Oct 08 2017

ETS Trilogue: agreement within sight on ETS Innovation Fund?

Scope-widening idea #1: products

In May, the Council agreed to extend ETS Innovation Fund’s scope beyond processes to products, proposing to insert “as well as products” into the European Commission’s proposal. At the trilogue of 27 June, the Parliament insisted on keeping its wording, “products substituting carbon intensive materials”, because it felt this would free ETS Innovation Fund to develop materials that provide the same service as ones produced by energy-intensive industries, but that come from entirely different industries and lower-carbon supply chains. The Council accepted. The Parliament’s text was taken up in the revised negotiating mandate handed by COREPER to the Estonian Presidency in Sept 2017.

Setting ETS Innovation Fund on this course will be difficult. As shown below (under heading ‘60% vs 75% and 40% vs 60%’), both Parliament and Council (known collectively as ‘the legislator’) want a considerable proportion of support to be “dependent on verified avoidance of greenhouse gas emissions”. To “verify” avoidance, the substitution of carbon-intensive materials will have to be proved. This will not be easy.

    Missing an “in”

    The current text relating to products could be interpreted in two ways. It could be, “ETS Innovation Fund supports products substituting carbon intensive ones”, which implies various market-pull policies like price support to encourage end-consumers to shift from one product to another. It could alternatively be, “ETS Innovation Fund supports innovation in products substituting carbon intensive ones”.

    It remains to be seen whether the legislator chooses to remove this ambiguity. One way to allow only the latter interpretation would be by inserting the word “in” before “products”:

    …shall be available to support innovation in low-carbon technologies and processes, including environmentally safe carbon capture and utilisation (CCU) that contributes substantially to mitigate climate change, as well as in products substituting carbon intensive ones produced, in […] sectors listed in Annex I

Scope-widening idea #2: breakthrough technologies

Another idea of the European Parliament’s to be taken by up the Council at the last minute is to open ETS Innovation Fund to “breakthrough technologies”. This text appears in the Oct 2 update to its negotiating mandate: “Technologies receiving support shall not yet be commercially available, but shall represent breakthrough solutions or be sufficiently mature to be ready for demonstration at pre-commercial scale”. The word “or” suggests that the legislator sees these categories as distinct. The EC, for its part, thinks breakthrough technology is already within the scope of its proposals for ETS Innovation Fund. This is clear from the references to “breakthrough” that appear throughout its explanation of its design, written in 2015.

If the phrase “breakthrough technologies or” nonetheless nudges ETS Innovation Fund towards less mature technologies, the need to deliver “verifiable greenhouse gas avoidance” puts a limit on how speculative they can be.

What size of fund?

Commissioner Cañete wanted Parliament and Council to meet each other somewhere between their respective positions, but Council seems willing to negotiate only on the source of the allowances, not the final amount (see Oct 2 negotiating mandate update), which is left as per the EC’s proposal of 400 M. This website made the prediction in January that allowances from both the auctioned and free-allocated parts of the ETS would feed the ETS Innovation Fund. It remains to be seen whether the second part of the prediction, namely that the origin of allowances will be used to justify an ex-ante split between the shares of the pot going to energy vs industry projects, will come to pass. The European Parliament wants allowances to be taken from the auctioned share. The Council wants the first 300 M to come from the freely-allocated share and 100 M from the auctioned share.

Council ignores “leverage instruments”

The Council has ignored the Parliament’s reference to “leverage instruments”. If the final text omits this reference, it will be difficult for the Commission to create a “fund” from ETS resources in the sense of portfolio of investments that generates a return. It would still at least be possible for part of the allowances to be put towards Innovfin EDP or a similar debt instrument. This is compatible with the primary legislation behind the NER300 Decision, which the primary legislation behind ETS Innovation Fund will closely resemble.

60% vs 75% and 40% vs 60%

The Parliament wants the relevant costs of projects to be supported up to 75%, instead of 60% as proposed by the Commission. Up to 60% of this support would be paid out on the achievement of milestones in project development on the way to becoming operational, instead of 40%. The Council is open to compromise.

All wrapped up on time?

In a statement to NER400.com just before the Sept trilogue, Fredrick Federley (MEP representing the committee with co-lead on ETS Innovation Fund, ITRE, in the trilogue) said, “We see the Council’s position as a first bid. This is not going to be settled today. The Council has moved a bit but many details remain to be sorted out, such as sourcing of the fund.” The expectation, however, is that agreement on all points will be reached at the next trilogue on October 12. This will allow the EU to go to the next major UN climate conference in Bonn 6-17 November with its house in order.

  1. NER400.com’s comment

    Opaque like many other trilogues

    Last year the European Ombudsman Emily O’Reilly published recommendations on improving the transparency of trilogues. She came out against publishing the versions of the evolving agreement that are produced before each meeting because “the public” might get the idea that the text they contain is “set in stone”. Her recommendation continues,

    The public, which might not be aware of the delicate negotiating strategies of the co-legislators regarding such concessions, could be seriously misled. Facing such a risk, participants might refrain from making any serious concessions. Thus, early disclosure could potentially damage the negotiation process.

    — Para 54 OI/8/2015/JAS

    This, of course, is utterly bogus. Firstly, who is “the public”? Probably not the proverbial man-in-the-street, but the rather the policy wonk, clued-up on the lawmaking process. If a trilogue concerns a newsworthy topic, then the man-in-the-street will mostly likely learn of it through a reporter or commentator who is familiar with the workings of the EU and able to explain them. Trilogue texts already contain flags saying that the text can change, e.g. as at the link above where a compromise is offered “in the context of the overall package”.

    Secondly, even accepting that there may exist a group of people who are obsessed with following trilogues but who are too stupid to absorb the concept of nothing-being-agreed-until-everything-is-agreed, it is preposterous that lawmaking could be impaired as a consequence. This would never be allowed in any other context. Arcane procedures are used to carry out parliamentary business in democracies across the world all the time.

    To her credit, O’Reilly seems to acknowledge this. Her recommendations will allow greater scrutiny of this increasingly used procedure. The paragraph including the phrases above is the only one of the 69 to start with a qualifier: “It is arguable that…”, hinting at the arguments she may have had with those fighting to keep interim versions of the agreement secret.

    Half a year after O’Reilly published her recommendations, trilogues again came in for criticism.

    ***UPDATE 11 Oct 2017: The Ombudsman’s office has written to NER400.com referring to a letter sent to the EC insisting on timely and substantive follow-up on her recommendations. She has asked for a response from the EC by 30 November 2017, and, in identical letters, responses from the European Parliament and Council. Reference is also made to a case before the European Court of Justice, De Capitani v Parliament (T-540/15), which covers access to the evolving agreement reached between Parliament and Council during trilogues, known as the “4-column document”.