EU plans slower CO2 cuts, more free permits for industry in carbon market overhaul

By Kate Abnett

BRUSSELS, July 8 (Reuters) - The European Union could allow industry to emit CO2 for longer and give companies more free carbon permits under plans drafted by the bloc to make its emissions trading system more flexible, a European Commission official said on Wednesday.

• The EU ETS is the bloc's main policy for addressing climate change. It forces power plants, industries, shipping firms and airlines to buy permits when they emit CO2, providing a financial incentive to pollute as little as possible.

• The Commission will propose an overhaul of the ETS on July 17.

• The revision aims to align the ETS with a target passed by the bloc last year to cut overall EU emissions by 90% by 2040, and address some governments' concerns that the scheme hampers European industries' competitiveness.

• The Commission will propose extending the ETS to let companies keep emitting into the 2040s, said the Commission official, who spoke on condition of anonymity because the plans are not final. In its current form the ETS would effectively cut off emissions in 2039.

• It will also propose giving industries more free CO2 permits, reducing their ETS bill, in exchange for them investing in European decarbonisation, the official said.

• This will include finding a way to give free CO2 permits to industries covered by the EU's carbon border tax for longer, something Brussels had previously said would have to stop when the border levy fully applies in 2034.

• The Commission will also propose fast-tracked changes to the rules determining ​how many free ​emissions permits the ⁠EU gives industries based on heat production and fuel use.

• This plan could grant companies an extra €6 billion ($6.85 billion) in free permits, the official said.

• Other planned changes include lowering the "linear reduction factor" which determines how fast companies in the ETS must cut their emissions each year. Currently, this dictates that emissions fall by 4.3% per year.

• The proposal will also require national governments to spend more of the revenues they collect from the ETS on investing in industries that pay CO2 costs, the official said.

• The proposals are being developed inside the European Commission and could still change. Once published, they must be negotiated and approved by the European Parliament and EU countries, a process that takes months.

• Among the issues still being debated is how and when to integrate international carbon offset credits into the ETS, the official said.

• Brussels also plans to extend a fund that uses revenues from selling CO2 permits to help poorer EU nations transition ​to clean energy, a key demand of nations including Poland.($1 = 0.8763 euros)

(Reporting by Kate Abnett, editing by Inti Landauro and Jan Harvey)