Emitters Pay: European Parliament Passes Carbon Market Reform, World's First Carbon Tariff
The European Parliament approved several major climate policies on the 18th, paving the way for achieving the EU's carbon reduction targets. First, the ETS will phase out free carbon allowances. Meanwhile, the Carbon Border Adjustment Mechanism (CBAM) will be introduced in 2026 to increase carbon tariffs on imported products such as iron, steel, and cement. A second ETS is expected to be established in 2027, covering emissions from buildings and transport. Finally, the EU will establish a new social climate fund to reduce the energy and transport burdens of the poor. These bills are primarily based on the agreement reached between the European Parliament and EU member states at the end of last year (2022). Although they must be formally adopted by the member states after passing the European Parliament, they are not expected to undergo significant changes. The EU ETS will phase out free allowances, leading to rising carbon credit prices. The series of bills approved by the European Parliament are part of the EU's massive climate change plan, "Fit for 55," which aims to reduce net greenhouse gas emissions by 55% by 2030 compared to 1990 levels. The European Parliament passed the EU carbon trading market reform with 413 votes in favor, 167 against, and 57 abstentions. The carbon trading market primarily regulates the power generation industry and factories. Based on the polluter pays principle, they must purchase carbon credits to offset their carbon emissions. The new regulations require these sectors to reduce greenhouse gas emissions by 62% by 2030 compared to 2005 levels, and to gradually phase out free carbon quotas between 2026 and 2034. Reuters reported that the sectors covered by the carbon trading market