The European Parliament’s adoption, during the 22-23 June mini plenary session in Brussels, of the draft reports on the Carbon Border Adjustment Mechanism (CBAM) and on the review of the EU Emissions Trading System (ETS) may be saved.
The three main political groups - EPP, S&D and Renew Europe - reached an agreement on the night of 14-15 June on the controversial provisions that had prevented the two texts from being voted on in early June (see EUROPE 12967/1): - the exit from free emission allowances; - the scope of the CBAM; - export rebates; - the level of ambition of the ETS.
Exit of free emission allowances
The EPP group took a step towards the other two groups by agreeing that free allowances for the sectors covered by the ‘CBAM’ mechanism should be completely phased out as of 2032, not 2034.
In return, the Christian Democrat group obtained to start the phasing out of free allowances in 2027 instead of 2026. The speed of reduction up to 2030 will also be slower than initially proposed by the S&D and Renew Europe groups. Free allowances will be reduced to 93% in 2027, 84% in 2028, 69% in 2029, 50% in 2030, 25% in 2031, and 0% in 2032. As a reminder, the European Commission’s initial proposal foresaw a complete exit in 2036.
This compromise “gives industry time to maintain its investments and jobs, while giving ambition to European climate policy”, according to Esther de Lange (EPP, Netherlands).
Scope
The three groups also take up the proposal by rapporteur Mohammed Chahim (S&D, Netherlands) to extend the sectors covered by the CBAM to hydrogen, polymers (a class of materials made up of macromolecules) and organic compounds. One condition, however, is that the Commission must provide an analysis of polymers and organic compounds before the end of the CBAM transition period.
When it presented its proposal in July 2021, the Commission indicated that organic compounds were not included in the scope due to technical limitations “not allowing for the definition of integrated emissions from imported products”.
Export rebates
The S&D and Renew Europe groups had agreed in early June to give the 10% most ‘green’ companies free export quotas for products covered by the CBAM regulation. This time, the compromise between the three groups proposes free quotas for all companies whose products are covered by the CBAM and go to export.
However, the Commission will have to provide a report by 2026 on the compatibility of such a measure with World Trade Organization (WTO) rules and on the effects of the CBAM on European production.
Level of ambition of the ETS
The agreement between the three groups also covers the level of ambition in terms of greenhouse gas (GHG) emission reductions in the sectors covered by the ETS.
This level of ambition is determined by the quantity of allowances in the system, which in turn depends on two variables: the one-off reduction of a certain number of allowances and the increase in the linear reduction factor (LRF - the percentage determining the quantity of allowances whose ceiling will decrease each year).
The compromise agreed between the three groups does not include any changes to the first variable compared to the amendment approved in plenary. The latter provides for the abolition of 70 million allowances in 2024 (compared to around 117 million in the European Commission’s proposal) and 50 million in 2026.
However, it adds that the LRF factor will be increased to 4.6% starting in 2029. Prior to this date, the proposed approach is identical to that voted at the previous plenary session: 4.4% from 2024 to the end of 2025 and 4.5% from 2026.
The three political groups estimate that these two variables will lead to a reduction in GHG emissions in the sectors covered by the ETS of 63% by 2030 compared to 2005 emission levels, which is 2 percentage points higher than in the Commission's proposal, but 4 percentage points lower than the Parliament’s Committee on the Environment had wanted (see EUROPE 12954/2).
A guaranteed majority
The Chair of the Committee on the Environment, Pascal Canfin, Mohammed Chahim and the rapporteur on the ETS, Peter Liese (EPP, Germany), said they were satisfied with the agreement. “Everyone has lived up to their responsibility here and I am confident that this compromise will be supported by a large majority in Parliament next week”, said Peter Liese. It is a good agreement, for which “nobody will claim victory or loss”, according to Mohammed Chahim.
The Greens/EFA group did not indicate whether it would support the new agreement. On The Left side, Finland’s Silvia Modig said she will not support the agreement, criticising it for lacking ambition. (Original version in French by Léa Marchal and Damien Genicot)