Climate Change & Natural Capital (AO) | Regulation & policy Monitor: Germany's heat pump pullback, EU ETS & electrification day, SFDR 2.0 delay

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Climate Change & Natural Capital (AO) | Regulation & policy Monitor: Germany's heat pump pullback, EU ETS & electrification day, SFDR 2.0 delay

k provide insights into what the proposal might entail. There are two overarching points

that affect all covered sectors: a) the current deadline for the issuance of new emissions allowances in 2039 is pushed back into

the 2040s, and b) the linear reduction factor (LRF) that dictates the pace at which new allowance auctions are cut back will be

lowered, hence easing pricing pressure.

For industrial emissions specifically, the expectation is that free allowance allocation will be extended beyond 2034, which is the

current phase-out date. Additionally, the Commission plans to change how it calculates the emissions benchmarks used to

allocate these free allowances, generating EUR6bn in industry savings, according to Bloomberg.

On the other hand, aviation and shipping companies could an expanded scope. For the latter, the Commission will propose

including in the ETS additional non-EU ports that are close to the EU (North Africa, the Middle East and possibly the UK),

according to the Financial Times. The idea is to prevent ships that are on long-haul voyages to or from EU ports from calling at

these close non-EU ports to limit their ETS payments (as ships are charged for half of the emissions they generate in extra-EEA

voyages).

For aviation, the Commission has hinted it is considering proposing the extension of the ETS to flights departing to non-EU

destinations, which would be a major departure from existing policy (only domestic flights covered) and would significantly

increase compliance costs for long-haul carriers like Air France, Lufthansa and British Airways, as well as non-EU airlines. It is still