Climate: European Parliament says 'yes' to reform of its carbon market

On Tuesday 18 April, the European Parliament adopted the essence of the European Union's ambitious climate plan, including the vast reform of its carbon market and the "carbon tax" at the borders to green its imports. AFP - FREDERICK FLORIN

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The European Parliament adopted on Tuesday 18 April the essence of the European Union's ambitious climate plan, including the vast reform of its carbon market and the "carbon tax" at the borders to green its imports.

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Together, we will make Europe the first climate-neutral continent," said European Commission President Ursula von der Leyen. This reform of the carbon market should make it possible to achieve the ambitious greenhouse gas reduction objectives of the Twenty-Seven climate plan.

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 emission allowance market (ETS), created in 2005 and applying to 40% of the continent's emissions. The total allowances created by states decrease over time to encourage the industry to emit less.

The reform provides for an acceleration in the pace of reduction of the proposed quotas, with a 2030% reduction by 62 compared to 2005 (against a previous target of 43%): overall, the manufacturers concerned will automatically have to reduce their emissions by the same amount. The 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 favourable 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 it at €45/tonne at least until 2030, and if the current surge in energy prices continues, entry into force would be pushed back to 2028.

Border mechanism

The "carbon border adjustment mechanism" (CBAM) is not strictly speaking a tax, but an unprecedented mechanism to apply to imports from the Twenty-Seven the criteria of the European carbon market, where EU industrialists are required to buy allowances covering their polluting emissions.

► Also listen: EU adopts carbon border tax: 'This agreement is historic'

The importer will have to declare the emissions related to the production process, and if they exceed the European standard, acquire an "emission certificate" at the price of CO2 in the EU. If a carbon market exists in the exporting country, it will only pay the difference.

It will target the sectors deemed the most polluting (steel, aluminum, cement, fertilizers, electricity). The expected revenues, which could exceed €14 billion annually, will feed into the EU's general budget. A test period will begin as early as October 2023, during which importing companies will simply have to report their obligations. As this "carbon tax" at the borders grows – between 2026 and 2034, the EU will gradually phase out the free emission allowances allocated to European manufacturers to enable them to face competition from outside Europe.

A fund for vulnerable businesses and households

A €86.7 billion Social Climate Fund (CSF) to help micro-enterprises and vulnerable households in this energy transition is due to be launched in 2026. Revenues from the new carbon market (ETS2) will feed the bulk of this fund. It is intended to finance temporary direct income support measures to cope with rising road transport and heating prices, but also long-term investments, such as building renovation, integration of renewable energy, procurement and infrastructure for zero- and low-emission vehicles, as well as the use of public transport and shared mobility services.

► Read also: Climate: Europe is warming faster than the rest of the planet, warns the UN

In parallel with this climate plan, the Twenty-Seven are preparing legislation to boost the competitiveness of their green industries in the face of the American plan of massive subsidies and China's colossal investments in the sector. The EU is also seeking to secure its supplies of rare earths, lithium and other components essential to green technologies, but for which it remains heavily dependent on China.

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With AFP)

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