EU carbon market reform is approved – 04/18/2023 – Market

The European Parliament approved this Tuesday (18) an ambitious reform of the carbon market in the EU (European Union), an essential project for the bloc’s objectives in terms of reducing greenhouse gas emissions.

The reform was approved by 413 votes in favour, 167 against and 57 abstentions, a spokeswoman for parliament said.

“With today’s votes, we reach another milestone,” tweeted European Commission President Ursula von der Leyen. “Together, we will make Europe the first climate-neutral continent,” she added.

Von der Leyen urged EU member states to give final approval to their respective laws for them to come into force.

To cover their CO2 emissions, electricity producers and energy-intensive industries in the EU now need to buy emission allowances on the European Emissions Trading Market (ETS), created in 2005 and applied to 40% of emissions on the continent.

However, the total quotas created by the States decrease over time, to encourage the industry to emit less.

The reform now provides for an acceleration in the pace of reduction of the proposed quotas, with a reduction of 62% by 2030, compared to 2005. The previous target was 43%.

Likewise, the carbon market will progressively extend to the maritime sector, then it will reach emissions from intra-European flights and, from 2028, waste incinerators.

The EU also envisages a second carbon market for heating buildings and fuel for roads.

Social Fund

The reform adopted this Tuesday includes the controversial “adjustment” which, in practice, is a tariff.

That measure requires companies that import products into the EU that exceed the bloc’s greenhouse gas standards to be forced to buy emission certificates.

This adjustment will take effect in October this year, before being applied to the entire block from 2026 onwards.

The revenues of this mechanism (which the EU estimates could exceed 14 billion euros per year, R$ 75.4 billion at current exchange rate) will be incorporated into the general budget of the EU.

The package approved by MEPs also includes a Social Climate Fund (FSC), intended to support micro-enterprises and vulnerable families in the energy transition. This Fund is expected to be operational in 2026.

The EU is collectively the world’s third largest emitter of carbon dioxide.

The biggest emitter is China, which is massively expanding its fleet of coal-fired power plants despite pledges to peak carbon emissions in 2030 and then reduce them to net zero by 2060.

Next comes the United States, historically the biggest emitter of greenhouse gases. The country has adopted a long-term strategy to reach net zero by 2050.

In this context, the EU is preparing specific legislation to increase European industrial competitiveness in the face of US subsidies and colossal Chinese investment in the renewable energy sector.