Jan 15 2017

Wrap-up of 2016: state of play in European Parliament and Council

This article is adapted from a piece written for Carbon Pulse of 15 Dec 2016.

The end of 2016 saw the two lead committees on ETS Innovation Fund in the European Parliament, ITRE and ENVI (shorthanded to “European Parliament” in the rest of this piece), adopt their amendments to the European Commission’s (EC’s) proposals. First ITRE voted, on 10 Nov; then ENVI on 15 Dec.

Member States were not ready to adopt their set of amendments on the Emissions Trading Scheme at the Environment Council meeting of 19 Dec, but from the document reflecting the state of their discussions, and their statements in the meeting (Sweden, Luxemburg, Czech Republic, Germany, Estonia), it looks like their position on ETS Innovation Fund is settled.

European Parliament going for a big and generous Innovation Fund — Council reluctant to follow

Like ITRE, ENVI wants a bigger Innovation Fund, made up of 600 million allowances, not the 400 million proposed by the EC. The EC had proposed that a maximum of 15% of the allowances could go to one project. MEPs did not decrease this limit to compensate the increased size of the Fund.

Innovation Fund’s predecessor, NER300, capped “relevant costs” at 50%, and this equated, typically, to around 30-40% of project CAPEX. ENVI voted to be more generous with Innovation Fund, allowing requests of up to 75% of relevant costs, but MEPs never put forward analysis to support that decision. The Commission did not set a good example: its defence of a 60% cap, set out in the Impact Assessment accompanying its proposals, is threadbare (see this article for more). The Council sticks with the EC’s cap nonetheless.

Enlarged scope: European Parliament and Council want funding for energy storage technologies

The co-legislators want ETS Innovation Fund’s scope enlarged: energy storage technologies should be included. They underlined the need to fund CCU — carbon capture and use, which was implicitly already covered by the EC’s proposal — where it “contributes substantially to mitigating climate change” (Council’s phrasing). The European Parliament also underlined bio-based materials.

European Parliament wants even looser link between project performance and award payout

ENVI Rapporteur Ian Duncan was keen to break the link between a project’s performance and its right to keep its award. The Committee took up his suggestion to allow up to 60% of the award to be paid out on effort alone: provided a project meets milestones in construction and commissioning it can keep up to 60% of its award. This would mean, in the extreme case, that only 40% would be payable on the project actually working.

The Member States prefer not to depart from the Commission’s proposals, by which no more than 40% of the award may be paid out on effort alone.

Council makes the 50 M EUAs from the Market Stability Reserve an integral part of ETS Innovation Fund

The Council re-arranged the EC’s text relating to ETS Innovation Fund to more clearly show that the 400 M carbon allowances for ETS Innovation Fund and 50 M allowances from the Market Stability Reserve will be put towards one and the same funding programme.

European Parliament votes for fuzzier selection criteria

MEPs want energy projects in the ETS Innovation Fund to be selected in part for their “future prospects to significantly lower the costs of transitioning towards low-emissions energy production”. Again, the Council prefers the Commission’s language, namely to use “objective and transparent” selection criteria. This was the principle that governed NER300’s design, interpreted in the NER300 Decision to mean that all projects would compete on a measure known as “cost-per-unit-performance”. That measure allowed the many and disparate renewable energy projects to be compared with each other, and was computable from nothing more than those projects’ internal financial and production forecasts.

Roland Schulze, the EC’s counterpart in the European Investment Bank for NER300, gave his views on ETS Innovation Fund’s selection process on 16 Jun 2016.