The EU carbon market limits the supply of permits and countries can only ‘sell’ 5% of their excess carbon emissions to other member states until 2030 to ensure nations meet their own emissions targets.
Lawmakers in the European Parliament’s Environment Committee voted on a range of climate policies on May 17, including tougher rules on national emissions targets and a more ambitious overhaul of Europe’s carbon market.
The European Union is seeking to reduce carbon emissions by 55% by 2030 from their 1990 levels, and to increase their energy production from renewable sources to 40%. But the war in Ukraine has prompted a number of countries to increase the production of coal and other fossil fuels to end their energy dependence on Russia, thus generating more global warming emissions. .
The war has pushed the bloc to accelerate its transition to renewables, but European lawmakers are also voting for tougher measures to ensure countries meet their own emissions reduction targets and prevent them from relying on other member states. to take over.
The commission has backed a proposal that allows countries that exceed their targets to sell their additional CO2 reductions, or around 5% of their annual emissions limitto another country each year until 2030. The European Commission had initially suggested allowing 10% between 2026 and 2030.
Each country’s target is based largely on its gross domestic product (GDP); stricter and more ambitious targets are set for the richer Member States compared to the poorer ones.
Other climate policies that have been voted on are proposals to implement stricter rules for the European carbon market. EU Emissions Trading System (ETS) is a financial mechanism to incentivize polluting companies to reduce their greenhouse gas emissions, in which power plants and factories are required to pay permits for a set amount of carbon they emit. Since the launch of the ETS in 2005, carbon emissions in the bloc’s sectors have fallen by 43%.
A small majority in the committee is in favor of reducing the supply of permits added to the carbon market by 4.2% – and increasing this rate by 0.1% each year to ensure that emissions decline faster – and to reduce emissions covered by the ETS by 67% by 2030 compared to 2005 levels. The new measures would also make it easier to intervene in the carbon market in the event of a price spike. For example, the EU can add more permits to the market if carbon prices are more than twice the average of the previous two years over a six-month period.
Industries will also no longer receive free carbon permits by 2030 and will instead face a border carbon tax on imports of polluting goods under the carbon border adjustment mechanism.
The same is true for the aviation sector. Airlines would lose half of their free permits on the EU carbon market in 2024 and all of them by 2026 to increase the pollution costs of flying in Europe. But companies that switch to or use sustainable aviation fuel would still receive free permits to help cover their high cost compared to conventional fossil fuels.
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