The European Commission welcomes the provisional agreement reached with the European Parliament and Council to
strengthen the EU Emissions Trading System
(ETS),
apply emissions trading to new sectors
for effective economy-wide climate action, and
establish a
Social Climate Fund
. This deal is a fundamental step towards reaching the EU’s commitment to reduce net greenhouse gas emissions by at least 55% by 2030. At the same time the Social Climate Fund will help to ensure that the transition is fair.
Against the backdrop of Russia’s invasion of Ukraine, this agreement shows once again the EU’s determination to become climate neutral by 2050, transform our economy and society, leave nobody behind, and ensure our energy security. To complement the substantial spending on climate in the EU budget, Member States will
spend the entirety of their emissions trading revenues on climate and energy-related projects and to address social aspects of the transition
.
Strengthening and expanding EU emissions trading
The EU ETS puts a price on CO
2
and lowers the permitted level of emissions every year in sectors including power and heat generation, energy-intensive industrial sectors and commercial aviation. Today’s agreement will
reduce emissions
from the EU ETS sectors by
62% by 2030, compared to 2005 levels
. This represents
a substantial increase of 19 percentage points
compared to the 43% reduction under the existing legislation. The
speed of annual emission reductions will also increase
, from 2.2% per year under the current system to 4.3% from 2024 to 2027 and 4.4% from 2028. The Market Stability Reserve, which stabilises the carbon market by removing surplus allowances, will be strengthened. The agreement will
gradually phase out free emission allowances to certain enterprises
and phase in the Carbon Border Adjustment Mechanism (CBAM) between 2026 and 2034 for the sectors covered. This follows the provisional deal reached on CBAM by European co-legislators on 13 December.
The deal also
includes
shipping emissions in the EU ETS
, making the EU the first jurisdiction to put an explicit carbon price on emissions from the maritime sector. To support Member States in their efforts
to reduce emissions from buildings and road transport
, and certain industrial sectors a
new separate emissions trading system
will start from 2027 for relevant fuel use. While so far emission reductions in those sectors have been insufficient to put the EU on a firm path towards its goal of reaching climate neutrality by 2050, the new system will ensure cost-effective reductions and generate revenue that will be available to Member States and for support under the Social Climate Fund. This upstream system will regulate fuel suppliers rather than households and drivers. Safeguards are put in place to allow the release of extra allowances on the market if prices exceed certain thresholds, and to avoid double pricing when existing national measures are in place.
Today’s compromise also
increases the size of the Innovation and Modernisation Funds
. The Modernisation Fund will support three additional Member States with their transition. The Innovation Fund will be expanded, and will also be able to support the maritime sector’s decarbonisation efforts.
Creating a Social Climate Fund
The new Social Climate Fund will provide
dedicated financial support
to Member States
to help vulnerable citizens and micro-enterprises
with investments in energy efficiency measures such as home insulation, heat pumps, solar panels, and electric mobility. It will also be able to provide direct income support covering up to 37.5% of the new national Social Climate Plans. It will start operating in 2026, before the entry into force of the new ETS for transport and building fuels, and will be
financed by €65 billion from the EU budget, plus 25% co-financing by Member States
.
Next steps
Today’s provisional agreement now requires formal adoption by the Parliament and the Council. Once this process is completed, the new legislation will be published in the Official Journal of the Union and enter into force.
Background
Since the EU ETS was introduced in 2005,
emissions have been cut by 42.8%
in the main sectors covered: power and heat generation and energy-intensive industrial installations. In 2021, installations covered by the EU ETS accounted for around 40% of the EU’s total emissions. The strengthened rules will be crucial for the EU to reach its climate objectives under the Paris Agreement and make the European Green Deal a reality.
The European Green Deal is the EU’s long-term growth strategy to make Europe climate-neutral by 2050. To reach this target Europe must reduce its emissions by at least 55% by 2030, compared to 1990 levels. This agreement on the revision of the Emissions Trading System and the creation of the Social Climate Fund is a fundamental step in the adoption of the Commission’s ‘Fit for 55’ legislative package to deliver the European Green Deal. It follows recent deals on the Emissions Trading System for aviation, on CO2 emissions standards for cars and vans, on the Effort Sharing Regulation, on Land, Land Use and Land Use Change and the Carbon Border Adjustment Mechanism.
At the end of the negotiations, Executive Vice-President Frans
Timmermans
paid tribute to Mauro Petriccione, the former Director-General for Climate Action who led the Commission’s work on these proposals until he sadly passed away this Summer.
Quotes by Members of the College
Executive Vice-President for the European Green Deal, Frans
Timmermans,
said:
“Emissions trading is the centrepiece of our European Green Deal – putting a price on carbon. A stronger Emissions Trading System will help us drive investment into decarbonisation and reduce emissions further and faster, in line with our climate targets. With the new Social Climate Fund, the EU will ensure that our green transition is done in a way that protects our most vulnerable and helps them be part of the transition. At the end of a challenging year, this is much-needed positive news; in the face of strong headwinds, we continue delivering on the European Green Deal for a sustainable
EU Parliment Release
Deal on establishing the Social Climate Fund to support the energy transition
-
€86,7 billion funding made available to help the most vulnerable Europeans
-
National “Social Climate Plans” to address energy and transport poverty
-
Investments in energy efficiency, decarbonisation, sustainable transport
On Saturday(18 December 2022) night, Parliament and Council reached a provisional agreement to set up a new fund to help vulnerable citizens most affected by energy and transport poverty.
Negotiators agreed to establish the Social Climate Fund (SCF) to benefit vulnerable households, micro-enterprises and transport users that are particularly affected by energy and transport poverty. Only measures and investments that respect the principle of ‘do no significant harm’ and aim to reduce fossil fuel dependency will receive support.
Focus on tackling energy and transport poverty
EU countries will have to submit “Social Climate Plans”, after consulting with local and regional authorities, economic and social partners as well as civil society, which will cover two types of initiatives.
Firstly, the Fund will finance temporary direct income support measures to tackle the increase in road transport and heating fuel prices - with a limit of up to 37.5% of the total estimated cost of each national plan. It will also cover long-lasting structural investments, including buildings renovation, decarbonisation solutions and integration of renewable energy, purchasing and infrastructure for zero- and low-emission vehicles, as well as the use of public transport and shared mobility services.
At Parliament’s request, the SCF will start in 2026, one year before
the Emissions Trading System
(ETS) is extended to cover buildings and road transport (the so-called “ETS II”). If energy prices are exceptionally high, the ETS extension may be postponed by one year.
In the beginning, the fund will be financed through the revenues obtained from auctioning 50 million ETS allowances (estimated at around €4 billion). Once the ETS extension enters into force, the SCF will be funded from auctioning ETS II allowances up to an amount of €65 billion, with an additional 25% covered by national resources (amounting to an estimated total of €86,7 billion).
An
online press conference
with EP negotiations on the outcome of the ETS and SCF provisional agreements will take place on Monday, 19 December 2022, at 10.30 CET.
Co-rapporteur
Esther de LANGE (EPP, NL)
said: “With this agreement we aim to ensure a fair energy transition for everyone. The Social Climate Fund will help vulnerable households in the energy transition, for instance with insulation vouchers or moving towards greener transport options. For Parliament, it was important that the fund would not be a blank cheque for member states. I am very happy we managed to ensure that the money will reach the most vulnerable under the right conditions.”
Co-rapporteur
David CASA (EPP, MT)
said: "With this agreement on the Social Climate Fund, we are the closest we have ever been to ensuring that the climate transition will be fairer and more socially inclusive. In the pipeline are billions available to member states to invest in the energy needs of millions of households and small businesses. This is positive for our energy needs, for the climate, and for our citizens.”
Parliament and Council will have to formally approve the agreement before it can come into force.
EU Parliment Release
Climate change: Deal on a more ambitious Emissions Trading System (ETS)
-
Emissions in the ETS sectors must be cut by 62% by 2030
-
Free allowances to industries will be phased out from 2026 and disappear by 2034
-
An ETS II for fuel emissions from the building and road transport sectors as of 2027
On Saturday
(18 December 2022)
night, MEPs and EU governments agreed to reform the Emissions Trading System to further reduce industrial emissions and invest more in climate friendly technologies.
The EU Emissions Trading System (ETS)
, which enshrines the “polluter pays” principle, is at the core of European climate policy and key to achieving the objective of EU climate-neutrality. By putting a price on greenhouse gas (GHG) emissions, the ETS has triggered significant reductions in EU emissions, as industries have an incentive to reduce their emissions and invest in climate friendly technologies.
Increased ambitions for 2030
Emissions in the ETS sectors must be cut by 62% by 2030, compared to 2005, which is one percentage point more than proposed by the Commission. In order to reach this reduction, there will be a one-off reduction to the EU-wide quantity of allowances of 90 Mt Co2 equivalents in 2024 and 27 Mt in 2026 in combination with an annual reduction of allowances by 4.3% from 2024-27 and 4.4% from 2028-30.
Phasing out free allowances to companies
The free allowances to industries in the ETS will be phased out as follows:
2026: 2.5%, 2027: 5%, 2028: 10%, 2029: 22.5%, 2030: 48.5%, 2031: 61%, 2032: 73.5%, 2033: 86%, 2034: 100%.
The Carbon Border Adjustment Mechanism (CBAM), on which MEPs reached an
agreement
with EU governments earlier this week to prevent carbon leakage, will be phased in at the same speed that the free allowances in the ETS will be phased out. The CBAM will therefore start in 2026 and be fully phased in by 2034.
By 2025, the Commission shall assess the risk of carbon leakage for goods produced in the EU intended for export to non-EU countries and, if needed, present a WTO-compliant legislative proposal to address this risk. In addition, an estimated 47.5 million allowances will be used to raise new and additional financing to address any risk of export-related carbon leakage.
An ETS II for buildings and transport
A separate new ETS II for fuel for road transport and buildings that will put a price on emissions from these sectors will be established by 2027. This is one year later than proposed by the Commission. As requested by Parliament, fuel for other sectors such as manufacturing will also be covered. In addition, ETS II could be postponed until 2028 to protect citizens, if energy prices are exceptionally high. Furthermore, a new price stability mechanism will be set-up to ensure that if the price of an allowance in ETS II rises above 45 EUR, 20 million additional allowances will be released.
Financing the green transition
More money will be made available for innovative technologies and to modernise the energy system.
The
Innovation Fund
, will be increased from the current 450 to 575 million allowances.
The
Modernisation Fund
will be increased by auctioning an additional 2.5% of allowances that will support EU countries with GDP per capita below 75% of the EU average.
All national revenues from auctioning ETS allowances shall be spent on climate related activities.
MEPs and Council also agreed to establish a
Social Climate Fund
for the most vulnerable. A more detailed press release on this is
available here
.
Inclusion of emissions from shipping
As
requested several times by Parliament
, the ETS will, for the first time, be extended to maritime transport. You can read more on this part of the agreement
here
.
24% of all ETS allowances will be placed in the
market stability reserve
to address possible imbalances between the supply of and demand for allowances in the market due to external shocks such as those caused by COVID-19.
EU countries must measure, report, and verify emissions from municipal waste incineration installations from 2024. By 31 January 2026, the Commission shall present a report with the aim of including such installations in the EU ETS from 2028 with a possible opt-out until 2030 at the latest.
After the deal, rapporteur
Peter Liese (EPP, DE)
, said: “This deal will provide a huge contribution towards fighting climate change at low costs. It will give breathing space for citizens and industry in difficult times and provide a clear signal to European industry that it pays off to invest in green technologies.”
An online press conference is scheduled for Monday 19 December at 10.30 CEST.
More information on how to follow it here
.
Parliament and Council will have to formally approve the agreement before the new law can come into force.
The ETS is part of the
“Fit for 55 in 2030 package"
, which is the EU’s plan to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels in line with
the European Climate Law
. MEPs have already negotiated agreements with EU governments on
CBAM
,
CO2 cars
,
LULUCF
,
Effort Sharing
and
ETS aviation
.
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