available to the public. Now, without further ado, I would like to introduce our first speaker, Dr. Elena Rossi, a leading expert in climate science and biodiversity.
Dr. Rossi, the floor is yours.
Thank you, Mr. Chairman, and thank you for the opportunity to speak here today. Climate change is no longer a distant threat; it is a reality that is already having a profound impact on our planet's biodiversity. In Europe, we are seeing shifts in species distributions, changes in the timing of biological events, and an increase in the frequency and intensity of extreme weather events. These changes are putting immense pressure on our ecosystems and the services they provide, such as clean water, pollination, and carbon sequestration. If we do not take urgent action to reduce greenhouse gas emissions and protect our natural habitats, we risk losing many of the species that make Europe's biodiversity so unique.
My research has shown that even a small increase in global temperatures can have a significant impact on the survival of certain species. For example, many alpine species are already being forced to move to higher altitudes to find suitable habitats, but there is only so much higher they can go. Similarly, many coastal ecosystems are being threatened by rising sea levels and increased storm surges. We need to act now to protect these vulnerable ecosystems and the species that depend on them. This means not only reducing our emissions but also investing in nature-based solutions, such as reforestation and the restoration of wetlands.
These solutions can help us to both mitigate and adapt to the impacts of climate change while also providing numerous other benefits for people and the planet. Thank you.
Thank you, Dr. Rossi, for that sobering but important presentation. Our next speaker is Mr. Jean-Pierre Dupont, a representative from the European Environmental Agency. Mr. Dupont, please.
Jean-Pierre Dupont
Thank you, Mr. Chairman. The European Environmental Agency has been monitoring the state of Europe's environment for many years, and our latest reports confirm the trends that Dr. Rossi has just described. We are seeing a clear link between climate change and the loss of biodiversity across the continent. One of the most concerning trends is the decline in pollinator populations, such as bees and butterflies. These species are essential for our food security and the health of our ecosystems, yet they are being hit hard by a combination of climate change, habitat loss, and pesticide use.
We also see that many of our protected areas are no longer sufficient to protect the species they were designed to safeguard. As species move in response to climate change, they often find themselves outside the boundaries of these protected areas, where they are more vulnerable to human activities. We need a more flexible and integrated approach to conservation that takes into account the dynamic nature of our ecosystems in a changing climate. This includes creating ecological corridors that allow species to move between different habitats and ensuring that our land-use policies are compatible with the needs of biodiversity. The European Green Deal provides a unique opportunity to address these challenges in a holistic way.
By integrating biodiversity considerations into all of our policies, from agriculture to energy, we can create a more resilient and sustainable future for Europe. Thank you.
Thank you, Mr. Dupont. We will now open the floor for questions from the members of the committee. Please raise your hand if you would like to ask a question. Yes, Ms. Schmidt.
Thank you, Mr. Chairman. I have a question for Dr. Rossi. You mentioned the importance of nature-based solutions. Could you elaborate on how these solutions can be implemented at scale across Europe, and what the main barriers to their implementation are?
Julien Rossi
That's a very good question, Ms. Schmidt. Implementing nature-based solutions at scale requires a coordinated effort across different sectors and levels of government. One of the main barriers is the lack of financial incentives for landowners and businesses to invest in these solutions. We need to find ways to value the ecosystem services that these solutions provide and to ensure that those who invest in them are fairly compensated. Another barrier is the lack of knowledge and expertise in how to design and implement these solutions effectively.
We need to invest in research and training to ensure that we have the skills and tools needed to scale up these solutions. Finally, we need to overcome the institutional and regulatory barriers that often make it difficult to implement nature-based solutions. This means streamlining our planning processes and ensuring that our policies are supportive of these solutions.
Speaker 65
Good morning, everyone. Welcome to this public hearing on the European Citizens' Initiative, Fur Free Europe. This hearing is organized by the Committee on Agriculture and Rural Development and the Committee on the Environment, Public Health and Food Safety, in association with the Committee on Petitions. I would like to welcome the organizers of the initiative, the representatives of the other European institutions, and all the participants. The Fur Free Europe initiative was submitted to the European Commission on the 14th of June 2023, after having collected more than 1.5 million valid signatures.
The initiative calls for a ban on the keeping and killing of animals for the sole or main purpose of fur production, as well as a ban on placing farmed animal fur and products containing such fur on the EU market. This is the 10th successful European Citizens' Initiative since the tool was introduced in 2012. It shows the high level of interest and engagement of European citizens in animal welfare issues. The purpose of today's hearing is to provide the organizers with the opportunity to present their initiative and to have a structured debate with the members of the European Parliament and the European Commission. The hearing is divided into three parts.
In the first part, the organizers will present the objectives and the reasons behind their initiative. In the second part, we will have a discussion on the scientific and technical aspects of fur farming and its impact on animal welfare, public health, and the environment. In the third part, we will focus on the economic and social consequences of a potential ban on fur farming and the trade of fur products in the EU. Each part will include a presentation by the organizers, followed by a round of questions and comments from the members of the European Parliament and the response from the organizers. The European Commission will also have the opportunity to react to the initiative and the points raised during the hearing.
I would like to remind you that the hearing is being webstreamed and that interpretation is available in several languages. I also ask you to respect the speaking time and to be concise in your interventions. Without further ado, I give the floor to the organizers of the Fur Free Europe initiative for their opening presentation. You have 10 minutes. Please, the floor is yours.
Thank you very much, Mr. Chairman. Honorable members of the European Parliament, representatives of the European Commission, ladies and gentlemen. It is a great honor for us to be here today to present the Fur Free Europe initiative. This initiative is the result of a massive mobilization of European citizens who want to see an end to the cruel and unnecessary practice of fur farming in the European Union. As the Chairman mentioned, we have collected more than 1.5 million valid signatures from all 27 member states, exceeding the required threshold in 18 of them.
This is a clear signal that the European public opinion is overwhelmingly in favor of a fur-free Europe. Our initiative has two main demands. First, a ban on the keeping and killing of animals for the sole or main purpose of fur production. Second, a ban on placing farmed animal fur and products containing such fur on the EU market. Why are we asking for this?
Because fur farming is inherently cruel and incompatible with the basic principles of animal welfare. Animals kept for fur, such as mink, foxes, and raccoon dogs, are wild animals that cannot adapt to life in small wire cages. They suffer from severe physical and psychological problems, such as self-mutilation, stereotypic behavior, and untreated wounds. The methods used to kill them, such as gassing or electrocution, are also extremely painful and stressful. Furthermore, fur farming poses a significant risk to public health, as demonstrated by the COVID-19 outbreaks in mink farms across Europe.
These farms can act as reservoirs and incubators for zoonotic diseases, which can mutate and spread to humans. Fur farming also has a negative impact on the environment, due to the use of toxic chemicals in the processing of fur and the high carbon footprint of fur production compared to other materials. Finally, fur farming is no longer economically viable or socially acceptable. Many member states have already banned or restricted fur farming, and many fashion brands and retailers have committed to going fur-free. The EU should follow this trend and create a level playing field by introducing a union-wide ban.
We believe that the European Union has the legal competence and the moral duty to act on this issue. The Treaty on the Functioning of the European Union recognizes animals as sentient beings and requires the Union and the member states to pay full regard to their welfare requirements. A ban on fur farming and trade would be a significant step forward in the protection of animals and the promotion of a more ethical and sustainable European Union. We thank you for your attention and we look forward to the discussion.
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