1.On 15 July 2015, the Commission Adopted a Proposal for a Directive of the European Parliament

I. INTRODUCTION

1.On 15 July 2015, the Commission adopted a proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments[1]. The proposal aims to translate into legislation the guidance set out in the European Council conclusions of 23-24 October 2014 for the ETS sectors.

2.The European Economic and Social Committee and the Committee of the Regions adopted their opinions on 9 December 2015 and 7 April 2016, respectively.

3.The Committee on the Environment, Public Health and Food Safety (ENVI) of the European Parliament (EP) voted on the Rapporteur's draft report on 15 December 2016. On 15 February 2017, the EP voted on the amendments in plenary and gave the Rapporteur a mandate to start negotiations with the Council.

4.On 28 February 2017, the Council reached a general approach on the proposal, which was the basis for discussions at the first informal trilogueon 4 April 2017. The co-legislators agreed to structure the future negotiations based on the so-called "triangle of interrelated issues", i.e., the strengthening of the ETS, free allocation/carbon leakage, and the low-carbon funding mechanisms.

5.On 19 May, the Permanent Representatives Committee (Coreper) agreed on a revised mandate for the Presidency, which served as the basis for discussions at the second and third trilogues, which were held on 27 June and 10 July, respectively. On 8 September, Coreper agreed on a revised mandate for the Presidency with a view to the fourth political trilogue, which was held on 13 September 2017.

6.Six tripartite meetings at technical level have been held so far (26 April, 4 May, 1 and 20 June, 12 July and 28 September).

7.Tangible progress was made at the last informal trilogue and a number of points were provisionally agreed, on the understanding that nothing is agreed until everything is agreed. However, the most sensitive political points remain to be resolved. Under the topic of strengthening the ETS, the positions of the co-legislators are already very close. However, much more work is needed on the topics of free allocation and carbon leakage, on the one hand, and the low-carbon funding mechanisms, on the other. Outside the triangle, other important outstanding issues include for example indirect carbon costs and delegated and implementing acts. The Parliament also insists on keeping maritime emissions and border measures on the agenda.

8. The Presidency considers that despite the highly political and sensitive nature of the outstanding issues, agreement with the Parliament is within reach. The Parliament has also indicated its willingness to finalise the negotiations quickly. In order to reach agreement at the next trilogue, which is the Presidency's aim, it is clear however, that further moves and flexibility on the key political issues are necessary.

9.Delegations will find in the 4-column table in the Annex to this note a new revised draft mandate for the Presidency. The third column of the table contains the Presidency's new compromise suggestions. New or changed text is marked as bold and underlined and deletions as […]. All previous changes in the Council text compared to the Commission proposal are underlined. The fourth column contains comments related to the Council position on the EP amendments (the most recent ones are marked as bold and underlined). The following section summarises the new compromise proposals on the main issues of the triangle and other outstanding issues. Note that unless otherwise stated, article numbers refer to the articles of the ETS Directive itself rather than to those of the Commission proposal.

II.MAIN ISSUES

A. Strengthening the EU ETS

Market Stability Reserve: earlier start of the mechanism to limit the validity of allowances (Article 1a of Commission proposal and Recital 16a)

The Presidency proposes to accept the Parliament's request to change the starting year from 2024 to 2023. This would enable the two institutions to provisionally agree on the provisions concerning the Market Stability Reserve.

Review clause (Article 30 and Recital 16)

The Presidency suggests a new recital 16b which is linked to the review clause in Article 30. The new recital aims to give a partial response to the Parliament's request to refer to stronger measures in the context of future reviews of the ETS Directive, as well as to amendments on border adjustments. The Council text on Article 30 remains unchanged.

Maritime emissions (Article 10(3)( m) and Recital 2c)

The Presidency suggests to add a reference to the shipping sector in the context of the possible uses of auction revenue. In addition a new sentence is added in Recital 2c inviting the Commission to keep under review the process in the International Maritime Organisation.

B. Free allocation / carbon leakage

Conditional lowering of the auction share (Article 10a(5a) and Recital 6

This is a priority issue for both the Council and the European Parliament, and one on which the positions remain far apart. With this in mind, and aware of the sensitivity of the topic within the Council, as part of an overall compromise together with other elements influencing the auction share, the Presidency proposes to change the percentage of the conditional lowering of the auction share from 2% to 2,5%.

Benchmark update (rates) (Article 10a(2) and Recital 8)

The Parliament has previously provisionally accepted the structure of the Council text on benchmarks. Apart from the question of delegated and implementing acts in this Article, the co-legislators still need to agree on the values of the benchmark improvement rates. As a step towards the Parliament, the Presidency suggests to raise the upper value from 0,5% to 0,55%, but to keep the lower rate at 0,2%.

Threshold for qualitative assessments (Article 10b(2))

The Presidency does not suggest further changes to the figure of the threshold at 0,15, but to address the concerns of the Parliament about uncertainty for sectors suggests that the basis for the calculations should be already be fixed in the legislation as the years 2014-2016.

Date of submission of NIMs (installation data for free allocation) (Article 11(1))

The Presidency suggests the date of 30 September 2019, i.e. one year later than originally proposed by the Commission.

On other outstanding issues under this topic, namely the allocation rate to less exposed sectors, sourcing of the new entrants reserve, tiered cross-sectoral correction factor, and waste gases the Presidency does not suggest changes to the Council position. However, related to this, the Presidency suggests to add some wording in Article 10a(6) on ensuring adequate protection against the risk of carbon leakage.

C. Low-carbon funds

Innovation Fund (Article 10a(8) and Recitals 6 and 10)

The Innovation Fund is of key importance to both institutions. The issues at stake concern both the size and sourcing of the fund as well as its criteria. The Presidency suggests to keep the size of the Innovation Fund unchanged but, as a compromise towards the Parliament, proposes to change the source of the fund so that part of the total number of allowances would be taken from the auction share (the Presidency suggests the figure of 100 million). This suggestion is to be seen in the context of the overall discussion on the auction share, i.e. in conjunction with the proposal to increase the conditional lowering of the auction share in case of application of a cross-sectoral correction factor. Concerning the criteria, the Presidency suggests a few changes to the wording to respond to the Parliament's requests, such as the reference to breakthrough solutions, and to innovation in Recital 10. In general, the text of Recital 10 has been updated to reflect the corresponding changes in the Article. Although all delegated and implementing acts will need to be addressed at the next trilogue, it is to be noted that in this case the Parliament is strongly of the view that a delegated act is necessary so that the Commission can adopt the detailed selection criteria at a later stage.

Article 10c derogation (Article 10c and Recital 11 and 12)

The Presidency suggests to allow Member States benefitting from the derogation to use allowances from the share distributed for solidarity and growth under Article 10c with the ceiling of 40% increased to 60%, provided that they use a corresponding amount under Article 10d. The Presidency has explained to the Parliament repeatedly that the reference to Emission Performance Standards is a highly sensitive issue to many delegations and that the EP amendments on this topic are not acceptable. The issue remains of high priority to the Parliament. However, in a move towards the Parliament, the Presidency suggests to include in the text a new provision on co-financing (paragraph 3 of the Article, as well as an explanatory recital), as well as some additional compromise suggestions, such as language referring to the goals of the Paris agreement.

Modernisation Fund (Article 10d and Recital 11)

The Presidency does not suggest any changes to the Council's text on the governance of the Modernisation Fund. As in Article 10c, as a compromise, the Presidency proposes to include a co-financing requirement for other projects than those covered by Article 1a of the Article. Some additional suggestions are also made to respond to the EP's requests, such as a reference to energy storage and transparency of the investment committee.

Following the Working Party meeting on 25 September, some delegations would like to see further modifications regarding the size and functioning of the low carbon support mechanisms. The Presidency invites delegations to reflect on the issue.

III. OTHER ISSUES

Indirect cost compensation (Article 10a(6) and Recital 9)

The issue continues to be very complex both within the Council and vis-à-vis the European Parliament, and the positions of the co-legislators remain far apart. The Council has worked very hard to find solutions, and a number of changes have already been made to the Commission proposal. The Presidency considers that it is very difficult to make further moves towards the Parliament without upsetting the fragile balance of the Council's position and therefore does not suggest changes to the Council's draft position.

Delegated and implementing acts

The positions of the co-legislators on delegated and implementing acts still differ in several Articles of the proposal. Mapping of the positions and preliminary technical work is under way at technical level, and a discussion at political level is foreseen at the next trilogue.

On other outstanding issues, including notably earmarking of auction revenue, the Just Transition Fund, small emitters and very small emitters (Art. 27a (new) and Recital 14) , and the provisions concerning Greece (Artc. 10a(9)), the Presidency suggests to keep the current Council text.

In addition, the Presidency suggests a small number of additional compromises for example in Recital 9 (reference to Green Climate Fund), as well as minor adjustments of a technical or editorial nature.

IV.CONCLUSION

10.The Permanent Representatives Committee is invited to agree, on the basis of the suggestions set out in the Annex, on a revised mandate for the Presidency with a view to further negotiations towards a first reading agreement with the European Parliament. The fifth, and hopefully final, informal trilogue is scheduled to take place on 12 October 2017.

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ANNEX

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments

Commission proposal / EP amendments / Presidency draft for a Council position / Comments/Suggestions
Amendment 89
Article 1 - Point 6
Article 10c - paragraph 1
Article 10c
Option for transitional free allocation for the modernisation of the energy sector
1. By derogation from Article 10a(1) to (5), Member States which had in 2013 a GDP per capita in € at market prices below 60% of the Union average may give a transitional free allocation to installations for electricity production for the modernisation of the energy sector. / 1. Bywayofderogation from Article10a(1)to (5), MemberStates whichhad in2013 a GDPpercapita inEURatmarketpricesbelow 60%of the Union averagemaygive transitional free allocation toinstallations forelectricity generationforthe modernisation,diversification andsustainabletransformationof theenergysector.This derogationshall end on 31December 2030. / 1. By way of derogation from Article 10a(1) to (5), Member States which had in 2013 a gross domestic product (GDP) per capita in euro at market prices below 60% of the Union average may give a transitional free allocation to installations for electricity generation for the modernisation and diversification of the energy sector.The investments supported shall be consistent with the long term objectives as expressed in the Paris Agreement. / The first part of the amendment is acceptable
See new compromise suggestion in the third column
Amendment 90
Article 1 - Point 6
Article 10c - paragraph 1 a (new)
1a. Member Statesnoteligiblepursuant to paragraph1but whichhad in2014 a GDPpercapitain EUR atmarketpricesbelow 60%of theUnion averagemayalsomakeuseof the derogationreferred to inthat paragraph up to thetotal quantityreferred to inparagraph4,provided that thecorresponding numberof allowances is transferred to theModernisationFund and the revenues areused to support investments in accordancewith Article 10d. / Not acceptable
Amendment 91
Article 1 - Point 6
Article 10c - paragraph 1 b (new)
1b. Member States which are eligible under this Article to grant free allocation to installations for energy generation, may choose to transfer the corresponding number of allowances or part of them to the Modernisation Fund and allocate them pursuant to the provisions of Article 10d. In such a case, they shall inform the Commission before the transfer. / See compromise suggestions in Article 10d (2a) (new) and recital 11a (new).
Article 1 - Point 6
Article 10c - paragraph 2 - subparagraph 1 - introductory part and point a
2. The Member State concerned shall organise a competitive bidding process for projects with a total amount of investment exceeding €10 million to select the investments to be financed with free allocation. This competitive bidding process shall:
(a) comply with the principles of transparency, non-discrimination, equal treatment and sound financial management; / 2. The Member State concerned shall organise a competitive bidding process, to take place in one or more rounds between 2021 and 2030, for projects with a total amount of investment exceeding EUR 15 million to select the investments to be financed with free allocation. This competitive bidding process shall:
(a) comply with the principles of transparency, non-discrimination, equal treatment and sound financial management;
Commission proposal / EP amendments / Presidency draft for a Council position / Comments/Suggestions
Amendment 92
Article 1 - Point 6
Article 10c - paragraph 2 - subparagraph 1 - point b
(b) ensure that only projects which contribute to the diversification of their energy mix and sources of supply, the necessary restructuring, environmental upgrading and retrofitting of the infrastructure, clean technologies and modernisation of the energy production, transmission and distribution sectors are eligible to bid; / (b) ensurethat onlyprojectswhichcontribute to the diversification oftheirenergymixandsourcesofsupply, thenecessaryrestructuring, environmentalupgradingandretrofitting of theinfrastructure,cleantechnologies(such asrenewabletechnologies) ormodernisationof theenergyproduction,district heatingnetworks, energyefficiency,energystorage,transmissionand distributionsectors are eligible to bid; / (b) ensure that only projects which contribute to the diversification of their energy mix and sources of supply, the necessary restructuring, environmental upgrading and retrofitting of the infrastructure, clean technologies or modernisation of the energy production, transmission and distribution sectors are eligible to bid; / Needs to be further discussed
Amendment 93
Article 1 - Point 6
Article 10c - paragraph 2 - subparagraph 1 - point c
(c) define clear, objective, transparent and non-discriminatory selection criteria for the ranking of projects, so as to ensure that projects are selected which: / (c) defineclear,objective,transparentand non-discriminatoryselectioncriteriainline with theUnion 2050climate andenergy policy objectivesforthe rankingofprojects, so as toensurethat projects areselectedwhich: / Not acceptable
Amendment 94
Article 1 - Point 6
Article 10c - paragraph 2 - subparagraph 1 - point c - point i
(i) on the basis of a cost-benefit analysis, ensure a net positive gain in terms of emission reduction and realise a pre-determined significant level of CO2 reductions; / (i) on the basis of acost-benefitanalysis,ensure a net positive gain in termsof emissionreduction and realise apre-determinedsignificant level of CO2reductionsproportionate to thesizeof theprojects.Where projectsrelate toelectricity production, total greenhousegas emissionsperkilowatt hour ofelectricity produced inthe installationshall not exceed 450g ofCO2 equivalentafter completionof the project.By1January2021, the Commissionshalladopt a delegatedact in accordance withArticle 30b in order to amendthisDirective bydefining for projects relatingto heat productionmaximumtotalgreenhouse gas emissionsper kilowatthour of heat producedin the installationthat shall not be exceeded. / Not acceptable
Amendment 95
Article 1 - Point 6
Article 10c - paragraph 2 - subparagraph 1 - point c - point ii
(ii) are additional, clearly respond to replacement and modernisation needs and do not supply a market-driven increase in energy demand;
(iii) offer best value for money; / (ii) areadditional,although they maybe used to meet the relevanttargetssetunder the2030 Climate and EnergyFramework,clearlyrespond toreplacementand modernisation needsanddo not supplya market-drivenincrease inenergydemand; / Notacceptable
Amendment 96
Article 1 - Point 6
Article 10c - paragraph 2 - subparagraph 1 - point c - point iii a (new)
(iiia)do not contribute to newcoal-firedenergy generation nor increase coal-dependency. / Not acceptable
Article 1 - Point 6
Article 10c - paragraph 2 - subparagraph 1a (new)
By way of derogation from Article 10 (1), in the event an investment selected through the competitive bidding process is cancelled or the intended performance is not reached, the earmarked allowances may be used through one new round of the competitive bidding process at the earliest one year thereafter to finance other investments.
Amendment 97
Article 1 - Point 6
Article 10c - paragraph 2 - subparagraph 2
By 30 June 2019, any Member State intending to make use of optional free allocation shall publish a detailed national framework setting out the competitive bidding process and selection criteria for public comment. / By30 June2019, anyMemberStateintendingto make useof optionaltransitionalfree allocationfor themodernisation of the energy sectorshallpublish a detailednational frameworksettingout the competitive biddingprocessandselection criteriaforpublic comment. / By 30 June 2019, any Member State intending to make use of optional transitionalfree allocation for the modernisation of the energy sector shall publish a detailed national framework setting out the competitive bidding process and selection criteria for public comment. / The amendment is acceptable