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Climate: European Union agreement to reform the carbon market without burdening households

 

European Union

ECOLOGY The Twenty-Seven approved, on the night of Tuesday to Wednesday, five key texts of the EU climate plan, agreeing in particular on the amount of a fund supposed to amortize for consumers the impact of a carbon market extended to cars and housing

Meeting in Luxembourg, the European Union’s environment ministers agreed on their common position on the goal of new zero-emission cars by 2035, the distribution of climate efforts between states and the imposition of targets for natural “carbon sinks” (forests, etc.), before talks with MEPs to finalise these texts.

But the proposal for a “climate social fund”, another key part of the plan presented by the European Commission in July 2021, was the subject, until late at night, of tough negotiations, threatening to block the agreement on the other texts of the package. The European plan plans to oblige fuel and heating oil suppliers to buy allowances covering their CO2 emissions on a new carbon market, as is already the case today for electricity suppliers and certain industries.

 

A “social fund”

Worried about the additional cost for small businesses and the most vulnerable households, Brussels is proposing a “social fund” fed by the revenues of the new carbon market “housing and road transport”, in order to offset the impact of price increases, via “temporary” direct aid and the financing of works reducing their energy consumption.

Agreeing in principle, the Twenty-Seven disagreed on the size of the fund. Brussels was aiming for an amount of 72.2 billion euros for 2025-2032: far too high for a group of so-called “frugal” states (Germany, Denmark, the Netherlands, Finland…). Berlin had proposed to reduce the share of the revenues of the new carbon market allocated to the fund to the smallest portion, lowering it to 20 billion euros, so that a larger share of these revenues would go to national budgets. Germany had finally raised its proposal to 48 billion on Tuesday.

Conversely, many countries in Eastern and Southern Europe found the social mechanism largely insufficient. The France, which holds the rotating presidency of the EU, has rallied the majority of states to a compromise of 59 billion euros for a shorter period (2027-2032), redirecting to the social fund 11.5 billion euros from the revenues of the carbon market that were initially intended for the European “innovation fund”.

 

“A fairly balanced compromise”

This strategy has made it possible to increase the level of the social fund without further eroding the revenues from carbon emissions accruing to the States, a red line of the “frugal”. Paris touted a “fairly balanced compromise”, also observing that the Innovation Fund was “rather intended” for rich regions, which should therefore not suffer too much to see it amputated.

The agreement did not convince Poland, which denounced “decisions that risk undermining popular support for the climate plan”. Latvia is also concerned about a “fund that is too small, unable to meet the challenges encountered”, and hopes for its recovery in the upcoming negotiations with the Parliament. States also agreed on Wednesday to phase out free emission allowances granted to certain industrial sectors, as a carbon tax on imports from third countries increases at the EU’s borders between 2026 and 2035.

The Council proposes a much more gradual pace of reduction than advocated by Brussels and MEPs. Free quotas allocated to airlines would be eliminated by 2027. Finally, the Twenty-Seven validated the inclusion of maritime transport in the carbon market, but with “transitional” accommodations for winter navigation, “public service” routes and service to small islands.

To achieve the new European climate target, Brussels wants to create a new carbon market for fuels and heaters. A proposal that is debated.
To achieve the new European climate target, Brussels wants to create a new carbon market for fuels and heaters. A proposal that is debated. — Martin BUREAU / AFP 

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