According to the official website of the European Parliament on December 18, the European Parliament and EU governments reached an agreement on the EU Emissions Trading System (EU ETS) reform plan, and further disclosed relevant details of the carbon tariff bill and determined the carbon border The adjustment mechanism (CBAM, also known as “carbon tariff”) will officially start in 2026, one year ahead of schedule from the “first reading” text passed in June this year.
The agreement also determines a timetable for reducing free quotas for EU companies, starting in 2026 and gradually eliminating them all by 2034. Specifically, by 2026, 2.5% of the free quotas in these industries will be canceled, 5% in 2027, 10% in 2028, 22.5% in 2029, 48.5% in 2030, 61% in 2031, and 61% in 2032. 73.5% will be canceled, 86% will be canceled in 2033, and 100% will be canceled in 2034.
In addition, according to the agreement, by 2030, the combined emissions of the industries covered by the European carbon emissions trading system will be reduced by 62% compared with the 2005 plan, one percentage point more than proposed by the Commission. To achieve this reduction, the number of subsidies across the EU will be reduced in one go by 90 million tonnes of CO2e in 2024 and 27 million tonnes in 2026, by 4.3% per year from 2024-2027 and by 4.4% per year from 2028-2030. .
Earlier this week, the European Parliament and EU governments approved some details of CBAM, including trial operation time, coverage and emission scope.
According to the agreement, CBAM will begin trial operation in October 2023, and the transition period will be until the end of 2025. The trial operation time is delayed by 10 months compared with the previous bill. The agreement emphasizes that during the transition period affected businesses will only need to fulfill reporting obligations aimed at collecting data.
In addition to steel, cement, aluminum, fertilizers and electricity, the latest agreement also identifies hydrogen energy, indirect emissions under certain conditions, certain precursors and certain downstream products, such as screws and bolts and other steel-like products, within the scope of application of CBAM. .
The European Parliament said that before the end of the transition period (i.e. before 2026), the European Commission should evaluate whether to extend the scope to other goods with carbon leakage risks, including organic chemicals and polymers, with the aim of having the ETS covered by 2030 All items included. In addition, the European Commission should also evaluate approaches to indirect emissions and the possibility of incorporating more downstream products.
The agreement also states that the implementation and supervision of CBAM will be more centralized, with the European Commission being primarily responsible. By the end of 2027, the European Commission will conduct a comprehensive review of CBAM, including an assessment of progress made in international climate change negotiations and the impact on imports from developing countries, especially least developed countries (LDCs).
By 2025, the European Commission should assess the risk of carbon leakage from goods produced in the EU intended for export to non-EU countries and, if necessary, propose WTO-compliant legislation to address this risk. In addition, an estimated $47.5 million in subsidies will be used to raise additional funds to address export-related carbon leakage risks.
Yara International, Europe’s largest fertilizer producer, said CBAM is necessary to decarbonise the EU’s fertilizer sector and ensure a competitive environment in the internal market between European producers and importers. . But what if the design of CBAM only creates a level playing field for imports and does not take into account Europe’s exports in the global market. In countries where climate legislation is loose or non-existent, EU fertilizers will be less competitive than non-EU producers.
CBAM is essentially a carbon tax on specific imported products, intended to protect climate action within the EU and avoid “carbon leakage” caused by European companies outsourcing production to countries with lower emission targets.
According to the agreement, CBAM is mainly used to balance the carbon price of EU products operating under the ETS and the carbon price of imported goods. This will be achieved by forcing companies importing into the EU to buy so-called CBAM certificates to pay the difference between the carbon price paid by the producing country and the price of carbon allowances in the EU ETS.
The ETS will also provide industry with more funding for innovative technologies and the modernization of energy systems to support EU countries with per capita GDP below 75% of the EU average.
German lawmaker Peter Liese, who is steering the negotiations on behalf of the European Parliament, said the reformed scheme “sends a clear signal to European industry that investing in green technology pays off”, adding that the decision to extend the scheme to offshore emissions and After waste incineration, the reformed EU carbon market now “covers almost all sectors of the economy”.
Notably, the European Parliament has stated that a separate new emissions trading system (ETS II) will be established for road transport and construction fuels by 2027.
As requested by Parliament, fuels for other industries such as manufacturing will also be covered. If energy prices remain unusually high, ETS II could be delayed until 2028. In addition, a new price stabilization mechanism will be established to ensure that if the subsidized price in ETS II exceeds 45 euros, an additional 20 million in subsidies will be released.
The European Parliament also said it would set up a Social Climate Fund to support vulnerable households, micro-enterprises and transport users in coping with the price impacts of emissions trading systems for buildings, road transport and fuel emissions trading in other sectors.
French MP Pascal Canfin, chairman of the parliament’s environment committee, said the interim agreement now needs confirmation from EU member states and the European Parliament, which will hold a plenary vote in January or February.
It is reported that carbon tariffs are part of the EU’s “Fit for 55” package, which aims to reduce greenhouse gas emissions by 2030.Combat climate change and protect jobs and citizens by reducing emissions by at least 55% from 1990 levels, and achieve carbon neutrality by reducing net emissions to zero by 2050.
