The MEPs of the European Parliament and the Member States of the Union reached an agreement on Sunday December 18, after about thirty hours of negotiation, on a vast reform of the carbon market, central component of the “Green Deal “. The goal, explains the text, is to “further reducing industrial emissions and investing in climate-friendly technologies”. The agreement relies on an accelerated reduction in emissions, with a reduction by 2030 of 62% compared to 2005, against a previous objective of 43%.
To achieve this objective, several reforms will have to come into force from 2026, such as the abolition of free quotas for the company, the creation of several funds to support the energy transition or even an extension of this market to other sectors. , such as construction or transport.
The carbon market, officially called the Community Emissions Trading System (ETS), is a centerpiece of the European Union’s climate plan (Fit for 55 for 2030). The text reminds “that this system has enshrined the polluter-pays principle” and that by setting a price for greenhouse gas (GHG) emissions, the EU ETS “has significantly reduced EU emissions”.
A drastic reduction in emissions, other sectors concerned
This agreement thus provides for a vast reform, starting with a revision of the ambitions for 2030. “Emissions from the sectors covered by the EU ETS must be reduced by 62% by 2030 compared to 2005, ie one percentage point more than what the Commission proposed”, announces the text again. To achieve this reduction, the European Union intervenes on two scales: “A single reduction in the quantity of allowances at EU level of 90 Mt of CO2 equivalents in 2024 and 27 Mt in 2026, combined with a annual quota reduction of 4.3% from 2024-27 and 4.4% from 2028-30”, we explain.
The free allowances granted to polluting companies will gradually decrease from 2.5% in 2026 to 100% in 2034. The agreement also provides for the introduction of a Border Adjustment Mechanism for Carbon (MACF) from by 2026 before being fully implemented by 2034. This mechanism makes it possible to apply the rules of the European carbon market to imports of polluting products. On exports, the Commission must assess, by 2025, the risk of carbon leakage for goods produced in the EU and “will present, if necessary, a legislative proposal in conformity with the rules of the WTO to face this risk”.
The carbon market also extends to other sectors, such as construction and road transport. But MEPs and the Council suggest a “new ETS II”who “set a price for emissions from these sectors, will be in place by 2027”. Fuels intended for other sectors such as the manufacturing industry will also be affected. Maritime transport will rather be affected by “ETS I”.
Transition support funds
The text stresses that EU ETS II “could be postponed to 2028 to protect citizens, if energy prices are exceptionally high”. As for the price of a quota, “a new price stability mechanism will be put in place”.
Pour “modernizing the energy system” and help with the energy transition, the agreement announced several funds. A first Innovation Fund which will be increased from 450 to 575 million allowances. A second Modernization Fund which will be increased by the auctioning of an additional 2.5% of allowances which will help EU countries whose GDP per capita is less than 75% of the European average and a Social Fund for climate for the most vulnerable.
This agreement was warmly welcomed by several MEPs on Twitter.
Key points of the new emissions trading:
✅ By 2030 almost 50% of the free CO2 allocations canceled – from 2034 completely. The CO2 tariff will come at the same time.
✅ Under-trade emissions are reduced by 62%.
✅ All proceeds must flow into climate measures.
✅ Climate social fund is coming.— Michael Bloss (@micha_bloss) December 18, 2022
“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.
We have just reached an agreement on the European carbon market! No other continent has such an ambitious policy for #weather and for the decarbonization of its industry! This agreement concludes a year of unprecedented acceleration of the ecological transition of the ????????
— Pascal Canfin (@pcanfin) December 18, 2022
For his part, MEP Peter Liese (EPP, right), believes that he “There is room for maneuver until 2026 to invest in low-carbon energies and improve energy efficiency. Afterwards, it’s the hour of truth: we will have to reduce our emissions by then, or pay a lot of money afterwards”.
DEAL to #ETS! We have just agreed on the biggest climate law ever negotiated in ????????. In the short term, there is room for citizens and industry to breathe deeply, but then it is high time for decarbonization. ETS2 from 2027 with €86 bio #SCF. Thanks everyone for the hard work!
— Peter Liese MEP (@peterliese) December 18, 2022
Do as Brussels wishes… or pay more
The idea, explains the economist Philippe Murer on South Radio, “it is to raise the price of fuel so that people start buying heat pumps or electric cars to avoid releasing CO2 emissions and consuming fossil energy”. According to him, this is a “very dangerous bureaucratic gasworks”because there is the same risk “than with the European electricity market” who has “drives up electricity prices”. The economist then recalls that solar and wind energy only produce electricity a third of the time and that the other two thirds are compensated by the use of fossil fuels. “If the EU were coherent, the goal would be to favor nuclear power”he complains.
“This agreement will allow big polluters to continue to receive billions of euros in free allowances” for a decade, while “households will receive crumbs in comparison”, for its part denounced the environmental NGO CAN.
According to the media of several countries, such as the Netherlands or Germany, this agreement, it is clearly estimated, “is a first step” towards the establishment of a “CO2 social credit”.
Such fear can be explained, for example, by the subsidies provided by the Social Fund for households wishing to grant an electric car or home insulation, while people still using fuel or heating will have to pay more, such as pointed out MEP Peter Liese in the aforementioned tweet.
The apprehensions that the fight against global warming results in a restriction of individual freedoms as was the case during the coronavirus pandemic are based on numerous actions taken around the world. Let us quote the case of the banks which encourage their customers not to exceed through their banking operations a carbon quota or the calls to drastically reduce the number of long-haul flights per person.
In France, the establishment of a “carbon pass”, a tool which would grant citizens a “quota” of CO2 not to be exceeded for purchases, was presented on BFM TV as “one of the keys to success in the face of climate change”.
In England, there are fears of presenting environmental issues as health issues, with the aim of “to standardize crisis management policies related to covid and climate change”after Chris Whitty, British epidemiologist, chief medical officer and adviser to the British government, said that “air pollution is just as dangerous” than the coronavirus.