The European Union agrees on the vast reform of its carbon market

 After long negotiations, the European consensus was finally put in place. This Sunday, the European Parliament and the Member States (through the Council of the European Union) agreed on a vast reform of the carbon market. This raises the ambitions of the Community Emissions Trading System (ETS, also known as EU ETS), with a greater reduction in emissions, the gradual end of free “rights to pollute”, the introduction of a specific system for road transport and buildings or even the establishment of a social fund for the transition. It is thus one of the main levers of the European legislative package  “Fit for 55”, which enshrines the ambition of the European Green Pact to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. A formal agreement is now expected to validate its entry into force.

The European “trilogue” process has therefore made it possible to increase the objectives initially defined by the European Commission in July 2021 in its legislative proposals. The sectors concerned by the ETS – which are the source of 40% of the Union’s emissions – will see their quotas reduced by 62% by 2030 compared to 2005, where the Commission proposed 61%. This means that they will have to reduce their emissions by the same amount. It is above all a significant advance compared to the previous objective which was only 43%, defined five years ago. To achieve this objective, the quotas will gradually decrease until 2030, by 4.3% per year between 2024 and 2027, then by 4.4% per year until expiry, but also occasionally by 90 million tonnes of

 New sectors

The scope of the ETS will also be extended, first to maritime transport, after insistent requests from the European Parliament, then to waste incineration facilities in 2028 subject to a favorable study by Brussels.

MEPs and representatives of member states also agreed on the very controversial Commission proposal on the creation of a second separate carbon market (ETS2), which will set a price for emissions from road fuels and the heating of buildings. Faced with the social impact of such a mechanism and having been unable to exclude households from the perimeter, the deputies obtained that its implementation be deferred for one year, in 2027, with the possibility of a postponement in 2028 if energy prices are already at their highest. A stability mechanism will be added to it, with the issuance of additional allowances to avoid excessive price variations. It will be activated if the price exceeds 45 euros per ton.

A “Social Climate Fund”, endowed with 86.7 billion euros, will also be created from this new ETS2 market, the revenues of which are entirely channeled towards the financing of the ecological transition. In place from 2026, it must help vulnerable households and businesses in their transition, in particular through national “social climate plans”. The Innovation Fund and the Modernization Fund are also reinforced.

 End of free quotas

This reform of the ETS is all the more important as it removes the free quotas allocated until now to manufacturing industries, which still represent almost a third of the total and still 30% of their total quotas. This will also be gradual, with a removal of 2.5% of these free quotas in 2026, almost half in 2030 and all of them in 2034. In the other sectors concerned, the derogation for free quotas intended for producers of electricity in the ten least rich countries of the Union remains, but only Bulgaria, Hungary and Romania still use it. In aviation, Parliament and Council of the EU had already agreed last week to abolish free quotas for intra-European flights, by a quarter in 2024,

“The price of carbon will be around 100 euros/tonne for these industries. No other continent has such an ambitious carbon price ,” rejoiced Pascal Canfin (Renew, liberals), chairman of the Environment Committee in Parliament, to Agence France Presse. For his part, MEP Peter Liese (EPP, right), summed up the situation as follows:  “There is room for maneuver until 2026 to invest in low-carbon energies and improve energy efficiency. Afterwards, it’s the moment of truth: we will have to reduce our emissions by then, or pay a lot of money afterwards. »

Climate Action Network (CAN), a coordination of environmental NGOs, for its part expressed reservations about an  “agreement (which) will allow big polluters to continue to receive billions of euros in free allowances”  for a decade, while  “households will receive crumbs in comparison” .

To avoid carbon leakage, the co-legislators also adopted earlier this week the establishment of a  “carbon tax”  at European borders to green industrial imports. Also called the carbon border adjustment mechanism (MCAF), this mechanism aims to make importers in Europe pay for the carbon emissions linked to the manufacture of their products to bring them up to par with European goods, which are already subject to standards. strict climatic conditions. This should make it possible in particular to limit relocations.

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