Climate: the European Parliament adopts the reform of the carbon market

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

“Together we are going to make Europe the first climate-neutral continent,” reacted Commission President Ursula von der Leyen, who welcomed these votes and called on the Member States to complete this last step. In parallel with this climate plan, the 27 member states are preparing legislation to boost the competitiveness of their green industries in the face of the American plan for massive subsidies and the colossal investments of China 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 highly dependent on China.

This reform should make it possible to achieve the ambitious greenhouse gas reduction objectives of the climate plan of the Twenty-Seven. 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 applying to 40% of the continent's emissions. The total quotas created by the States decrease over time to encourage industry to emit less.

The reform provides for an acceleration of the rate of reduction of the proposed quotas, with a 62% reduction by 2030 compared to 2005 (against a previous objective of 43%): overall, the manufacturers concerned will automatically have to reduce as much their emissions. 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 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 45 euros/tonne at least until 2030, and if the current spike in energy prices continues, the entry into application would be postponed to 2028. Environmental 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).

The "Carbon Border Adjustment Mechanism" (CBAM) is not strictly speaking a tax, but an unprecedented device consisting in applying to imports from the Twenty-Seven the criteria of the European carbon market, where industrialists in the EU are obliged to buy allowances covering their polluting emissions. 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 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, during which importing companies will simply have to report their obligations. As this "carbon tax" at the borders increases - between 2026 and 2034 - the EU will gradually eliminate the free emission quotas allocated to European manufacturers to allow them to face competition from outside Europe.

Endowed with 86.7 billion euros, a Social Fund for the Climate (FSC) intended to help micro-enterprises and vulnerable households in this energy transition, should see the light of day in 2026. The recipes of the new carbon market ( ETS2) will supply most of this fund.

It is intended to finance temporary direct income support measures to cope with the increase in road transport and heating prices, 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. But for the French MEP Manon Aubry (GUE / NGL, radical left), this social fund "will not offset all" the impact of the extension of the carbon market to individuals. “Nothing has been learned from the yellow vests,” she worried.