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The EU reaches an agreement to boost the carbon market, its main climate policy

The EU reaches an agreement to boost the carbon market, its main climate policy

European Union negotiators reached a political agreement on Sunday to overhaul the bloc’s carbon market, more quickly reducing planet-warming emissions and imposing new CO2 costs on fuels used in road transport and buildings from 2027.

The EU carbon market obliges some 10,000 power plants and factories to buy CO2 permits when they pollute, a key system to meet the EU’s target of reducing their net emissions by 55% by 2030 compared to 1990 levels.

According to the agreement reached by the negotiators of the EU countries and the European Parliament, the EU carbon market will be reformed to reduce emissions by 62% in 2030, compared to 2005.

The plan involves removing 90 million CO2 permits from the system in 2024, 27 million in 2026 and slowing down the pace at which the maximum limit for CO2 permits is reduced between 2024 and 2030.

“From 2027 it will be the moment of truth. Everyone has to reduce emissions by then or they will have to pay a lot,” said European Parliament chief negotiator Peter Liese, adding that he hoped this looming deadline would encourage investment in green energy.

Between 2026 and 2034, the EU will phase out the CO2-free permits it currently grants to industries to protect them from foreign competition.

Permits will be phased out as the EU gradually introduces a border carbon fee aimed at preventing domestic companies from being harmed by their foreign competitors.

After 30 hours of negotiations started on Friday, the EU also agreed to launch a new carbon market by 2027 covering suppliers of CO2-emitting fuels used in cars and buildings.

After EU lawmakers resisted including households in the regime, negotiators agreed on several measures to protect citizens from high CO2 prices.

If in 2027 fuel prices are as high as today, the introduction of the carbon market would be delayed to 2028. If the price of CO2 reaches 45 euros ($47.62), more CO2 permits will be put on the market to try to moderate prices.

The price of EU carbon permits has soared in recent years, driven by the expectation that tightening EU emissions targets would curb the supply of CO2 permits.

The EU carbon benchmark price closed on Friday at around €84 per tonne of CO2, about ten times its value five years ago.

The EU will also launch an €86.7 billion fund to help consumers and small businesses cope with the costs of CO2 and invest in renovating buildings to save energy or in electric vehicles, funded in part by revenues from the new market.

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