A major revamp of the bloc’s flagship carbon market and a brand new fund to protect vulnerable people from rising CO2 costs have been agreed by EU negotiators in the early hours of Sunday in a “jumbo” trilogue which started on Friday morning.
“After 30 hours of negotiation time (net!), we have an agreement on a new ETS and the creation of a social fund for the climate (SCF)”, tweeted Esther de Lange, vice-president of the European People’s Party and one of the main climate legislators.
Considered the cornerstone of Europe’s climate efforts, the reform of the Emissions Trading System (ETS) is key to achieving the target of reducing CO2 emissions by 55% by 2030 compared to at 1990 levels.
“We have just reached an agreement on the biggest climate law ever negotiated in Europe”, said German MEP Peter Liese, who led negotiations on the bill.
As part of the hard-negotiated compromise, EU brokers stipulated that power producers and big polluters covered by the ETS will have to reduce their pollution by 62% by the end of the decade, or 1% more than what the European Commission had initially proposed.
Waste will be covered by the scheme from 2028, with potential exemptions until 2030.
The agreement also stipulates that all revenues generated by the carbon market “must” be spent on climate action.
“This is one of parliament’s biggest victories,” Liese told a briefing shortly after the talks ended.
Free CO2 certificates, given to industry to stay competitive against rivals outside the bloc, will be phased out entirely by 2034 as a carbon border adjustment mechanism is set to come into effect from 2026 at the end of a three-year transition period. The Commission and Council have called for a 2036 deadline, while Parliament has fought for a faster phase-out by 2032.
The border tax covers cement, aluminum, fertilizers, electric power generation, hydrogen, iron and steel.
However, negotiators refrained from introducing rebates to protect exports, arguing that they would be inconsistent with World Trade Organization rules. Instead, the 27 EU countries will be granted the right to set aside revenue to support businesses that risk being harmed by the phasing out of free permits.
The deal also calls for a parallel carbon market to cover fossil fuels used to power cars and heat buildings from 2027 – easily one of the most controversial elements due to fears it could increase poverty. energy and trigger political unrest if it is not designed in the right way. .
To reach a deal, Parliament dropped its call for a separation between commercial users and private owners – something the Commission and Council had said was unworkable.
But to make it more acceptable, policymakers agreed that the so-called ETS2 would come with an emergency brake to be triggered in the event that carbon prices per tonne exceed €90 – which would delay the start by a year. . The pact also provides that prices will be capped at €45 until at least 2030.
To help low-income households quickly switch to cleaner modes of transport and heating so they are not unfairly affected by the measure, EU policymakers have approved a Social Climate Fund for a value of 86.7 billion euros from 2026 to 2032.
This is far more than the 59 billion euro fund supported by the Council; 25% will be raised through co-funding from EU governments, while a so-called ‘all-fuel approach’ covering process emissions means more CO2 permits will be sold under the scheme.
Several negotiators said the talks had been made particularly difficult by Germany’s procrastination.
“Germany desperately wanted the second carbon market and the inclusion of other fuels. They got it and they should celebrate,” Liese said, adding that “instead of celebrating, they created problems until ‘at the last minute’.
The agreement also confirmed that the ETS will be extended to the maritime sector.