The European Parliament adopts position on the EU ETS reform

The European Parliament has adopted its position on three key European Union (EU) draft laws to reduce greenhouse gas (GHG) emissions by at least 55% by 2030 compared to 1990 levels, including a reform proposal to expand and revise the EU Emissions Trading Scheme (EU ETS). Specifically, the Parliament endorsed plans to : 

- Phase out free allowances in the EU ETS from 2027 and to end by 2032. In addition, the 2030 GHG emissions reduction target for sectors covered by the ETS (chemical industry, power generation, paper sector, cement, steel) should be increased from 61% to 63% compared to 2005 levels.

- Create a second carbon market for heavy goods vehicles and office buildings, that will be extended to transport and private housing as from 2029, i.e. citizens will be excluded of this second carbon market until 2029.

- Authorise the implementation of the Carbon Border Adjustment Mechanism (CBAM, i.e. a carbon tax for imported commodities and electricity) from 1 January 2023 with a transitional period until the end of 2026. Until 2032, exporters should receive free allocations: 100% in the period 2023-2026, 93% in 2027, 84% in 2028, 69% in 2029, 50% in 2030 and 25% in 2031. Amount, at least equivalent in financial value to the revenues generated by the sale of CBAM certificates, will be earkmarked to support least developed countries' efforts to decarbonise their manufacturing industries.

Earlier in June 2022, the European Parliament rejected a reform proposal to expand and revise the EU ETS. Consequently, related votes to create the CBAM, and the Social Climate Fund, which would use revenues from the EU ETS to assist the vulnerable population, were postponed until further notice. The EU aims to achieve a net emissions reduction of at least 55% by 2030 compared to 1990 levels and to reach carbon neutrality by 2050.