European Union negotiators agreed on a deal to overhaul the bloc’s carbon market by cutting emissions faster and imposing new carbon costs on fuels used in road transport and buildings from 2027, as reported by Reuters on December 18. Under the new deal, sectors covered by the European Emissions Trading System (ETS) will have to cut their emissions 62% below 2005 levels by 2030- a significant progress on the current 43% target. The agreement also involves the removal of 90m tons of CO₂ permits from the system in 2024 and 27m tons in 2026. Moreover, from 2024 to 2027, the annual reduction rate of the emission cap will be raised to 4.3% from 2.2% at present, before increasing to 4.4% from 2028 to 2030. 

With the completion of the Carbon Border Adjustment Mechanism (CBAM), the world’s first major carbon border tax, the EU is preparing to phase out the free CO2 permits designed to protect industries from foreign competition. EU member states finalized details of the CBAM on December 18, aiming to make foreign manufacturers undertake as much emission reduction costs as the EU industries have. Currently, the EU requires around 10,000 power plants and factories to buy CO₂ permits to offset their pollution, while those with surplus credits could make profits by selling CO₂ permits on the market. Considering an increase in CO₂ costs arising from the cancellation of free CO₂ permits, the EU will also launch a EUD86.7bn fund to help consumers and small businesses and invest in energy-saving building renovations or electric vehicles (EVs).

Sources:

https://www.reuters.com/business/environment/eu-reaches-agreement-pivotal-carbon-market-deal-czech-eu-presidency-2022-12-18/

https://www.euractiv.com/section/emissions-trading-scheme/news/eu-agrees-carbon-market-overhaul-in-bid-to-hit-2030-climate-goal/

https://www.ft.com/content/4a0db207-cf24-42e4-bf82-9952b93980e8

https://news.cnstock.com/news,bwkx-202212-4995705.htm