Reform is expected to increase cost of pollution for industries like cement production, aviation, & shipping while also generating billions of euros through the sale of CO2 permits.
The 27-member EU on Tuesday gave final approval to the largest revision to the Europe carbon market to date, which is expected to increase the cost of pollution and improve the EU’s primary tool for reducing carbon dioxide emissions.
Since requiring factories and power plants to purchase permits when they emit CO2 in 2005, the world’s first significant carbon trading system has reduced emissions from those industries by 43%.
The deal to reform the carbon market of Europe to reduce emissions by 62% from 2005 levels by 2030, which is intended to meet the EU’s emission-reduction targets, was approved by members of the European Union last year.
Following nearly two years of EU negotiations, the policy has now become law as a result of the member states’ approval. Last week, the deal was approved by the EU Parliament.
The reform is expected to increase the cost of pollution for industries like cement production, aviation, and shipping while also generating billions of euros through the sale of CO2 permits, which will be used by national governments to fund environmental initiatives.
Airlines will lose their free CO2 permits starting in 2026, exposing them to higher CO2 costs, while heavy industries will lose theirs by 2034. Starting in 2024, the plan will include emissions from ships.
Additionally, nations agreed to the EU’s groundbreaking plan to gradually impose a tax on imports of high-carbon goods beginning in 2026, specifically targeting steel, cement, aluminium, fertilisers, electricity, and hydrogen.
The carbon border tax aims to level the playing field between EU industries and foreign rivals in order to prevent EU producers from moving to areas with laxer environmental regulations.
Due to the anticipated reforms, the cost of EU carbon permits has increased dramatically in recent years. Since the beginning of 2020, the price of EU carbon permits has more than tripled, trading at about 88 euros per ton on Tuesday.
Along with a $97 billion EU fund to assist consumers affected by the costs, EU countries also supported plans to launch a new EU carbon market in 2027 that will cover emissions from fuels used in buildings and cars.