EU Reaches Deal For Major Carbon Market Reform To Accelerate Emission Cuts

European Union deal: The agreement aims to phase out free allowances to industries and targets fuel emissions from buildings and road transport sector and fuels for additional sectors.

European Union flag. The aim of the European Union's provisional deal is to accelerate the reduction of carbon emissions and address their social impacts. 

Source : Getty

The European Council and European Parliament, one of the legislative bodies of the European Union (EU), have reached an agreement for a major reform to the carbon market, the EU said in a statement Sunday. The aim of the deal is to further reduce carbon emissions and address their social impacts. 

What is Fit for 55?

It is a provisional deal that includes proposals of the 'Fit for 55' package. This is an EU package designed to reduce the international organisation's greenhouse gas emissions by 55 per cent by 2030. Formal adoption in both the European Council and European Parliament is pending. 

The deal aims to phase out free allowances to industries and targets fuel emissions from buildings and road transport sector and fuels for additional sectors, according to the statement. 

Marian Jurečka, Czech minister for Environment, said in the statement that the agreement on the EU Emissions and Trading System (EU ETS) and Social Climate Fund is a "victory" for the climate and for European climate policy, and will allow the EU to meet climate objectives within the main sectors of the economy. The EU will also ensure that the most vulnerable citizens and micro-enterprises are effectively supported in the climate transition, Jurečka said.

What is the EU ETS?

The EU ETS is a carbon market based on a system of cap-and-trade of emission allowances for energy-intensive industries and the power generation sector, and is the EU's main tool in addressing emissions reductions. Introduced in 2005, the EU ETS covers about 40 per cent of the EU's total carbon dioxide emissions. 

Since 2005, the EU's emissions have decreased by 41 per cent. The newly reached deal makes the system more ambitious to cut down even further emissions, according to the statement.

The system allows electricity producers and industries with high energy demands such as steel and cement to purchase "free allowances" to cover their carbon emissions under a "polluter pays" principle, an AFP report said.

In order to encourage these industries to emit less and invest in greener technologies, as part of the EU's ultimate aim of achieving carbon neutrality, the quotas of free allowances to industries are designed to decrease over time. 

What does the deal aim to do?

After spending more than 24 hours in intense talks, negotiators representing the EU member states and the European Parliament reached an agreement Saturday night (local time). The deal widens the scope of the EU carbon market, and intends to increase emissions reductions by 2030 in the sectors covered by the EU ETS to 62 per cent. 

The deal also aims to accelerate the timetable for phasing out the free allowances, with 48.5 per cent phased out by 2030, the AFP report said. The agreement intends to completely phase out free allowances by 2034. 

Another aim of the deal is to make households pay for emissions linked to fuel and gas heating from 2027.