EU Parliament approves carbon market reform

The European Parliament on Tuesday approved several laws as part of the Fit for 55 in 2030 package, including the reform of the Emissions Trading System (ETS).

The ETS seeks to reduce the industry's carbon emissions. Since its launch in 2005, EU emissions have been reduced in the sectors covered by 41%. The ETS reform adopted by the Parliament aims to cut industry emissions by 62% by 2030 compared to 2005 levels. It phases out free allowances to industries from 2026 until 2034.

At the same time, the new EU Carbon Border Adjustment Mechanism (CBAM) will be phased in from 2026 until 2034. It would apply a carbon levy to imported goods from less ambitious countries. The mechanism covers iron, steel, cement, aluminium, fertilisers, electricity, hydrogen as well as indirect emissions under certain conditions.

The reforms also include extending the ETS to the maritime sector and phasing out the free allowances to the aviation sector by 2026.

A new ETS II will be created for fuel for road transport and buildings that will put a price on emissions from these sectors in 2027. Private transport and residential buildings would be added only from 2029 and would require a new Commission proposal.

The parliament also approved the setting up of an EU Social Climate Fund (SCF) to counter energy and mobility poverty.

The changes were agreed by MEPs and EU governments in late 2022. The texts now need to be formally endorsed by the Council before being published in the EU Official Journal.

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