On 14 July 2021, the EU Commission put forward a series of legislative proposals, based on which the EU intends to become climate neutral by 2050, including the interim goal of reducing greenhouse gases by at least 55 % by 2030. The proposals include among other increased ambitions for the EU Emission Trading System (ETS) as well as the implementation of a Social Climate Fund and the Carbon Border Adjustment Mechanism (CBAM).

In a dramatic vote on 8 June 2022, the three key proposals of the EU’s climate legislation failed  to pass the European Parliament. The ETS report was rejected after MEPs had passed a series of amendments, which would have weakened the EU’s climate ambitions. In the days following the vote, the lead negotiators of the Parliament’s largest political groups compromised on key points of contention on the Emission Trading Systems revision and the planned carbon border tax. Following the compromise, both dossiers as well as the report on the Social Climate Fund were adopted with a broad majority in the plenary session on 22 June 2022. One of the major sticking points that collapsed the vote in Parliament at the beginning of June revolved around the date when certain industries would stop receiving free pollution allowances under the ETS. Under the current deal, awarding free allowances for carbon emissions will be gradually phased out from 2027 and completely abolished by 2032 – three years earlier than proposed by the EU Commission.

Emission Trading System shall be extended to buildings and transport

The new separate Emission Trading System to cover emissions from fuels used in commercial buildings and road transport will be launched on 1 January 2025. To avoid a situation where citizens must bear additional energy costs, the European Parliament calls for private buildings and private means of transport not to be included in the new ETS before 2029. Furthermore, revenues from the auctioning of 150 million allowances within the scope of ETS-2 shall be made available to the Social Climate Fund to support low-income families. AK fundamentally rejects the introduction of ETS-2 as it might lead to uncontrollable price fluctuations for heating and hot water. These basic needs must not be left solely to market mechanisms.

In comparison to the EU Commission’s proposal, MEPs would like to see significantly more ambition regarding the reduction of greenhouse gas emissions and propose stricter annual reduction targets to be met by 2032.  Furthermore, a Bonus-Malus-System shall be introduced by 2025 to provide the most efficient plants in a sector with additional allowances.

The Social Climate Fund

The European Parliament also adopted the legal act to set up a Social Climate Fund. MEPs demand that the Social Climate Plans of EU Member States can only be submitted after consulting with local and regional authorities, economic and social partners as well as civil society. The plans shall contain a coherent set of measures to tackle energy and mobility poverty. On the one hand, temporary direct income support measures could be funded (for example by a reduction in energy taxes and fees) to tackle the increase in heating and transport fuel prices. On the other hand, the fund shall cover investments in buildings renovation, renewable energies as well as a shift from private to public transport, car-pooling and car-sharing, and using active modes of transport such as cycling. AK supports the creation of a Social Climate Fund, but rejects its funding via ETS-2. Unfortunately, AK’s request to continue the Social Climate Fund until 2050 was not taken up, as the transformation is after all a long-lasting process.

CBAM – The EU’s Carbon Border Adjustment System

The EU’s efforts to become climate neutral by 2050 might be undermined by less climate ambitious countries. Hence, in July 2021, the EU Commission proposed a Carbon Border Adjustment Mechanism (CBAM) to reduce greenhouse gas emissions caused by imports of CO2-intensive products from third countries, where climate protection measures are less ambitious than in the EU. The European Parliament has now extended CBAM to other products such as aluminium, hydrogen and chemicals. MEPs also requested a speedier implementation of CBAM from 1 January 2023 with a two-year transition period as well as an extension to all product areas of the EU Emission Trading System by 2030. From the European Parliament’s point of view there shall be no free of charge allowances in the ETS made available after 2026. In AK’s opinion, the EU Commission’s proposal on CBAM is heading in the right direction. However, it is important that this new instrument be regularly monitored with regard to its effectiveness.

Further information:

AK EUROPA: Just transition to climate neutrality!

AK EUROPA: Just transition towards climate neutrality – what are the challenges ahead?

AK EUROPA Position Paper: “Fit for 55” Package I – Pricing Greenhouse Gas Emissions

AK EUROPA Position Paper: Energy and Climate Aid Fund