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About Carbon Market Scheme


Recently, The 27 member states in the EU approved a revamp to the bloc’s so-called carbon market, which is set to make it more costly to pollute for businesses in Europe, sharpening the main tool the EU has to discourage carbon dioxide emissions in the industrial sector.


GS III: Environment and Ecology

Dimensions of the Article:

  1. Changes to EU’s Emissions Trading System (EU ETS)
  2. Key points related to what else was approved in the EU’s “Fit for 55” package of climate plans:

Changes to EU’s Emissions Trading System (EU ETS)


  • The changes to the EU’s Emissions Trading System (EU ETS), more commonly called the bloc’s carbon market.
  • The EU ETS is the bloc’s carbon market that requires permits for CO2 emissions from factories, power plants, and the aviation sector.
  • The goal is to create financial incentives for reducing emissions and generate funds for climate-related projects.

Details of the Carbon Market

  • European factories and power plants have had to purchase permits for their CO2 emissions since 2005.
  • Prices of permits become more expensive as emissions increase.
  • The law applies to power-generation industries, energy-intensive industries, and the aviation sector.
  • It will be expanded to cover other greenhouse gases like methane and nitrogen oxides.

Impact of the Carbon Market

  • Emissions from the sectors covered by the EU ETS have decreased by 43% in the EU.
  • It is difficult to determine how much of this reduction is due to the carbon market.
  • Partially-related breakthroughs have also contributed to limiting emissions.

Changes to the Carbon Market

  • The changes will set more stringent targets and tougher penalties over time.
  • The new rules aim to increase emissions reductions by 2030 to 62% compared to 2005 levels.
  • Companies will gradually phase out free permits for lower levels of emissions.
  • Heavy industries will phase out by 2034, while the aviation sector will phase out by 2026.

Resistance to the Changes

  • Some members of the EU opposed the changes, arguing that the targets were too ambitious and would put an unfair strain on the industry.
  • Poland and Hungary opposed the changes, while Belgium and Bulgaria abstained from the vote.

EU Voting Policies

  • Some EU policies and laws require unanimous approval from member states, while most require a qualified majority vote.

Key points related to what else was approved in the EU’s “Fit for 55” package of climate plans:

  • Incorporation of parts of the shipping industry into the ETS, requiring them to buy permits to cover their emissions at times
  • Establishment of a new, separate ETS for the buildings and road transport sectors and some others, mainly small industry
  • Changes specifically tailored to the aviation sector were approved
  • Introduction of the Carbon Border Adjustment Mechanism (CBAM) to prevent carbon-intensive products imported from outside the EU from offsetting the EU’s greenhouse gas reduction efforts
  • Setting up of a Social Climate Fund, financed mainly by carbon market revenues generated by the ETS, to support vulnerable households, micro-enterprises, and transport users coping with the price impacts of the emissions trading system.

-Source: Indian Express

February 2024