EU member states and parliamentarians on Sunday reached a political deal to reform the bloc's carbon market, the key policy of its ambitions to cut emissions and invest in climate-friendly technologies.
The deal aims to accelerate emissions reduction, phase out free CO2 permits to industries and targets fuel emissions from the building and road transport sectors, according to a European Parliament statement.
Under the EU Emissions Trading System (ETS), electricity producers and industries with high energy demand such as steel and cement can purchase "free allowances" to cover their carbon emissions under a "polluter pays" principle.
The quotas are designed to decrease over time to encourage them to emit less and invest in greener technologies as part of the European Union's ultimate goal of achieving carbon neutrality.
Negotiators from EU countries and the parliament had spent more than 24 hours in intense talks before reaching an agreement on Saturday night that broadens the scope of the carbon market.
The deal revised up emissions reduction goal in the ETS sectors from the previous 43% to 62% by 2030 based on 2005 levels, mandating concerned industries to cut their emissions by that amount.
The agreement also seeks to accelerate the timetable for phasing out the free allowances, with 48.5% phased out by 2030 and a complete removal by 2034, a schedule at the centre of fierce debates between MEPs and member states.
The carbon market will be progressively extended to cover the maritime sector and intra-European flights. Waste incineration sites will be included from 2028, depending on a favourable report by the commission.
The European Commission had proposed to launch a second carbon market covering building heating and road fuels, but the plan raised concerns as households grapple with soaring energy prices exacerbated by Russia-Ukraine conflict.
The second carbon market would have obliged suppliers of fuel and gas to buy quotas to cover their emissions, but MEPs argued the measure should be limited to offices and large vehicles.
Funds from this second market will go to a "Social Climate Fund" designed to shield vulnerable households and businesses from the energy price crisis.