The reduction of CO2 emission quotas must accelerate by 2030.
On Tuesday 18 April, the European Parliament adopted most of the measures of the European Union’s climate plan, including the vast reform of its carbon market and the “carbon tax” at the borders to green its imports. “Together we will make Europe the first climate-neutral continent”welcomed the President of the Commission, Ursula von der Leyen, who called on the Member States to complete this last stage.
The extension of the carbon market to housing and transport for individuals was the most controversial point, in the midst of inflation. A social climate fund is planned to mitigate the consequences for the poorest
Carbon market reform
To cover their CO2 emissions, electricity producers and energy-intensive industries (steel, cement, etc.) in the EU must now buy “polluting permits” created in 2005 and applying to 40% of emissions from the continent. The total quotas created by the States decrease over time to encourage industry to emit less.
With this reform, the number of quotas offered will have to decrease more quickly than expected. By 2030, a decline of 62% compared to 2005 is expected (against a previous target of 43%). This carbon market will gradually extend to the maritime sector, to emissions from intra-European air flights, and from 2028 to waste incineration sites, subject to a favorable study by Brussels.
A second carbon market (ETS2) is planned for building heating and road fuels. Households will pay a carbon price on fuel and heating from 2027, but the text aims to cap this at at least 45 euros/tonne until 2030. If the current spike in energy prices continues, the entry into force would be postponed to 2028.
Green and left-wing MEPs, however, stressed that this ceiling was not guaranteed. “The price will be set by the market”noted French MEP Marie Toussaint (Greens).
“Carbon tax” at borders
THE “carbon border adjustment mechanism” is not strictly speaking a tax. Rather, it is to apply to imports from the Twenty-Seven the criteria of the European carbon market, where EU industrialists are required to buy quotas covering their polluting emissions.
The importer must declare the emissions linked to the production process, and if these exceed the European standard, acquire a “issue certificate” to the price of CO2 in the EU. It will target the sectors considered to be the most polluting (steel, aluminium, cement, fertilizers, electricity). The expected revenues, which could exceed 14 billion euros annually, will feed the general budget of the EU.
A test period will begin in October 2023. And the system will ramp up between 2026 and 2034.
Social funds
Endowed with more than 86 billion euros, a Social Fund for the climate intended to help micro-enterprises and vulnerable households in this energy transition, should see the light of day in 2026. The revenue from the new carbon market (ETS2) will come feed most of this fund.
It is intended to finance temporary direct support measures for households, but also long-term investments, such as the renovation of buildings, the integration of renewable energies, the purchase and infrastructure for zero or low emission vehicles, as well as the use of public transport and shared mobility services.