EU to Give Companies 10 Years to Use New €30 Billion Carbon Fund

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(Bloomberg) — The European Union aims to offer its ailing industries as many as 10 years of additional support to shift to cleaner production, under a plan to transfer €30 billion worth of allowances from the bloc’s flagship carbon market.

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European Commission President Ursula von der Leyen first floated the ETS Investment Booster in March as part of its Emissions Trading System reform due later this week, with details to be announced later. The European Commission now plans to propose a decade-long framework for companies to use support under the booster, people familiar with the matter said, asking not to be named discussing non-public information. 

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The 10-year time frame will likely allay concerns that the carbon market could be flooded by allowances in the short term, while offering companies more leeway to adapt to less polluting technologies. 

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The ETS reform has risen to the top of the EU political agenda as energy-intensive industries such as steel and chemical makers struggle to compete with peers in China and the US. Some governments and industry groups are concerned that carbon costs are adding to already high prices for power and gas. 

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The EU will propose allocating 400 million emission allowances based on a fixed carbon premium to selected firms that pursue decarbonization projects. The permits from the ETS Investment Booster will be released periodically to the companies after their projects become operational, for a maximum of 10 years, the people said. 

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The booster will be the first stage of Europe’s planned Industrial Decarbonization Bank, with a total of €100 billion in carbon market-based funding. The 400 million allowances in the booster will come from an existing buffer of free permits, and if it has fewer permits than needed, the EU will top it up with certificates from a special reserve for new entrants, according to the people.

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The commission, which is due to unveil the carbon market reform on July 17, declined to comment. The proposal may still change before adoption. 

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The support program will be granted on a first-come, first-served basis, with allowances to be reserved for the projects between 2028 and 2030. The commission and several member states have already signaled they will want to bring the starting date forward to 2027, as they plan to finish legislative work on the proposal as soon as in the first quarter of next year. 

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The EU’s executive arm will publish the exact conditions for the projects later this year, including the eligibility criteria and fixed premium rate per metric ton of avoided emissions.

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To apply, companies will need a completion bond, which is a form of performance guarantee, to be issued by a financial institution, according to the people. Construction of projects will have to start within 30 months and once they start operations, they will get allowances periodically over up to a decade following an independent verification of emissions avoidance.

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To calculate the allocation, the commission will take into account the avoided emissions, the premium rate and the price of carbon permits at auctions.

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