EU lawmakers want to increase free carbon allowance share

BRUSSELS (Reuters) - The largest political group in the European Parliament said on Wednesday it wants a greater proportion of EU carbon permits to be handed out free to industry from 2020. EU politicians are debating how to reform the Emissions Trading System (ETS). The scheme is designed to make big polluters pay for their emissions but a surplus of carbon credits following the economic crisis has crushed the market. Under the current ETS trading phase, which runs from 2013 to 2020, the majority of allowances are sold via government auctions, with most of the remainder given free to industry. The European Commission's reform for post-2020 proposes fixing the auction share at 57 percent of the total allowances, meaning a maximum of 43 percent would go free to industry. Lawmakers from the European People's Party (EPP) are calling for the share of free allocations to be higher than the 43 percent proposed by the EU executive. The overall cap on permits would not change, however, limiting the impact on trading. The hand outs are a concession worth billions of euros designed to help shelter factories and plants from added energy costs that they say could drive them out of Europe. EPP lawmakers admitted their proposal may face opposition from member states that are keen to keep the revenues raised from carbon credit auctions. The lawmakers say the change is to help avoid a trigger mechanism known as the correction factor that cuts free permits to industry across the board to ensure the total meted out by member states does not exceed that allowed under EU law. An EPP position paper, seen by Reuters, did not specify by how much it would like to raise the free allowance share. "You need a couple percentage points in order to create the room that you need," Dutch deputy Esther de Lange said. Energy intensive industries have argued that the correction factor strips them of promised permits, even for some of the best performing plants from an emissions point of view. "Those sectors that are most vulnerable ... should be protected 100 percent so it is one of our main objectives to avoid that the cross-sectoral correction factor is triggered," EPP member Ivo Belet said. The group said it was against accelerating overall carbon reductions, or moving to a more differentiated system for how permits are handed out to industry, which are other reform options floated last week in the parliament. (Reporting by Alissa de Carbonnel; editing by David Clarke)