Fortum's response to the EU Commission's consultation on revision of the EU Emission Trading System (ETS). The legislative proposal is expected in mid-2015.
Fortum considers the objectives of the EU ETS to be fully in line with the EU climate policy objectives. Through the use of the market mechanism, ETS, the Union's climate policy supports European competiveness by promoting reductions of greenhouse gas emissions in a cost-effective manner. In Fortum's opinion, ETS is the best tool to provide affordable, reliable and sustainable energy to the EU economy.
The existing ETS, however, does not meet the EU's long-term climate policy objectives. It cannot incentivise the low-carbon investments required to meet the ambitious long-term goals up to 2050. The scheme has to be strengthened by starting the Market Stability Reserve (MSR) as early as possible and followed by a revision of the ETS Directive. Later, it has to be considered whether adding new sectors to the ETS could enable decarbonising the EU in a more cost-effective manner. The sectors to be studied include, e.g., heating, cooling and transport.
The response discusses future free allocation, especially a periodic revision of benchmarks, post-2020 carbon leakage rules and compensation of both direct and indirect costs to industry as well as the establishment of an innovation fund and a modernization fund.
Fortum highlights the importance of setting rules for the compensation of the carbon cost for the industry as far as other regions in the world do not have carbon constraints and costs. The indirect cost arising from increasing energy prices should be compensated based on EU-level criteria. Compensation for the indirect cost should be based on direct financing and not using free allowances. Funding for compensation could originate from e.g. auctioning revenues or VAT on electricity.