EU Parliament backs CBAM, emissions trading measures

LONDON (ICIS)–A plenary session of the European Parliament on Tuesday backed reforms to the EU’s emissions trading system (ETS), as well as endorsing the proposed carbon border adjustment mechanism (CBAM) system and other pillars of the bloc’s Fit for 55 decarbonisation plans.

The ETS revisions are set to phase out free carbon allowances to companies from 2026-2034, as well as creating a new system (ETS II) to levy charges on emissions from road transport and building sector fuels from 2027.

Parliament also backed reforms to ETS systems for the aviation sector which are intended to phase out free allowances for the sector and encourage the transition to sustainable fuels.

Also expected to be phased in from 2026-2034, the CBAM will mandate that importers of goods into the EU pay the difference between the carbon price paid I the country of production and the EU ETS price.

The measures are expected to apply to the iron, steel, cement, aluminium, fertilizers, electricity and hydrogen sectors. Petrochemicals had been proposed for inclusion at several points during the gestation of the bill, but at present there are no defined plans to add products from the industry.

Parliament members overwhelmingly backed each of the proposed measures, as well as the establishment of a social climate fund to be launched in 2026 from €65bn in auctioned ETS II allowances.

The next step will be for the measures to go to EU member states, with Council meetings scheduled for next week and May. At time of publication, the Fit for 55 proposals are not on the docket for next week’s European Council summit.

The ETS scheme is the “main tool” the European Commission is using to decarbonise the region’s economy, according to Peter Liese, a Minister for European Parliament and former member of the Federal Executive of Germany’s Christian Democrats.

“There were challenges in the negotiation process,” speaking at the session on Tuesday. “We want to preserve jobs in this industry. We don’t want to de-industrialise Europe, we want to decarbonise European industry. And that’s the only way we can be a role model for other parts of the world.”

The region has moved to sever dependence on Russian fossil fuels while controlling prices, he added, despite the historic peak in energy pricing seen in late 2022 and still-elevated costs compared to pre-Ukraine war norms.

“Many have said that we have a crisis and that it is not the time to it is not the time for climate action. We proved them wrong when we got rid of the dependency on Russia and others to keep prices under control in the long term,” Liese said.

Focus article by Tom Brown.

Additional reporting by Imad Barake.

Thumbnail photo: EU Commissioner for Energy Kadri Simpson, speaking at at a European Parliament Plenary session in Strasbourg, France on 18 April 2023 (Source: Julien Warnand/EPA-EFE/Shutterstock)