OPP Meeting Summary: Environment Council – EU ETS review (28 February 2017)

A summary of the discussion on a general approach on the EU ETS is now available. Following the Environment Council discussion, a general approach, allowing the interinstitutional negotiations, was adopted with a majority of 19 Member States in favour.

Environment Council – 28 February 2017
Review of the Emissions Trading System (ETS)
= General approach
View other related documents and the next stage of the procedure in the Policy Pipeline

First round of talks

Maltese Presidency of the Council of the EU

  • Malta explained that the EU Commission had proposed the proposal already in July 2015 so the file had been in the Council for around a year and a half already and it was politically sensitive. However, it was time to move forward;
  • The EU Parliament had voted on 15 February 2017, giving the rapporteur the mandate to start negotiations. The Slovak presidency had made substantial progress;
  • The Maltese Presidency had made adjustments to the text found in the compromise text;
  • Malta hoped for the “conclusion of the joint effort” and for the Council to agree on a general approach during the current Council. Finally, he assured the delegations that the result of the trilogues would return to the Council and to the European Council.

Commissioner Miguel Arias Cañete

  • He said the EU’s climate commitments needed to be placed in a clear legal framework. He reminded all that the European Council in 2014 had considered the EU ETS as the main tool of the EU’s emission reduction policy. The system would not need to be perfect but to deliver the emission reductions in a cost efficient manner, protect vulnerable sectors and support the low carbon transition where needed. This would create jobs and growth and make the EU seem credible to the outside world;
  • The EU Parliament had showed how difficult it was to agree on the file. However, the political momentum was there. Experts had held around 30 working party meetings on the subject. The remaining text would offer something for all Member States. Reaching an agreement would send a signal to ensure that 2021 January would be the date for the roll out of the EU ETS.


  • Called for a conclusion on the file, especially as there would be a meeting in Rome later on which would celebrate the EU and the EU ETS was also a point on the agenda, as it was the operational part of the Paris agreement;
  • 132 contracting parties had ratified the Paris climate convention but five EU Member States (including Belgium and Croatia) still remained and France felt that they should also ratify on 25 March 2017;
  • The allowance surplus in circulation had a 5 EUR/tonne CO2 price and this would have to be increased;
  • Together with Sweden, the Netherlands and Luxembourg, France had proposed to cancel allowances in the Market Stability Reserve (MSR) if they were there for longer than five years. Accepting this would help protecting sectors exposed to carbon leakage;
  • On the modernization projects of the EU ETS, if the EU was to accept the allowance cancellation, it would be possible for France to adopt a flexible approach to solidarity mechanisms;
  • France also called upon the other Member States to join the “price initiative” under the Paris Agreement and finished by noting that France had launched sovereign green bonds to the tune of 7 billion EUR.


  • Sweden found that the revision of the EU ETS was an essential step in the fight against climate change. The Linear Reduction Factor (LRF) had been agreed before Paris and would have to be reviewed at some point, in Sweden’s opinion;
  • A well-functioning ETS was essential and the price signal must be strengthened. The increased uptake of MSR was supported;
  • There would need to be long-term measures (she referred to the proposal text together with France, Netherlands and Luxembourg). Cancelling allowances after five years would help the predictability of the system;
  • On the auctioning share, the EU Commission’s proposal of 57 % was supported. However, if the validity of allowances proposal was accepted, Sweden could show flexibility on the conditional lowering of the auctioning share;
  • The focus should be on energy efficiency, renewable energy and energy infrastructure.


  • They said they were keen to start negotiations with the EU Parliament. The question was whether the proposal on the table was really Paris-proof. The Dutch representative did not think so. She was ready to reach a deal but it would have to be Paris-proof and in line with the EU’s long term climate goals, she insisted;
  • This meant that the Netherlands could support solidarity mechanisms, if the projects funded through ETS allowances corresponded to the low-carbon transition. More criteria such as emissions performance standards, were also needed;
  • The Dutch considered the proposal on the MSR double uptake positive but much more would be needed to get a meaningful carbon price;
  • She then referred to their initiative with Sweden, Luxembourg and France on the cancelling of allowances and argued that this would strengthen the carbon price in the long term;
  • Allowances should not be taken from the MSR in order to feed the new entrants reserve (NER) and the innovation fund. It would have to be looked at whether the innovation fund would provide sufficient support given the challenges ahead. “Perhaps raising this to 600 million allowances would be a solution, she said and continued: “a LRF of 2.2 % would not get us there, it would have to be raised to 2.4%”;
  • Netherlands also asked the EU Commission to “make a choice for more ambition” as a compromise would probably not be possible. The EU Commission should show leadership, especially as third countries such as China were initiating their own emission trading schemes;
  • If the proposal stayed like this, Netherlands would object, she concluded and added that she did not think they would be the only ones.


  • Luxembourg noted that the proposal for EU ETS had been drafted pre-Paris and thus this new agreement should be credible in relation to the Paris agreement. Those sectors truly exposed to international competition should be focused on and the use of renewables should be supported;
  • The price and surplus made a mockery of the system and therefore she agreed with the previous speakers on the current proposal not being enough. The surplus problem had to be dealt with and the measure on the MSR was welcome but not enough unless the validity of allowances was cancelled;
  • The solidarity mechanisms should only be used to finance clean technologies. Luxembourg could consider a limited reduction of auctionable allowances but only if the carbon price was simultaneously strengthened.

Czech Republic

  • The Czech supported stability, efficiency and predictability of the phase 4, as well as protection of European industry;
  • The text was a good compromise and set clear rules for carbon leakage threats;
  • The Czech Republic could support the conditional reduction of 57 % of auctioned allowances, even more than by 1 %;
  • The supervision of financial mechanisms was also welcomed. Energy efficiency was supported. They also welcomed the MSR allowance transfer doubling;
  • The Czech Republic called for the sending of a positive signal regarding the EU ETS and supported the Maltese general approach.


  • The Finnish representative said a well-functioning EU ETS would be crucial for the 2030 targets and the Paris agreement. Finland appreciated moving to a common position. Finland was concerned about the continuation of the surplus if no extra measures were taken;
  • Finland agreed on the short term options (doubling intake rate of MSR) and support was given to safeguards to energy intensive industries (Finland favoured the two-tier carbon leakage approach and keeping the 30% category as suggested by the Maltese Presidency);
  • Avoiding CSCF was supported and conditionally lowering the auctioning share if the CSCF was triggered;
  • On indirect cost auction revenue use, state aid guidelines should be respected as the issue was a sovereign budgetary right of the Member States. Increased transparency could be agreed to but the proposal to establish additional reporting when auction revenue use went beyond 25 % seemed unreasonable to Finland;
  • Finland was prepared to showing flexibility between the auctioning share and strengthening of the ETS.


  • Croatia called for a balanced approach, especially regarding the competitiveness of EU industries;
  • In order to reach a general approach, more talks would be needed;
  • The doubling of the MSR feeding rate would not need to take place and there should be more analysis in practice;
  • There should be further discussions on setting off indirect costs;
  • Concerning Annex IIa, the Croatian EU accession treaty applied;
  • Croatia thought article 10 on verified emissions for Member States not part of the system in 2005 would ensure consistent harmonisation, including for Croatia.


  • The German representative said it was time to decide and leadership should be shown, by protecting the environment (they welcomed a general approach during the ongoing Council);
  • ETS should be strengthened for a higher level of ambition in climate protection. There should be a proper price signal that would make the system work. However, European industry should be able to function and should be protected, especially as in other parts of the world, people were not as sensible about the environment and there was unfair competition; therefore a balance should be found;
  • Germany could accept both MSR approaches (presidency proposal + long term solution as suggested by Sweden, France, Netherlands and Luxembourg);
  • Concerning carbon leakage “more flexibility was needed” and a move should be made from auctioning to increased free allocation: the percentage figure proposed would not be enough to protect industry and more than 1% was needed. There was a reference to German proposal;
  • The benchmarks should guide the 10% of most efficient installations. For example, for some areas such as steel it was difficult to achieve certain scores and it should be able to adjust; 0.3 % for critical industries was not enough in Germany’s view. The prior benchmarking should be the basis for natural gas, heat and the efficiency of natural gas. Moreover, Germany agreed with the Dutch on qualitative assessment and adjusting the allowances to real production. Around 10 % was probably acceptable;
  • Germany supported the proposal on the solidarity mechanism proposed by Malta but Germany did not want to lock in certain (coal) productions;
  • Whether or not Member States would be involved in delegated acts would also have to be negotiated.


  • The British found that the reform of phase 4 should focus on the surplus which suppressed the price, not sending the right investment signals. This required both a short and long term decision. They also agreed with Sweden on the long term proposal;
  • In relation to carbon leakage, these two issues should be considered together as the stronger price would perhaps drive away industry from Europe;
  • In relation to the solidarity fund, the UK agreed that there should be environmental criteria for the projects. The EIB should be involved;
  • The UK could accept a small reduction of the share of the auctioned allowances in return for the measures mentioned.


  • The Danish representative emphasized the reform and addressing the surplus and tightening up the EU ETS. The doubling of the intake rate of MSR was a good idea but not enough. Longer term initiatives were also needed and the validity limitation in the reserve was supported;
  • If there was a shortage of free allocations, a “as limited as possible” reduction from 57 % could be supported.


  • Italy was in favour of a level playing field. However, the text still contained points to be looked at, for example it did not include a sufficient proposal on dealing with market distortions cost by indirect cost compensations.  Italy would have preferred harmonisation in form of a European fund;
  • Italy felt that there should be at least a percentage limit on how much compensation could be given. The Commission’s supervisory role would be important in this regard;
  • Italy had prepared a proposal together with Spain and also brought up a Court of Justice ruling on the ETS which had called for the “preservation of competition”;
  • In Italy’s view, the CSCF should be avoided because it constituted an arbitrary cut to all free allowances to industrial installations. However, there was the auctioning share proposal of 57 %, with the possibility of 1 % reduction. Italy did not consider this was enough flexibility provided and thought the percentage should be raised to at least 4 %;
  • Italy threatened the others that it had accepted compromises throughout the negotiations but if its questions were not dealt with, there would not be a general agreement to the text.


  • Austria called for swift agreement in the interest of business certainty. Avoiding the Cross Sectoral Correction Factor (CSCF) was a central concern;
  • Austria had assessed the allocations as to the 10 % best plants but a large proportion of the plants had already benefited from substantial deductions. The procedure was acceptable and the system was fair but not all plants should be forced to undergo this reduction. Technical grounds were the way to go. Austria was in favour of a measure of up to 5 % and the 1 % was rather symbolic but could be agreed;
  • Financial resources should be put into innovative projects in renewable energy. High risk technologies could not be funded (against coal and nuclear);
  • Austria was in favour of the 450 kW proposal of France and Germany supported;
  • On indirect costs, broadest possible harmonization was supported to avoid distortions of competition.


  • Portugal stressed its support to EU Commission’s idea of “split of licences” (including 57%). However, this split could not be reviewed alone;
  • Articles 10 c & d were balanced but the projects selected must veritably support clean technology and criteria would be needed;
  • Concerning compensation of indirect carbon costs, Portugal thought more harmonisation and transparency would be needed. A centralized fund would have been preferred and together with Italy, this had been attempted. On the 25 % of auction revenue, the aim was to limit market distortions but those already existed in Portugal’s view;
  • The rules for the opt-out system for small installations should be clarified.


  • Lithuania confirmed its support for the compromise text and invited all to agree.


  • The Spanish representative found that the allowances trading was key to combatting climate change. The compromise went beyond what would be desirable for Spain but also included good parts for Spain;
  • The indirect cost issue had been key and the compromise on reducing the risk of market distortions had been welcomed by Spain;
  • The reference parameters and dynamic allocations of auctionable allowances were also supported. However, the interconnection capacity of Member States should have been considered in the allocation of allowances;
  • Keeping the 57% auction level was supported but changes to the MSR rules were too early in Spain’s view;
  • The financial mechanism should be consistent with the climatic objectives of the EU;
  • Spain confirmed its support for the compromise proposal.


  • Latvia supported the proposal and indicated that it had shown flexibility;
  • On strengthening of the EU ETS, Latvia supported the MSR intake doubling. However, they were critical of the proposed cancellation of allowances;
  • Auctioned allowances support was given to the 57 % EU Commission proposal but 1 % reductions could be accepted;
  • The carbon leakage measures were also accepted. The inclusion of Prodcom measures on carbon leakage were supported but this seemed complicated;
  • On the modernization fund, the latest version of text was balanced but in some places went beyond 2014 European Council statements.


  • Greece welcomed the compromise but found that certain changes needed to be made;
  • Greece supported the vision of a united Europe and was in favour of compensation of indirect costs and the evaluation of Prodcom. The priority should be the efficient reduction of emissions and resources should be pooled;
  • Excessive cost in coal could cause problems in the future;
  • Greece could support the reduction of auctionable allowances;
  • On the doubling of the intake rate of the MSR, Greece considered that this measure could be helpful in channelling more aid to the poorer countries;
  • Greece also gave its support to the “just transition fund” and noted that the financial mechanisms for low GDP countries should use the years 2013 and 2014 as the base years;
  • The Greek inclusion in the modernization fund would be crucial. Greece finished by giving its support to renewable energy measures.


  • The Polish representative said emission reductions had already been achieved in Poland although they were attached to coal;
  • In Poland’s view, the Paris agreement used a different language from the one on the table; it talked about reductions as fast as possible and gave the options of reducing of emissions and absorption. The latter helped minimize problems through soil and forestry regeneration and water measures, which were better for agricultural production;
  • Poland could comply with the “conclusions on 40 %” but “in the spirit of justice the unused allowances should be allowed to be used in the new period”;
  • Polish forests would function as carbon sinks, absorbing 32 million tonnes of CO2/year. Poland also mentioned a Court decision on a waiver on the Commission’s decision on lowering emissions by 76 million tons; Poland said it would at least like to freeze the current levels and increase the role of the Member States in the management of the modernization fund;
  • Poland also retained derogations on the basis of national plans;
  • In the spirit of the Paris agreement which talked about climate neutrality and absorption, Poland stated that it could be climate neutral and climate change was a global problem.


  • Romania considered the time right for an EU ETS position. However, when the results of the implementation of the MSR would be known, the talks should continue. The results of the MSR revision should not be revisited currently;
  • On the solidarity mechanism boosting of investments, these mechanisms were essential for Romania. Projects effective in terms of costs and benefits would be essential. This was guaranteed by the Maltese proposal;
  • The binary system for the compensation of carbon leakage of the EU Commission was also supported by Romania;
  • Romania was ready to negotiate on the indirect cost compensation;
  • Romania noted that the current text already went beyond the 2014 European Council conclusions.


  • Slovenia supported the compromise. The EU ETS had to protect industry but also fight climate change;
  • Additional incentives for a more efficient ETS should be supported, therefore the double intake rate of MSR, a stronger carbon price and the validity deletion of allowances were supported by Slovenia;
  • They also supported the EU Parliament’s approaches and considered that the auction share should be kept at 57 % but conditional and limited lowering of the share could be accepted;
  • Projects financed by the funding mechanisms should focus on clean energy.


  • The Slovakian representative welcomed the Maltese text as a fragile compromise;
  • The EU Parliament’s proposal had similarities but also some differences. The Council should thus agree on its approach.


  • Estonia supported reaching a general approach on the file;
  • Avoidance of the CSCF was an important goal;
  • The proposal sufficiently safeguarded the industrial sector from carbon leakage;
  • Making changes to the MSR was an effective measure to enhance market predictability.


  • Belgium emphasized proper protection against carbon leakage. The EU Parliament had opted to tackle the essential points and had decided to go further than the Council;
  • Belgium was pushing for extra-structural measures to strengthen the carbon price in the short term and supported doubling the MSR in 2019 (this was already in the Maltese text) but this was not enough;
  • Belgium was also pleading in favour of taking 900 million allowances out of the reserve and annulled in 2021. Alternative approaches could however be entertained;
  • Concerning bringing down the auction share, the text did not offer enough guarantees to have protection against carbon leakage. The ability to compete should be protected and there should be enough free allocations to firms exposed to loss of competitivity;
  • The triggering of the CSCF should be avoided and the bringing down by 1 % of the auction share of 57% was a step in the right of direction but not enough (bringing down the share by 5 % was asked). If there could be no agreement on the auction share and 5 %, there would have to be other options such as “getting rid of sectors which are not exposed to carbon leakage”;
  • Belgium considered that the framework for benchmarks should be realistic and based on analysis;
  • Belgium agreed on continuing and setting up of a modernisation fund; the modalities could be agreed in a flexible way if the carbon price and carbon leakage parts were agreed upon;
  • Co-financing, e.g. for the innovation fund, should be applied for the financial mechanisms which had been the view of the EU Parliament too;
  • It should be avoided that financial mechanisms lead to lock-ins (e.g. by supporting new coal power stations).


  • Bulgaria was ready to support most of the proposals;
  • Changes to the MSR were not welcome, (without an impact assessment);
  • Additional measures to strengthen ETS were premature and should only be studied and considered in a few years’ time;
  • Bulgaria could not support the general approach due to the MSR measures suggested.  


  • Ireland found that significant progress had been made and a fair outcome was on its way;
  • The text was a good balance and trilogues should start. Ireland urged colleagues to progress on the file.


  • The Cypriot representative applauded the efforts made. However, the efforts to strengthen the ETS should be made in an efficient and fair way;
  • They agreed on the EU Commission’s approach on 57% but could accept a slightly different proposal;
  • On strengthening the EU ETS, the increase in the LRF would be a good solution and would have a positive effect on the allowance price;
  • Cyprus was concerned about the MSR doubling intake and cancelling the reserve rights.
  • They were in favour of an inclusion of Greece in the modernisation fund.


  • The Hungarian representative was sad to announce that the text was not in line with Hungarian preferences, including concerning agreements in sectors inside and outside of ETS;
  • In Hungary’s view, European Council in March could discuss ETS issues and the ETS general approach could be adopted in June, as the Presidency had planned an agreement on non-ETS at that moment anyway;
  • Hungary explained that it wanted to secure competitiveness and job creation. Therefore, the protection for industry after 2020 and the carbon leakage list were the biggest issues. The reduction of the threshold value of the quality assessment to 0.12 % was a red line for Hungary but the decrease in the auction share could be accepted;
  • On the strengthening of ETS, there were measures such as backloading and MSR already agreed. It would not be wise to reopen discussions on this, Hungary thought;
  • Industry and stakeholders should be provided with legal certainty. In October 2014, the European Council set the 2030 climate objectives; this level had been a sensitive balance and it should not be disturbed;
  • No proposals such as annulment of allowances or cancellations of validity could be supported;
  • On the modernisation fund, Hungary could accept the proposal;
  • Hungary stressed that a text, whose content was not finished, should not be adopted.

Commissioner Miguel Arias Cañete

  • He said this package was a good starting point for trilogues;
  • Addressing the Dutch request to show leadership, he said that the EU Commission had already shown ambition pre-Paris;
  • The EU Parliament had made positive amendments. The Council now had the responsibility to take the talks further.

Maltese Presidency of the Council of the EU

  • The representative summed up that there would need to be more talks on the text. The presidency would work on a compromise which would be circulated during lunch. He finished that “this would be the Council’s “carpe diem” moment, calling for the delegations to reach a compromise.

Second round of talks

Maltese Presidency of the Council of the EU

  • The representative announced there was a delicate balance on the table and that the new text had been distributed to the delegations (a period, where the delegations examined the proposal, followed);
  • The Maltese Presidency asked which delegations could “not live with the proposal” (and some delegations raised their hands);
  • The Presidency then confirmed that “there was a general approach although some Member States had reservations”.


  • The Dutch representative had comments on the procedure, e.g. she did not think the way of working was correct for such an important issue;
  • On article 5 a, there was a new suggestion on “above 650 million allowances” to be cancelled from the reserve (MSR) three years after the review. However, some Member States thought this would happen annually – like the Swedish-led proposal had suggested – and some thought it was a one-off measure. Before voting, it should be clear what the delegations were voting on;
  • She also criticized the Maltese Presidency for their conduct of the negotiations. Moreover, she asked the Presidency to “make clear there was no blocking minority” if they voted. The Presidency kept claiming there was a qualified majority but she was not certain of it (please note that there were two proposals under discussion concerning the MSR at this stage, a Maltese compromise and a Czech one).


  • Poland found there was indeed a blocking minority, as the old voting system was still in place;
  • The representative asked for a check and agreed with the Netherlands that the procedure handling was not conducted correctly.

Czech Republic

  • The Czech representative said he believed in a compromise text which would also be supported by Sweden and France;
  • References to the absolute limits should be kept on a general level in article 5 A, he said, and read out the Czech suggestion according to which (basically after 2024), a “certain amount of allowances exceeding a certain limit” and not auctioned would expire at the end of the year. He also specified to the Dutch colleague that this would be an annual review exercise (please note that this proposal was subsequently backed by the Environment Council).


  • The French representative thanked the Presidency for its efforts on a balanced compromise. “The Council was getting there”, he thought;
  • On the strengthening aspect, he agreed with the Czech. The compromise and the drafting of the Czech would be the most likely to be backed.


  • The Luxembourgish representative said she would have liked to have clarifications on the “annual or not” nature of the most recent modifications. After solving this, the Council would be very near to agreement.

Commissioner Miguel Arias Cañete

  • He clarified that the Maltese text proposal was a “one off” suggestion whereas the Czech proposal was annual.


  • Sweden supported the text by the Czech delegation and said it was good and clear on what had also been the purpose of the Swedish-led proposal earlier and widely supported by the Member States; namely that it should be during each following year that the allowances should be taken out of the reserve;
  • The compromise of increasing the share of reduction from the auctioning part of ETS could also be supported by Sweden. This would satisfy all.


  • The Hungarian representative said that the aim would be to reach agreement but a situation could not be afforded where industries would be worse off post-2020;
  • She criticized the fact that the Hungarian proposal on quality criteria had not even been considered (0.12 % reduction, in line with the EU Parliament);
  • During the Council meeting, industry had thanked Hungary for their proposal;
  • The current text was even more ambitious than the previous one. Hungary could not accept it;
  • During further negotiations, the maintenance of the competitiveness of industry should be considered.

Maltese Presidency of the Council of the EU

  • The representative asked the delegations in favour of the general approach to raise their flags. He then explained that the Council had examined the Presidency document and had consequently agreed on the general approach. After trilogues, the file would return to the Council of the EU and European Council before the final agreement.

Commissioner Miguel Arias Cañete

  • He thanked in particular the Swedish-led coalition and the Czech Republic (please also note that during a press conference later on, he explained that the Council had agreed on a possible 2 percentage points reduction to the auctioning share from 57 to 55 %).


  • Poland asked for a check of the blocking minority. There had been one already, he argued, but the text had been changed. However, the Presidency said there was no blocking minority.

Maltese Presidency of the Council of the EU

  • The representative said there was no blocking minority and asked the Council’s legal service to clarify the situation.

Legal service of the Council of the EU

  • The representative clarified that there had been 17 Member States in favour of the first proposal and after the revisions to the text, 19 Member States had been in favour, so on both occasions there had been a qualified majority (also over 70 % of the EU population covered).

Maltese Presidency of the Council of the EU

  • The representative announced that a general approach had been adopted.

Legal service of the Council of the EU

  • The representative further clarified that no formal vote had been taken as this was a general approach and not a formal stage of the legal procedure;
  • 31 March 2017 would mark the end of old voting rules. Calculations for acts to be adopted after that date would have to be made according to the new voting rules.


  • The Hungarian representative said there had been nine Member States not supporting the text;
  • The European Council decision from 2014 had called for a consensus and this text was far from one.

Maltese Presidency of the Council of the EU

  • The representative took note of this.


  • The Italian representative said their vote was against due to the method that led them there;
  • All countries had had to yield to something;
  • The Italian concerns raised in the morning had not been taken into account;
  • Amending the text at the last minute had been a mistake.


  • Poland asked taking note of the Polish position;
  • Poland felt deceived;
  • The commitments should be made in consensus and Poland should be able to decide on its energy mix.

Maltese Presidency of the Council of the EU

  • The representative explained that this was a general approach and the matter would still be referred back to the Council. At that moment, votes could be made (addressing himself mainly to Poland);
  • What mattered now was to make progress;
  • The general approach had been reached.

Source: One Policy Place

The simultaneous interpretation of debates provided by the European Parliament serves only to facilitate communication amongst the participants in the meeting. It does not constitute an authentic record of proceedings. One Policy Place uses these translations so this text is only a guide and should not be relied on as an official account of the meeting. Only the original speech or the revised written translation of that speech is authentic.

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