Høringssvar om EU-Kommissionens ETS post-2030

The Danish District Heating Association (DDHA) would like to thank the Commission for the opportunity to comment on the EU ETS post-2030 public consultation focusing on evaluation of the EU ETS and impact assessment of whether additional policies are needed in the EU ETS to reach the EU climate targets.

Heating and cooling account for half of the EU’s total energy consumption. Today, the majority of heating and cooling in the EU is still generated from fossil fuels, and almost all waste heat generated across the EU remains unused.

The DDHA represents around 350 companies in the Danish district heating sector ranging from production of district heating to transmission and distribution companies. Nearly 2 million households (68 pct.) are supplied with district heating by DDHA’s members, covering around half of the Danish demand for space heating in all buildings. District heating can be connected to all forms of heat production. Currently, district heating is produced from sources which includes woody biomass, straw, wind, solar heating, geothermal energy, natural gas, oil, coal and surplus heat from industry and waste incineration.

The DDHA also represents a large volume of carbon capture and carbon removal potential through capture of CO2 from the biomass combined heat and power (CHP) plants and waste incinerating facilities in Denmark. The Danish Energy Agency has estimated the possible capture potential in 2040 in Denmark at 5.4-10.8 million tonnes of CO2 per year, of which more than half of the potential (2.9-5.9 tonnes of CO2 per year) comes from waste incinerators and biomass CHPs. 

General remarks

The members of DDHA are on a large scale included in the EU ETS. It is DDHA’s understanding that the administrative burden of the EU ETS imposed on the member states and the companies included in the EU ETS is considerable. The process of verification of data as well as the administrative burden of reporting several different reports and formulars constitute a very time-consuming task for the members of the DDHA. 

Therefore, the DDHA encourages the Commission to have a focus on how to reduce the administrative burdens of the member states and the companies involved in the EU ETS going forward.

Response to Impact Assessment 

5.3 Stationary installation 

District Heating and Cooling (DHC) is a proven solution for delivering heating, hot water and cooling services through a network of insulated pipes, from a central point of gener-ation to the end user. They feed in locally available, renewable and low-carbon energy sources as well as waste heat from industry and heat from combined heat and power plants. This decouples consumers from volatile global energy markets and insures diver-sity in the heat supply and, security of supply, price stability and affordability. 

District heating facilities subject to ETS1 competes with individual heating installations. Individual installations are in most cases not or only partially subject to similar carbon costs. This creates a carbon leakage problem between heating options.

Free allowances should be provided to district heating installations to an extent that en-sures a level playing field in terms of carbon cost between heating solutions in ETS1 and heating solutions outside. That includes after the introduction of ETS2, fully by 2030 and beyond, until carbon costs in both ETS 1 and 2 are equal.

5.4 Revenue Use

Danish District Heating Association finds it important that revenue generated through the EU ETS is used to support climate action within the member states. Also, we find that there should be complete transparency into how the revenue is spent and we believe that this should be an area of further attention in the future. 

Further, the DDHA recommends using parts of the revenue from emissions allowances units (EUA’s) to finance carbon dioxide removals (CDR) in the coming periods instead of a full integration of CDR’s into the EU ETS system from next period starting in 2031. DDHA elaborates on the integration of CDR into the EU ETS in section 5.7. 

5.5 New Industrial Decarbonisation support 

The New Industrial Decarbonisation has a focus on energy intensive industry and should obviously also focus on energy efficiency. Energy efficiency must also be seen in a broad, integrated perspective.

Energy intensive industry often also produces a considerable amount of waste heat. The amount of waste heat in EU is equal to the amount of energy used for building heating. Support under this framework should also be provided to integrating industry with the heating and cooling sector to ensure this waste heat is utilized, thereby replacing mostly fossil and imported fuel. This utilization also gives a value to otherwise worthless waste heat, providing a revenue stream to industry. 

In addition, the DDHA urges the Commission to have a focus on waste incineration in the EU’s decarbonisation support scheme. Waste incineration plants are similarly to industry as they too are hard-to-abate point sources of CO₂ and should therefore be eligible for support to deploy carbon capture technologies. Moreover, capturing biogenic CO₂ from these facilities can enable negative emissions.  Supporting this sector ensures con-sistency with other hard-to-abate industries, creates incentives for innovation, and aligns with the EU’s climate and circular economy objectives.

5.7 New technologies

5.7.1 Carbon removals

When integrating CDR into the EU ETS, it is crucial to allow for stacking of multiple fi-nancial support schemes as well as market revenue. This is to ensure the success of a compliance market for CDR as revenues from the market alone will be insufficient. There-fore, the integration of CDR into the EU ETS should not hinder finance- or revenue stack-ing. 

The European Commission must design a compliance market that firstly maintains driv-ers for emissions reductions. The integration into the ETS should be designed to avoid mitigation deterrence, ensuring that companies remain focused on minimizing their emis-sions as their first priority. Striking a balance between incentivizing both emissions re-ductions and CDR is crucial to ensure the effectiveness and sustainability of the EU's strategy towards achieving net-zero. 

When considering integrating CDR into the EU ETS, the DDHA suggests that CDR could be financed with part of the revenue of EUAs, e.g. through a specific CDR fund or by allocating some of the EUAs (that would otherwise be auctioned by Member States) to CDR suppliers. Further, before the cap hits zero, the EUAs could be replaced with Car-bon Removal Units (CRU's) allowing for the hard-to-abate emissions to be counterbal-anced with CDR. Therefore, before this point (when the cap hits zero) direct integration of CDR’s into the EU ETS is preferred. 

Since the current EU ETS predicts that allowances should go to zero by 2045, it is as-sumed that in the mid-term the remaining emissions would need to be mitigated by re-movals. As allowances become scarcer, it is expected that there will be an upward pres-sure on prices. Having established CDR’s in the market by the time the cap is close to zero could prevent sudden price spikes and achieve an economically efficient net zero by allowing for a cost-driven allocation of permanent removals and abatement. In addi-tion, it will ensure that the EU does not lose industrial capacity due to extremely high EUA prices.

A fundamental element for maintaining environmental integrity in any compliance market for CDR is the establishment of robust Measurement, Reporting, and Verification (MRV) mechanisms. These systems are essential to ensure that removal activities genuinely result in negative emissions, providing credibility and trust in the outcomes. The EU’s Carbon Removal Certification Framework (CRCF) plays an important role in this context, offering a standardized approach to certify and validate CDR activities. This framework underpins trust and transparency and ensures consistency in how carbon removals are measured and reported.

As fossil emissions remain in the atmosphere for centuries, permanent carbon removals should be used to counterbalance fossil emissions. Therefore, only permanent CDR's certified under the CRCF, or equivalent certification schemes should be eligible under the EU ETS. 

DDHA acknowledges the importance of expanding financing options to advance the market for CDR’s, but the integration of CDR into the EU ETS must be approached thoughtfully. Further, only permanent CDR should be eligible to counterbalance fossil emissions, ensuring the system maintains environmental integrity. 

5.8 Potential expansion of the scope of the Directive 

5.8.1 Municipal Waste Incineration (MWI) and other waste management processes

The Danish waste incineration sector is included in the EU ETS and has been since 2013. In Denmark the sector is working towards zero emission waste incineration by establish-ing carbon capture on the facilities. The EU ETS as well as the Danish CO2 taxation pro-vides a large part of the economic incentives to invest in carbon capture facilities. 

To reduce the emission from the European waste incineration all member states should include their waste incineration sectors in the EU ETS as soon as possible. 

At the same time, it is important to include the disposal of waste on landfills in the EU ETS alongside waste incineration. This is to avoid inappropriate consequences for the environment. If waste incineration is included in the EU ETS, whereas landfills are ex-cluded, this would create inappropriate incentives for increasing waste disposal on land-fills, since in this case the first would become relatively more costly compared to the latter. 

5.8.2 20 MW threshold

By 2027 the EU ETS2 will be introduced and thereby many sectors not included in the EU ETS1 will be included in the EU ETS. 

Some companies will be included in the EU ETS2 directly, whereas others will be includ-ed indirectly through their purchase of fuels. In some cases, it is the fuel supplier that falls under the ETS2, passing the associated costs on to their customers by incorporat-ing them into their energy prices. 

In Denmark, whether the cost of the ETS2 will be imposed directly or indirectly depends on the tax registration of the companies. Either way, the DDHA expects that all our members not part of the EU ETS1 will – directly or indirectly – be imposed with the cost of the ETS2 by 2027.

In light of introducing ETS2, DDHA therefore does not see any reason why the threshold of 20 MW installation capacity regarding EU ETS1 should be lowered.