During the 6-9 June 2022 European Union (EU) Parliamentary plenary session, a heated disagreement on the proposed revised Emissions Trading System (ETS) report prepared by the EU Committee on Environment, Public Health and Food Safety (ENVI) resulted in a 53% majority vote rejection of the report. The reformed ETS was, however, not rejected in its entirety - MEPs voted to refer the text back to the ENVI for revision. The reports on the Social Climate Fund (SCF) and Carbon Border Adjustment Mechanism (CBAM) proposals were also sent back to ENVI, as MEPs agreed that the three files were too interlinked to be voted upon separately.
On 22 June 2022, the proposals with revised amendments were once again brought before the entire EU Parliament. In what may be considered a landmark decision, all three Committee Reports were adopted and will now be taken to the EU Member States for further negotiation.
Parliament’s position
To accelerate EU climate change actions, the EU Parliament will be putting forward the following amendments to the current reform proposals for negotiation with Council representing Member States and the EU Commission:
Regulation |
Topic |
Adopted EU Parliamentary position |
Revised EU ETS |
Overall emissions reduction ambition |
The increased ambition of reducing emissions by 63% in the ETS sector by 2030, compared to 2005, is to be achieved through:
|
Removal period of EU ETS free allowances (linked to CBAM) |
Free allowances in the ETS sectors covered by the CBAM to be phased out from 2027 and disappear by 2032. |
|
ETS II for commercial buildings and transport |
|
|
Maritime transport |
The current ETS to be extended to include maritime transport:
Seventy five percent of the revenues generated from auctioning maritime allowances to be put into an Ocean Fund to support the transition. |
|
Introduction of incentivization |
A bonus-malus system to be introduced from 2025:
|
|
Municipal waste |
Inclusion of municipal waste incineration in the ETS from 2026. |
|
CBAM |
Covered products |
Cement, iron and steel, aluminium, fertilizer, electricity, organic chemicals, polymers (plastics), hydrogen and ammonia. (Organic chemicals and polymers will be subject to a Commission assessment of their technical specificities.) |
Emissions |
Inclusion of indirect emissions (i.e. emissions arising from electricity used by manufacturers). |
|
Transitional period (linked to the EU ETS) |
Phased introduction of CBAM from 1 January 2023:
|
|
Centralized authority |
One centralized EU CBAM authority, rather than 27 competent authorities, should bring about more efficiency, transparency and cost effectiveness, and also combat forum shopping by importers. |
The proposal for a regulation establishing a SCF is intended to address social impacts that arise from the extending emissions trading to include the building and road transportation sectors. Those most affected by energy and mobility poverty will be assisted to cope with the increased costs of the energy transition through support measures such as temporary direct income support (i.e. a reduction in energy taxes and fees), fiscal incentives, vouchers, subsidies or zero-interest loans.
Next steps
Although the EU Parliament has adopted the amended proposed reports, the texts are not final EU legislation, and may be subject to further amendments based on the outcome of the trialogue between Parliament, the Council and the Commission.
However, with the intended CBAM implementation date of 1 January 2023 looming, and as global climate actions continue to intensify, companies should begin assessing the carbon footprint of their operations and value chains in preparation for the significant changes that are being seen.
