EU environment ministers will soon hammer out their position on the revision of one of the largest and most impactful environmental policies in Europe, the Industrial Emissions Directive. One crucial element seems to have been left out yet again: the regulation of greenhouse gas emissions.
Although millions of Europeans have never heard of it, the Industrial Emissions Directive (IED) is a central plank of the EU’s environmental legislation. It regulates pollution from around 50,000 large industrial installations in Europe, which emit 736 million tonnes of CO2 or about 40% of the bloc’s total carbon footprint. The IED requires industries to meet performance-based pollution limits, which are periodically reviewed to take into account innovation and progress.
Although it helps to reduce air pollution and protect the environment, the IED suffers one enormous blindspot: it does not address the most important climate-warming pollution, greenhouse gases.
Leaky laws
At present, the EU Emissions Trading System (EU ETS) is the only policy designed to reduce greenhouse gas pollution from heavy industry. But due to the exemptions built into the system and the massive handouts of free pollution subsidies, the EU ETS has failed to significantly reduce industrial emissions.
Due to the existence of the ETS, greenhouse gas emissions were excluded from the scope of the Industrial Emissions Directive, which means that EU governments set no limits on these emissions when issuing environmental permits under the IED.
This has resulted in two major EU environmental laws being so leaky that they unnecessarily seep hundreds of millions of tonnes of greenhouse gases into the atmosphere each year.
This means that, in effect, the EU finds itself with two separate and only moderately effective instruments while it could have two fully integrated and successful policies that benefit the climate and the broader environment alike.
An unmissable opportunity
The current revision of the IED represents a huge opportunity to strengthen this legislation and ensure it can also effectively address the negative impact of industrial emissions on the climate.
Unfortunately, the European Commission failed to meaningfully address this issue in its proposal for reforming the IED published in April 2022. This restricts member states’ freedom to include GHG emission limits in permits for those installations covered by the EU ETS. To add insult to injury, in its impact assessment on the IED, the Commission recognised the need to better integrate EU climate and environmental instruments but decided to delay it to the next revision of the IED in 2028, which means this critical decade for climate action will be all but over.
One of the main reasons the Commission gave for delaying action was that letting the IED regulate carbon emissions would have a negative impact on the effectiveness and efficiency of the EU ETS. It could lead, the EU executive claimed, to more carbon allowances becoming available for trading, ultimately reducing market-based incentives for emissions reductions across ETS sectors.
This argument does not hold in light of the recent reform of the EU ETS and is not corroborated by quantitative impact assessments. The EU ETS already has clear and effective mechanisms to limit the oversupply of pollution permits, thereby neutralising any possible influence the IED could have on the liquidity of the carbon market. By mandating emission limits, fewer emissions would be generated overall and unused allowances will be absorbed by the ETS Market Stability Reserve and subsequently invalidated when they reach a certain amount.
A combination of a strong ETS and robust IED will trigger faster emission reductions and greater incentives for industrial decarbonisation.
What can lawmakers do?
The EU’s environment ministers and the European Parliament have the responsibility to rectify this counterproductive situation.
Under EU law, they have the power to propose amendments to the Commission’s proposal that can strengthen the IED’s capacity to tackle climate change.
Some member states are in favour of including climate neutrality and decarbonisation among the objectives of the IED. While going in the right direction, this is far too timid. The urgency of the climate crisis and evidence that GHG emissions of energy-intensive industries are not decreasing warrant much faster and bolder action.
A number of MEPs on the European Parliament’s Environment Committee are more ambitious in their proposals. Some suggest that the IED should regulate carbon emissions from at least the most polluting and least efficient industrial plants.
This would already be a good first step in improving the IED to tackle carbon emissions more effectively. It is crucial that the European Parliament and Council of the European Union, at the very least, pursue this avenue or, better still, strengthen it when amending the Commission’s proposal. There is no reason to be conservative now or afraid of the consequences of regulating carbon emissions under both the IED and the EU ETS.
Owing to how the IED works and its lengthy processes to update environmental permits and the reference documents on which they are based, virtually nothing will change for industrial plants until almost 2034. It is therefore crucial to include greenhouse gas emissions in the scope of the IED in this revision of the directive. Delaying this process until 2028 would only mean that no limits on and more stringent regulation of GHG can be set before 2038 or later, which is far too late to contribute to the goal of limiting temperature rises to 1.5°C.
By then, Europe should be well on its way to climate neutrality. So why wait?
In addition, leaving the option to a future policymaking initiative undermines the required investment certainty and stable regulatory framework for business and industry.
Environment ministers should revise their position to include more effective provisions on climate in the IED instead of hastily trying to find a common agreement by 16 March. They must not favour speed over quality.
The climate and the environment need to be taken seriously. We cannot afford to waste another 10 years on half-baked policies.
