EU’s historic carbon market overhaul gets green light from lawmakers


EU’s historic carbon market overhaul gets green light from lawmakers


The European Parliament on Wednesday endorsed the long-anticipated carbon market reforms, easing worries that Europe’s climate actions might be delayed after legislators rejected the proposals in a first vote earlier this month.

The overhauls are expected to accelerate emission reductions under the European Union’s Emission Trading Scheme (EU ETS), which is the centerpiece of a legislative package aimed at reducing the bloc’s net greenhouse gas production by 55% by 2030 compared to 1990 levels.

The compromise was reached after members of the European Parliament (MEPs) rejected the full carbon market bill in the first vote two weeks ago, when they disagreed on how swiftly to stop free permits in the face of growing energy costs and inflation.

After the first vote, the EU’s Environment, Public Health, and Food Safety Committee (ENVI) had started negotiations and finally found compromises on Wednesday. A majority of MEPs supported a proposal to phase out free carbon allowances for industries by 2032 and replace them with a carbon tax on imported steel, cement, and other items, in order to level the playing field between European and foreign firms.

Lawmakers agreed to reduce the market cap on carbon permits by 4.4% beginning in 2024, 4.5% beginning in 2026, and 4.6% beginning in 2029, with an additional 70 million permits removed in 2024 and 50 million withdrawn in 2026 to accelerate carbon reductions.

The Parliament also voted in favor of extending its carbon market to buildings and transportation, which some nations believe could further raise fuel prices. They stated that the new scheme should apply to the business sector only beginning in 2025, excluding households, a move that Brussels has warned might jeopardize Europe’s climate ambitions.

Other aspects of the proposal were enhanced by the EU assembly, which agreed to expand the carbon market to include 100% of emissions from international shipping trips to and from the EU beginning in 2027, rather than the 50% requested by Brussels.

in addition, in response to member states who show concerns over inflation risk fueled by skyrocketing European carbon prices, the EU assembly votes to back amendments to limit speculators’ access to the carbon market, despite bank fears that doing so would reduce their liquidity.

The decision reinforces Parliament’s position on final legislation talks with EU nations. The Council of the European Union will start discussion on their own position next Tuesday. If the Council disagrees with the amendments proposed by the lawmakers, the bloc will start negotiations in the ‘trilogue’ after the Czech Presidency begins. 

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