The European Union should boost its clean technology fund and adopt a more targeted approach to allocating free carbon permits to keep industry from moving abroad to avoid pollution curbs, a leading EU carbon policymaker said on Friday.
Fredrick Federley, who is drafting the European Parliament industry committee's proposals for reform of the EU emissions trading system (ETS) to be published next week, said he wants to add 150 million unallocated allowances to the innovation fund.
The Parliament is reviewing a European Commission reform proposal, which calls for 400 million allowances to go to low-carbon technologies and will reduce the share of free carbon permits handed out after 2020.
The extra funds -- worth some 750 million euros at a price of 5 euros per carbon permit -- would be earmarked for non-energy heavy industry, not utilities, Federley said. It could cover up to 60 percent of the costs of low-carbon projects.
"The ETS should not be a system for driving industry out of Europe but one where you drive innovation," Federley told Reuters.
He wants to amend the Commission proposal to allow for a more tiered approach, allocating more free permits to industries most at risk of relocating in what is known as "carbon leakage".
"Not all sectors are at risk," Federley said. "And we are also addressing a risk -- not a fact."
Doing so would help avoid triggering reductions for all sectors caused by a cap on overall allocations. Industry has been united in opposing what is known as the cross-sectoral correction factor (CSCF), saying it would penalize even the cleanest plants.
Due to the CSCF, some industries promised 100 percent free permits will only get 83 percent in practice next year, Federley said. The EU executive, however, has said it thinks it unlikely the CSCF would be triggered.
'DEVIL IN THE DETAIL'Ten years since launching what aims to be the EU's flagship climate policy, the plan to reduce the sweeteners to some of Europe's biggest employers aims to fix a system in which oversupply is depressing prices.
The EU executive proposes to cut to 50 from 180 the list of industries getting handouts, worrying some sectors.
"We fear the discussion is turning around which big sector can we throw out," said Ken Coppenholle, who heads the European Cement Association.
Britain and France are among those calling for the tiered approach, but the Commission has steered clear of the trickier calculations.
"The devil is in the detail," European Climate Action and Energy Commissioner Miguel Arias Canete said this year. "The problem is where to put boundaries between sectors."
So far the Commission says it sees no evidence of carbon leakage. But with a global carbon market still far off, multinationals say even the potential of higher carbon price in the future is sending investment elsewhere.