EU seals carbon market reform to speed cuts in greenhouse gases

EURACTIV.com with AFP and Reuters

25-04-2023

Factory emissions [Stefan Kunchev Kunchev / Shutterstock]

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The EU's 27 member countries gave final approval Tuesday (25 April) to a sweeping reform of the bloc's carbon market to accelerate the reduction in greenhouse gases, including a new carbon border tax on imports.

The world's first major carbon trading system has since 2005 forced power plants and factories to buy permits when they emit CO2, and has cut emissions from those sectors by 43%.

The sign-off, in a Luxembourg meeting of EU agriculture ministers, endorses a European Parliament vote last week on various legislative texts in the reform, which will come into force once published.

The EU's existing emissions trading scheme will now be broadened to include sea and air transport.

Carbon emissions from individuals’ vehicles and homes will also be counted, though at a capped level until 2030.

And a special €88 billion social climate fund will be created in 2026 to compensate for the cost of Europe's green shift.

Legislators today approved a deal agreed last year by negotiators from EU countries and Parliament, to reform the carbon market to cut emissions by 62% from 2005 levels by 2030, which is designed to deliver the EU's emissions-cutting targets.

After nearly two years of EU negotiations, the member states’ approval means the policy will now pass into law. The EU Parliament approved the deal last week.

Of the 27 EU countries, 24 voted for the reform. Poland and Hungary opposed it, while Belgium and Bulgaria abstained.

Poland, which has previously called for the carbon market to be suspended or its price capped to ease the burden on industry, said EU climate policies set unrealistic goals.

EU legislators agreed early on Sunday (18 December) to introduce a carbon price on buildings and road transport fuels, with a new €87-billion social climate fund established in parallel to cushion the impact on households and help them invest in green solutions.

The incoming legislation supports the EU goal of cutting 55% of greenhouse gas emissions in the bloc by 2030, compared to the levels recorded in 1990.

The reform is set to hike the cost of polluting for sectors including cement manufacturing, aviation and shipping, while also raising billions of euros through CO2 permit sales, for national governments to invest in green measures.

Heavy industries will lose the free CO2 permits they currently receive by 2034, while airlines will lose theirs from 2026, exposing them to higher CO2 costs. Emissions from ships will be added to the scheme from 2024.

One measure that will be seen by companies importing into the EU will be a carbon tax on imports, phased in from 2026 and levied to ensure EU industries are not undercut by firms not facing the same added costs.

It will initially cover the most polluting sectors – producers of steel, aluminium, cement, fertiliser and electricity – and could be expanded in the future to organic chemicals and polymers.

The tax – formally called a carbon border adjustment mechanism – is expected to raise as much as €14 billion a year for the EU budget.

The price of EU carbon permits has soared in recent years, boosted by anticipation of the reforms. EU carbon permits were trading at around 88 euros per tonne on Tuesday, having more than tripled in value since the start of 2020.

European Union negotiators reached agreement early on Sunday morning (18 December) to reform the EU's Emissions Trading Scheme (ETS), the biggest carbon market in the world and the bloc's flagship climate policy instrument.

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