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EU members approve carbon market scheme, other climate laws

April 25, 2023

EU countries have given the final sign-off for a series of new climate change-related laws, which seek to create financial incentives for keeping emissions in check, and penalties for failing to do so.

Clouds coming from the chimneys of a coal-fired power plant in Niederaussem in Germany. Undated archive image.
The EU's Emissions Trading System mainly concerns the energy industry, heavy industry, and the aviation sector, but it will be expandedImage: S. Ziese/blickwinkel/IMAGO

The 27 member states in the EU on Tuesday approved a revamp to the bloc's so-called carbon market, which is set to make it more costly to pollute for businesses in Europe, sharpening the main tool the EU has to discourage carbon dioxide emissions in the industrial sector.

The changes to the EU's Emissions Trading System (EU ETS), more commonly called the bloc's carbon market, are one of five new laws given final approval on Tuesday after being proposed by the European Commission and after a favorable vote at the European Parliament last week.

The approval was announced amid a meeting of the bloc's environment ministers in Brussels. 

What is the carbon market? 

Since 2005, European factories and power plants have had to purchase permits to cover their CO2 emissions, with the prices becoming more prohibitive as their usage increases against norms for their sectors. 

The idea is to create financial incentives for keeping emissions in check, and penalties for failing to — and to generate funds for climate-related projects.

It applies to power-generation industries, energy-intensive industries and the aviation sector. Eventually it will be expanded to cover greenhouse gases other than CO2, such as methane and nitrogen oxides.

The law's existence has coincided with emissions from those sectors falling by 43% in the EU but what share of that might be correlation and what share might be coincidence is harder to ascertain, amid various partially-related breakthroughs helping to limit emissions. 

The changes will set more stringent targets and tougher penalties as time passes. 

"The new rules increase the overall ambition of emissions reductions by 2030 in the sectors covered by the EU ETS to 62% compared to 2005 levels," the EU said of the changes. 

The free permits granted to companies for lower levels of emissions will be gradually phased out, by 2034 for heavy industries and by 2026 for the aviation sector, for instance.

There had been some resistance to the changes within the bloc, which are roughly two years in the making.

Only 23 of 27 EU members voted in favor; Poland and Hungary opposed it, Belgium and Bulgaria abstained. 

Critics like Poland had argued that the targets were too ambitious and would place an unfair strain on industry. 

Some EU policies and laws — international sanctions are one example of current relevance amid Russia's invasion of Ukraine — require unanimous approval from member states, but for most a qualified majority vote suffices. 

What else was approved? 

The changes to the ETS are part of the EU's "Fit for 55" package of climate plans, a reference to its goal of reducing carbon emissions by 55% by 2030 compared with a 1990 benchmark.

Four more alterations were approved on Tuesday. 

The first is a plan to incorporate parts of the shipping industry into the ETS, meaning they too will need to buy permits to cover their emissions at times. 

A new, separate ETS will be established for the buildings and road transport sectors and some others, mainly small industry according to the EU. 

Changes specifically tailored to the aviation sector were also approved. 

The EU will also introduce what it calls its Carbon Border Adjustment Mechanism (CBAM), which concerns products imported from outside the EU for carbon-intensive industries. 

According to the EU, its aim is "to prevent ... that the greenhouse gas reduction efforts of the EU are offset by increasing emissions outside its borders through the relocation of production to countries where policies applied to fight climate change are less ambitious than those of the EU." 

Finally, the EU is setting up what it calls a Social Climate Fund.

It "will be used by member states to finance measures and investments to support vulnerable households, micro-enterprises and transport users and help them cope with the price impacts of an emissions trading system for the buildings, road transport and additional sectors," the EU said. 

The bulk of the funds would hail from the carbon market revenues generated by the ETS, Brussels said, with member states contributing the rest. 

msh/jcg (AFP, Reuters)