The Secretary of State for the Environment, Hugo Morán, demands in Luxembourg to maintain the emissions reduction trajectory and allocate a "significant and predictable" portion of carbon market revenues to electrification and industrial efficiency.
The EU Emissions Trading System (ETS) covers around 11,000 installations responsible for 40% of the block's CO2 emissions and, since its inception, has contributed to reducing them by 47% in the regulated sectors, according to analysis released by ecosistemastartup.com. The reform that the European Commission presented in July is now being debated, which once again divided the Twenty-Seven at the Environment Council held in Luxembourg on Monday.
Spain arrived with a defined position: to maintain a demanding emissions reduction trajectory, but with funding and safeguards to prevent industry from relocating its production outside the continent. The Secretary of State for the Environment, Hugo Morán, summarised it this way:
“Decarbonisation is not an obstacle to competitiveness; it is a condition for reducing our dependence on fossil fuels, strengthening strategic autonomy, and mobilising clean investment in Europe.”
The Spanish delegation argued that the ETS must remain "the main instrument of the EU's climate policy" and advocated that the pace of emission rights withdrawal should start from the most demanding trajectory planned for 2036-2040. This implies fewer permits available each year to progressively push companies to pollute less.
The nuance introduced by Spain directly affects any industrial company: any easing of those requirements from 2036 should only be allowed if there is a sufficient volume of high-quality international carbon credits, understood as offsets for CO2 reduction projects carried out outside the EU.
Morán also supported two initiatives that change the climate financing landscape: the creation of an Industrial Decarbonisation Bank and that a "significant and predictable" portion of carbon market revenues be allocated to investments in electrification, efficiency, storage, and sustainable fuels.
Brussels proposes that member states must allocate at least 50% of auction revenues from rights to decarbonise the sectors covered by the ETS. Currently, only around 5% of those resources are directly dedicated to that purpose, a figure confirmed by the European Steel Association (EUROFER): less than 5% of the revenues managed by states are invested in industrial decarbonisation.
The reform presented by the European Commission in July adapts the mechanism to the goal of reducing community emissions by 90% by 2040. The central change lies in the pace at which permits are withdrawn from the market.
The annual cut would change from the 4.4% planned for the end of this decade to 3.7% between 2031 and 2035, and to 1.7% between 2036 and 2040. In practice, industries would have more rights and for a longer time, and the system could function predictably until the mid-2040s.
In exchange, Brussels tightens the conditions for continuing to receive free allocations after 2030: 80% would be granted once the company presents its investment plan to reduce its carbon footprint, and the remaining 20% only when it proves that it has executed it. Companies that relocate their production outside the EU would lose the right to those allocations, while those already leading in emissions reduction or receiving funding from the Innovation Fund or the future Decarbonisation Bank would be exempt.
Other changes that the Commission put on the table include the incorporation of high-quality international credits from 2036, equivalent to up to 2% of the ETS volume, with quality criteria to be reviewed in 2033; the integration of 150 million tonnes of permanent carbon absorptions generated within the EU; and the reform of the Market Stability Reserve, which would reduce the annual rate at which it absorbs circulating rights from 24% to 12%.
The new Industrial Decarbonisation Bank would have emission rights valued at around 100 billion euros and would be deployed in two phases: a temporary mechanism to accelerate investments and, from 2031, a system of carbon contracts for differences awarded by auction.
For the sectors covered by the Carbon Border Adjustment Mechanism (CBAM), the elimination of free rights is slowed down and extended until 2038, with a reference auction amounting to 6 billion euros.
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