European Union members approve carbon market scheme, other climate laws

European Union members approve carbon market scheme, other climate laws

Subject :Environment

Section: Climate change

Why in News?

• EU countries have given the final sign-off for a series of new climate change-related laws, which seek to create financial incentives for keeping emissions in check, and penalties for failing to do so.
• The 27 member states in the EU approved a revamp to the bloc’s so-called carbon market, which is set to make it more costly to pollute for businesses in Europe.
• This in turn led to sharpening of the main tool the EU has, to discourage carbon dioxide emissions in the industrial sector.
• The changes to the EU’s Emissions Trading System (EU ETS), more commonly called the bloc’s carbon market, are one of five new laws given final approval after being proposed by the European Commission and after a favorable vote at the European Parliament.

What is the carbon market?

Carbon Markets are essentially a tool for putting a price on carbon emissions and establishing trading systems where carbon credits or allowances can be bought and sold. As per the UN a carbon credit is a kind of tradable permit that equals one tonne of carbon dioxide removed, reduced or sequestered from the atmosphere. Carbon allowances or caps are determined by countries or governments according to their emission reduction targets.

Expected Consequences of the Proposed Changes

The changes will set more stringent targets and tougher penalties as time passes. The new rules increase the overall ambition of emissions reductions by 2030 in the sectors covered by the EU ETS to 62% compared to 2005 levels. The free permits granted to companies for lower levels of emissions will be gradually phased out, by 2034 for heavy industries and by 2026 for the aviation sector, for instance.

Concerns Raised Against the Proposed Changes

There had been some resistance to the changes within the bloc, which are roughly two years in the making. Only 23 of 27 EU members voted in favor; Poland and Hungary opposed it, Belgium and Bulgaria abstained. Critics like Poland had argued that the targets were too ambitious and would place an unfair strain on industry. Some EU policies and laws require unanimous approval from member states, but for most others a qualified majority vote will be sufficient.

Other Key Alterations Approved by the EU

The changes to the ETS discussed above are part of the EU’s “Fit for 55” package of climate plans, which is a reference to its goal of reducing carbon emissions by 55% by 2030 compared with a 1990 benchmark. Four more alterations were also approved.

1. A plan to incorporate parts of the shipping industry into the ETS was approved. It means that they too will need to buy permits to cover their emissions at times.
2. A new, separate ETS will be established for the buildings and road transport sectors and some other sectors, mainly small industry according to the EU.
3. Changes specifically tailored to the aviation sector were also approved.
4. Carbon Border Adjustment Mechanism (CBAM)

The EU will introduce CBAM which is a landmark tool to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries. The aim of CBAM is to prevent the offsetting of the greenhouse gas reduction efforts of the EU, by increasing emissions outside its borders through the relocation of production to countries where policies applied to fight climate change are less ambitious than those of the EU.

Social Climate Fund

The EU is setting up a Social Climate Fund. The bulk of the funds would come from the carbon market revenues generated by the EU ETS. The member states will be contributing the rest. The fund will be used by member states to finance measures and investments to support vulnerable households, micro-enterprises and transport users and help them cope with the price impacts of an emissions trading system for the buildings, road transport and additional sectors.