The extension of the carbon market to housing and transport for individuals has been the most controversial point, in the midst of inflation. A social climate fund is planned to mitigate the consequences for the poorest.

European Parliament President Roberta Metsola hailed "a beneficial outcome for Europe, its citizens, the planet and future generations".

"Together we will make Europe the first climate-neutral continent," said Commission President Ursula von der Leyen, who welcomed the votes and called on member states to complete this last step.

Carbon market reform

This reform should make it possible to achieve the ambitious greenhouse gas reduction objectives of the Twenty-Seven climate plan.

The remaining carbon budget to limit global © warming Valentin RAKOVSKY / AFP

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 industrialists 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.

The International Air Transport Association (IATA) deplored a vote that "risks destabilizing the hard-won consensus at the international level on reducing carbon emissions in aviation".

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.

Green and left-wing MEPs, however, stressed that this ceiling was not guaranteed. "The price will be set by the market," said French MEP Marie Toussaint (Greens).

"Carbon tax" at the borders

The importer will have to declare the emissions related to the production process, and if these 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.

Social Fund

A €86.7 billion Social Climate Fund to help micro-enterprises and vulnerable households in this energy transition is due to be launched in 2026.

Companies: the calculation of the carbon © footprint Emmanuelle MICHEL / AFP

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.

But for French MEP Manon Aubry (GUE/NGL, radical left), this social fund "will not compensate for everything" the impact of the extension of the carbon market to individuals. "Nothing has been learned from the yellow vests," she said.

© 2023 AFP