End of free "rights to pollute" for industrialists, taxation of emissions linked to heating and cars, social fund for the transition... The EU reached an agreement on Sunday December 18 on a vast reform of its carbon market, a centerpiece of the European climate plan.

After around 30 hours of tough talks, negotiators from the European Parliament and EU Member States concluded an agreement overnight to raise ambitions and extend the scope of the carbon market, according to a press release from the Parliament.

To cover their CO2 emissions, electricity producers and energy-intensive industries (steel, cement, etc.) in the EU must now buy "pollution permits" on the European emissions quota market (ETS) created in 2005 and which applies to 40% of the continent's emissions.

The total quotas created by the States decrease over time to encourage them to emit less.

The reform, proposed in July 2021 by the European Commission, aimed to strengthen it in all directions to achieve the ambitious greenhouse gas reduction targets of the EU climate plan.

Abolition of "rights to pollute"

According to the agreement reached, the rate of reduction of the quotas proposed will accelerate, with a reduction of 62% by 2030 compared to 2005 (compared to a previous objective of 43%) - meaning de facto that the manufacturers concerned will have to obligatorily reduce their emissions by 62%.

The carbon market will gradually extend to the maritime sector, to emissions from intra-European air flights (for which the free quotas currently allocated will be abolished), and from 2028 to waste incineration sites (subject to a study favor given by Brussels).

In return for the establishment of a "carbon tax" at the borders, the EU will gradually eliminate the free emission quotas distributed so far to European manufacturers to enable them to face competition from outside Europe.

At least 48.5% of these free "rights to pollute" will be abolished by 2030 and they will disappear completely by 2034, a timetable which was the subject of a lively tussle between MEPs and States.

Another controversial point: the Commission proposed to create a second carbon market (ETS2) for the heating of buildings and road fuels.

Frightened by the social impact of such an additional cost, MEPs pleaded to first reserve this measure for office buildings and heavy goods vehicles. 

In the end, households will indeed pay a carbon price on fuels and on gas or oil-fired heating from 2027, but this price will be capped until 2030, and if the current spike in energy prices continues, the application will be postponed for a year.

The revenue from this new market will notably feed a "Social Climate Fund", endowed with 86.7 billion euros, created to help vulnerable households and businesses in the energy transition.

With AFP

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