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European Parliament adopts EU ETS-related reforms

Members of the European Parliament adopted the reform of the EU’s Emissions Trading System (ETS) including for aviation and maritime, the Carbon Border Adjustment Mechanism (CBAM) and a new Social Climate fund.

The reform of the ETS was adopted with 413 votes in favour, 167 against and 57 abstentions. It increases the ambition of the ETS, as greenhouse gas (GHG) emissions in the ETS sectors must be cut by 62 per cent by 2030 compared to 2005 levels. It also phases out free allowances to companies from 2026 until 2034 and creates a separate new ETS II for fuel for road transport and buildings that will put a price on GHG emissions from these sectors in 2027 (or 2028 if energy prices are exceptionally high).

Parliament also voted to include, for the first time, GHG emissions from the maritime sector in the ETS and agreed to the revision of the ETS for aviation. This will phase out the free allowances to the aviation sector by 2026 and promote the use of sustainable aviation fuels.

With 487 votes in favour, the Parliament also adopted the rules for the new EU CBAM, which aims to incentivise non-EU countries to increase their climate ambition and to ensure that EU and global climate efforts are not undermined by production being relocated from the EU to countries with less ambitious policies.

The goods covered by CBAM are iron, steel, cement, aluminium, fertilisers, electricity, hydrogen as well as indirect emissions under certain conditions. Importers of these goods would have to pay any price difference between the carbon price paid in the country of production and the price of carbon allowances in the EU ETS. The CBAM will be phased in from 2026 until 2034 at the same speed as the free allowances in the EU ETS are being phased out.

Finally, the deal with the Member States to set up an EU Social Climate Fund in 2026 to ensure that the climate transition will be fair and socially inclusive was adopted. Vulnerable households, micro-enterprises and transport users who are particularly affected by energy and transport poverty will benefit from this. When fully in place, the Fund will be supported by auctioning ETS II allowances up to an amount of 65 billion euros, with an additional 25 per cent covered by national resources (amounting to an estimated total of 86,7 billion euros).

The texts now also have to be formally endorsed by Council. They will then be published in the EU Official Journal and enter into force 20 days later.

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