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European agreement on a comprehensive reform of the carbon market

The European Union reached an agreement on Sunday to reform the carbon market that is a cornerstone of Europe’s climate plan, ending free industrial “pollution rights”, taxing heating and car emissions and creating a social fund of transition.

After tough talks, negotiators from the European Parliament and EU member states agreed to raise ambition and broaden its scope.

This multifaceted amendment, proposed by the European Commission in July 2021, would make it possible to achieve the ambitious greenhouse gas reduction targets set in the climate plan adopted by the 27 countries, according to Agence France-Presse.

To offset CO2 emissions, electricity producers and energy-consuming industries (steel, cement, etc.) in the EU now have to buy “pollution permits” in the European emissions market known as the Emissions Trading System (ETS ) which was established in 2005 and applies 40% of the continent’s emissions.

Aggregate shares of countries are decreasing over time to encourage industries to reduce emissions. Under the agreement, the rate of proposed quota reductions will accelerate, with a 62% reduction by 2030 compared to 2005 (compared to the previous target of 43%): in In general, the manufacturers involved will automatically have to reduce emissions accordingly.

Pascal Canvin, chairman of the parliament’s environment committee, expressed his satisfaction that “the carbon price will be around 100 euros per tonne for these industries. No other continent has such an ambitious carbon price”.

“There is room for maneuver until 2026 to invest in low-carbon energies and improve energy efficiency. Then they will have to reduce their emissions or pay big money,” said right-wing MP Peter Lees.

The carbon market will gradually extend to the maritime sector and air travel emissions in Europe, and from 2028 to waste incineration sites, according to one studio favorable published by Brussels.

The Commission has proposed to create a second carbon market (ETS2) for heating buildings and fuels for traffic, in which suppliers of fuel, gas and heating oil should buy allowances to cover their emissions.

Fearing the social impact of a tale additional cost, MEPs first called for the measure to be limited to office buildings and heavy trucks.

Eventually, households will pay a carbon price for fuel and heating starting in 2027, but this price will be set at €45 per tonne until at least 2030 and, if current high energy prices continue, the rollout will be delayed until to 2028.

Manufacturing sectors that are not affected by the current carbon market will also be targeted.

social fund

New Market Revenue (ETS2) will have to fully finance the transition. In particular, it will go to the €86.7 billion Social Climate Fund set up to help vulnerable households and businesses.

“This fund will not be a check in white for countries. It will help vulnerable families in the transition period, for example through subsidies for isolation or green transport,” said right-wing MP Esther de Lange.

Furthermore, the “Innovation Fund” which financially supports businesses will have a budget of around 50 billion euros.

Free lessons

With an increase in the carbon tax at the border, the EU will phase out the free emission allowances hitherto allocated to European producers to enable them to face competition from outside Europe.

These industries earned the equivalent of €98.5 billion between 2013 and 2021, according to the World Wide Fund for Nature (WWF).

At least 2.5% of these free “pollution rights” will be eliminated in 2026, then 10% in 2028, around 48.5% by 2030, and will disappear completely in 2034.

In return, and in order not to lose their advantages in the global market, by 2025 it will be put in put in place a mechanism to support European producers who export in countries outside the European Union that do not have similar carbon prices.

“This deal will allow big polluters to continue receiving billions of euros in free rations” for 10 years, while “families will have crumbs in confrontation” with them, said CAN Climate Action, coordinator of green NGOs.

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