A major overhaul of the block’s flagship carbon market and a brand new fund to protect vulnerable people from rising carbon costs were I Agree by EU negotiators in the early hours of Sunday as part of a “jumbo” trialogue that began Friday morning.
“After 30 hours (net!) of negotiation time, we have an agreement on a new ETS and the creation of a social climate fund (SCF)”, tweeted Esther de Lange, Vice-President of the European People’s Party and a key climate legislator.
Reforming the emissions trading system (ETS), touted as a cornerstone of Europe’s climate change efforts, is key to meeting the target of reducing CO2 emissions by 55 percent by 2030 compared to 1990 levels.
“We just reached agreement on the biggest climate law ever negotiated in Europe,” said German MEP Peter Liese, who led the negotiations on the law.
As part of the hard-fought compromise, EU brokers demanded that electricity producers and heavy polluters covered by the ETS must reduce their pollution by 62 percent by the end of the decade, 1 percent more than the European Commission originally proposed.
Waste will fall under the scheme from 2028, with possible exceptions until 2030.
The deal also stipulates that all carbon market revenues should be “spent” on climate action.
“This is one of Parliament’s greatest successes,” Liese said at a briefing shortly after the end of the talks.
Free carbon credits, given to industry to remain competitive with off-bloc competitors, will be phased out entirely by 2034, as a planned border carbon adjustment mechanism is set to come into effect from 2026 at the end of a three-year transition period. The Commission and Council aimed for an end date of 2036, while Parliament fought for a faster phase-out by 2032.
The border tax includes cement, aluminum, fertilizers, power generation, hydrogen, iron and steel.
However, the negotiators refrained from introducing rebates to protect exports because they would have proved incompatible with World Trade Organization rules. Instead, the EU-27 will be given the right to earmark revenue to support companies at risk of being hurt by the phasing out of free permits.
The deal also calls for a parallel carbon market for fossil fuels, which will be used to power cars and heat buildings from 2027 – one of the most controversial elements, as it is feared it could increase fuel poverty and spark political unrest if it is not fair is designed .
To reach an agreement, Parliament dropped its call for a split between business users and private owners – something the Commission and Council had said was unworkable.
But to make it more palatable, policymakers agreed that the so-called ETS2 would be fitted with an emergency brake that would be triggered if carbon prices per tonne exceeded €90 – delaying the launch by a year would lead. The pact also stipulates that prices will be capped at 45 euros at least until 2030.
To help low-income households quickly switch to cleaner forms of transport and heating so they are not unfairly hit by the measure, EU politicians have signed a social climate fund worth €86.7 billion to run from 2026 to 2032.
That’s much larger than the €59 billion fund backed by the Council; 25 per cent will be raised through co-funding from EU governments, while a so-called ‘all fuel approach’ covering process emissions means more carbon credits will be sold under the scheme.
Several negotiators said the talks were particularly complicated by Germany’s reticence.
“Germany really wanted the second CO2 market and the inclusion of other fuels. They got it and should celebrate,” said Liese, adding: “Instead of celebrating, they made problems up to the last minute.”
The agreement also confirmed that the ETS will be extended to the shipping sector.