In the European Parliament, the political groups have found a compromise on the reform of the carbon market

In the European Parliament, the political groups have found a compromise on the reform of the carbon market

The three biggest political groups in the European Parliament, backed by the Greens, have reached a compromise on reforming the EU’s emissions trading system (ETS) ahead of a decisive vote next week in plenary session.

The agreement, reached on Tuesday evening (June 14) by the European People’s Party (EPP), the Socialists and Democrats (S&D) and the centrist Renew Europe (RE) party, was presented to the press the following day.

The main elements of this agreement are as follows:

  • Emission reductions from industries covered by the ETS will reach 63% by 2030 compared to 2005 levels. This figure is higher than the 61% of the initial Commission proposal.
  • A phasing out of permits granted free of charge to industry under the ETS between 2027 and 31 December 2032. (In the Commission proposal: 2026-2035).
  • The EU’s new Carbon Border Adjustment Mechanism (MACF) would begin to apply from 2033 replacing free allowances. However, if the MACF is delayed or suspended, a “safety net” will be used with the maintenance of free allowances until the entry into force of the MACF.
  • The linear reduction factor (linear reduction factorLRF), which defines the annual cap of CO2 allowances available for auction, will reach 4.6% in 2029. It will be reduced by 4.4% per year between 2024 and 2026, and by 4.5% between 2026 and 2029.
  • A rebasing overall level of ambition has been agreed. 70 million CO2 allowances will be withdrawn from the market when the revised ETS comes into force. Then another 50 million will be withdrawn in 2026.

General satisfaction

The compromise will now be presented to the European Parliament for a plenary vote on June 22. If adopted as planned, Parliament negotiators will then defend the text in tripartite discussions with EU member states and the European Commission to finalize the reform.

Jytte Guteland, a Swedish S&D MEP who surprisingly voted against the reform last week, said her group was now happy with the compromise.

“Yes, we think it is more satisfying, we have achieved a balance”, she told EURACTIV. Ms Guteland is particularly pleased that ambitions have been raised for the linear reduction factor, saying it will be doubled compared to the EU executive’s initial proposal.

“I think it is important because the Commission has not doubled the LRF. They said they did but in fact they didn’t’she claimed.AMCF

The EPP was equally satisfied, saying that its main objectives had been achieved.

“First of all, we want to achieve the objectives” set under EU climate law to cut carbon emissions by 55% before the end of this decade, said Esther de Lange, a Dutch EPP legislator who is leading discussions on ETS reform. in Parliament.

The second objective, she continued, is to provide a “respite” to European industries, which “operate in a very difficult economic situation” caused by inflation and rising energy prices fueled by the war in Ukraine.

According to Ms de Lange, this objective was achieved with the postponement of the start date of the phasing out of free allowances for the industry by one year – in 2027 instead of 2026.

“We want to ensure that industry has a breathing space to invest, innovate to become greener, and therefore to maintain jobs in Europe”explained Mrs. de Lange.

Emma Wiesner, a Swedish lawmaker from the group Renew Europe, gave more information on the agreement on the system of rebasing. “The S&D group wanted a rebasing with higher ambitions, the EPP absolutely did not want a rebasing with higher ambitions”she explained, specifying that the solution was found with an increase in the linear reduction factor in 2029.

“This is the new element that was not voted on last week”she clarified. “So that means the LRF will no longer be linear…it will be progressive. »

Export tax relief

Another important aspect for the EPP was the introduction of export tax breaks. Industries covered by the ETS currently receive free allowances for all their production, whether exported or not. With the MACF system eventually replacing free quotas, many have worried about a decline in competitiveness on world markets.

To remedy this, the compromise prolongs the free quota regime for export-dependent sectors. The relief will only apply to the part of the production that is exported, explained Ms de Lange.

The European Commission will then carry out an assessment to determine whether or not the scheme is compatible with the rules of the World Trade Organization (WTO).

With the three largest political groups in Parliament on board, MEPs were hopeful that the reform would be voted on next week.

“This deal is a good deal. No one will cry victory, no one will cry defeat. We all got a good deal”said Mohammed Chahim, a Dutch lawmaker from the S&D group who is piloting the MACF proposal in parliament.

“And what is far more important is that we will get this very important bill through with strong support from Parliament. »

“I hope that next week we can get this text through Parliament so that we can start negotiating with the Council, because it is very important that we finalize this piece of legislation as soon as possible”explained Mr. Chahim.

The Greens also in favor of the proposal

The Greens, who rejected the ETS reform last week with the S&Ds, told EURACTIV they would support the compromise amendments this time around, even though they did not negotiate the deal themselves.

With the support of the Greens, the compromise agreement should pass without difficulty.

“It was not an easy agreement, but it is the biggest climate package in Europe”said Green MEP Michael Bloss in a statement.

“Climate advocates can take a breather for now, the 1.5 degree climate target has not yet been abandoned. »

[Complément d’information : Kira Taylor ; édition : Zoran Radosavljevic]



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