EU Strikes Deal to Boost Carbon Market, Europe’s Biggest Climate Policy

BRUXELLES — On Sunday, European Union negotiators reached a political agreement to overhaul the bloc’s carbon market, reducing global warming emissions faster and imposing new CO2 costs on fuels used in road transport and buildings beginning in 2027.

The EU carbon market requires approximately 10,000 power plants and factories to purchase CO2 permits when they pollute — a system critical to the EU’s goal of cutting net emissions by 55% by 2030 compared to 1990 levels.

The EU carbon market will be reformed to cut emissions by 62% from 2005 levels by 2030, according to a deal reached by negotiators from EU countries and the European Parliament.

The plan calls for removing 90 million CO2 permits from the system in 2024, 27 million in 2026, and lowering the rate at which the system’s CO2 permit cap falls by 4.3% from 2024 to 2027 and 4.4% from 2028 to 2030.

“It’s crunch time starting in 2027. Everyone must reduce emissions by then or face significant penalties “According to Peter Liese, the European Parliament’s lead negotiator, the looming deadline will encourage investment in green energy.

The EU will phase out the free CO2 permits it currently provides industries to protect them from foreign competition between 2026 and 2034. These permits will be phased out as the EU implements a carbon border tariff to prevent domestic firms from being undercut by foreign competitors.

The EU also agreed to launch a new carbon market covering suppliers of CO2-emitting fuels used in cars and buildings in 2027, following 30 hours of talks that began on Friday.

Following the refusal of EU lawmakers to include households in the scheme, negotiators agreed on a number of measures to protect citizens from high CO2 prices.

If fuel prices remain as high in 2027 as they are today, the carbon market will not be implemented until 2028. If its CO2 price reaches 45 euros ($47.62), more CO2 permits will be released into the market to try to keep prices stable.

The price of EU carbon permits has risen in recent years, fueled by the expectation that stricter EU emissions targets will reduce the supply of CO2 permits in the scheme. On Friday, the benchmark EU carbon price was around 84 euros per ton of CO2, roughly ten times its value five years ago.

The EU will also establish an 86.7 billion euro fund to assist consumers and small businesses in dealing with CO2 costs and investing in energy-saving building renovations or electric vehicles, with funds coming from both the new EU CO2 market and national governments.

The European Parliament and the European Council must still formally approve the provisional agreement.

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