This week, the European Commission on environment, public health and food safety (envi) approved the report on the revision of the EU carbon emission trading system (EU ETS) with 62 votes in favor, 20 votes against and 5 abstentions, and the report on the establishment of the EU carbon border regulation mechanism (CBAM) with 49 votes in favor, 33 votes against and 5 abstentions.
Although this progress does not mean that the carbon tariff has gone through a complete legislative process in the EU, and the scheme can only be formally implemented after it is voted and adopted at the plenary session of the European Parliament in early June, in view of the weight of envi Committee in the environmental protection legislation of the European Parliament, it can be basically determined that the basic text of the bill has taken shape and is not far from being finally adopted by the European Parliament.
Previously, in response to climate change, on January 15, 2020, the EU agreed on higher emission reduction targets through the European Green agreement, and jointly promised to reduce greenhouse gas emissions by 50% to 55% in 2030 compared with 1990 and achieve carbon neutrality by 2050. In July 2021, the European Commission launched the carbon tariff proposal: carbon border adjustment mechanism, which aims to implement the EU climate goal.
What are the specific changes in the EU carbon emissions trading system
Compared with the previous plans of the European Commission and the European Council, envi's plan appears more radical, has a wider range of products included, and is ahead of schedule. In addition, it speeds up the docking of carbon tariffs with the eu-ets, aiming to promote the faster and wider implementation of carbon tariffs. According to the changes sorted out by Huabao securities, the following are:
- ETS 11's annual total quota (the cap) has further accelerated its decline.
The original plan proposes that the total amount of carbon quota each year before 2030 will be reduced by 4.2% compared with the previous year (i.e. the linear reduction factor is 4.2%). On this basis, the new plan will add a linear reduction factor with a year-on-year increase of 0.1%, and the supply of carbon quota will be reduced.
- The coverage of Ets 1 has been expanded.
First of all, the new scheme will add urban waste incineration devices into carbon trading from 2026. Secondly, the specific requirements of the new scheme on integrating the shipping industry into carbon trading expand the gas coverage from CO2 to other greenhouse gases, covering 100% of the emissions of internal routes in Europe from 2024 and 100% of the emissions of all routes from 2027.
- The proportion of Ets 1 auction has increased year by year.
The original scheme proposes that the quota auction proportion will be 57% from 2021. The new scheme is revised to 60% from the year when the scheme comes into effect, and then increase year by year. The auction proportion will be 100% in 2030, that is, the initial quota will not be issued free of charge. In addition, the new plan proposes to take incentive measures for free distribution. Only facilities that meet the requirements of energy management can obtain the free quota that should be issued, otherwise the number of quotas will be reduced.
- There are more specific instructions for building a separate carbon market (ETS 2) for transportation and construction.
The new plan will advance the time of ETS 2 quota auction to 2025, and will first include the emission reduction in the field of commercial construction and transportation, and consider the emission reduction of private construction and transportation at least after 2029.
Changes in EU carbon border regulation mechanism
An earlier article on Wall Street mentioned that as early as July 14 last year, the EU proposed a sub policy to achieve the EU's goal of reducing net emissions by 55% from 1990 levels by 2030. This includes not only cutting free carbon quotas at one time, promoting the participation of power plants, factories and airlines operating European flights in carbon quota transactions, but also launching a new carbon market system for shipping, building heating and road transportation; It also includes the EU carbon border adjustment mechanism (CBAM), from promoting the carbon tariff process to reducing free carbon quotas and expanding the scope of the carbon market.
The EU carbon border adjustment mechanism, as one of the core contents of the series of proposals, aims to reduce the risk of carbon leakage by imposing carbon tariffs on high carbon intensive products imported from outside the EU. The European Commission also issued a more detailed regulatory proposal on the same day. The changes are summarized as follows:
- Expand the scope of CBAM.
The five product types involved in the initial CBAM proposal are mainly heavy industry, including: electric power, all steel products (such as flat steel, reinforcement, steel bar, steel wire, etc., except scrap iron and ferroalloy), some steel products (such as steel pipe, rail, container and structure), some aluminum products and products (such as aluminum bar, aluminum bar and aluminum pipe), cement products (such as clinker and Portland cement) Chemical fertilizer related products (such as ammonia, ammonium nitrate, anhydrous ammonia, nitric acid and urea), compared with the original text, only cover the five industries of steel, aluminum, cement, chemical fertilizer and electric power, and include organic chemicals, plastics, hydrogen and ammonia.
It is reported that hydrogen and ammonia are included this time because Europe takes them as key fuels and key clean energy for decarbonization in the energy field in the process of energy transformation and getting rid of Russia's dependence on natural gas. EU countries are making large-scale layout and will import from abroad in the future.
- The formal implementation time is advanced, CBAM is gradually adopted and the free quota in ETS is terminated.
CBAM is planned to start from 2023, with a transition period to the end of 2024 (the transition period of the original scheme is 2023-2025). In addition, by 2030, all departments of EU ETS will be forcibly included in the CBAM mechanism, five years earlier than that proposed by the European Commission.
In addition, in order to avoid double protection, any free quota granted to EU industries in ETS to address the risk of carbon leakage in the absence of a fair competition environment should completely eliminate protected industries when CBAM is fully launched in 2030.
- Establish a unified CBAM management organization at the EU level to improve work efficiency, transparency and reduce costs.
In general, compared with the original scheme, the new scheme has stricter emission reduction requirements, wider coverage and accelerated schedule, which reflects the EU's determination and ambition to deal with climate change and achieve energy independence. At the same time, it will also accelerate the reduction of carbon market quota supply, expand the scope of market participation and have an important impact on emission reduction policies of other countries.