On 17 May, the European Parliament's Committee on Environment, Public Health and Food Safety (ENVI) adopted five reports of the Fit for 55 package, including on the Carbon Border Adjustment Mechanism (CBAM) and the EU Emissions Trading Scheme (ETS).
Regarding the CBAM, MEPs called for a broader scope and faster implementation to prevent carbon leakage, raising the global climate ambition. Specific actions include:
Broadening the scope of CBAM to cover aluminium, hydrogen, polymers and organic chemicals in addition to iron and steel, refineries, cement, organic basic chemicals and fertilisers. MEPs also want to extend CBAM to include indirect emissions.
Phasing in CBAM and ending free allowances in ETS by 2030, 5 years earlier than proposed by the Commission. Any free allowances granted to EU industries in the ETS, to address the risk of carbon leakage in the absence of a fair level playing field, should be fully phased out by 2030 when CBAM kicks in fully for the protected industries.
Creating a centralised EU CBAM authority to help combat forum shopping from importers.
Transferring the revenues generated by the sale of CBAM certificates to the EU budget. MEPs add that the EU must provide financial support to least developed countries' efforts towards the decarbonisation of their manufacturing industries.
On the ETS reform, MEPs want to incentivise industries to further reduce their emissions and invest in low-carbon technologies. The reforms proposed are:
Accelerate the decarbonisation of industry through ETS I. MEPs want the annual reduction of emission allowances to increase annually by 0,1 percentage points compared to the previous year until 2030, starting from 4,2 % in the year following the entry into force of this amendment.
A new ETS II for commercial buildings and transport. A separate new emissions trading system for fuel distribution for commercial road transport and buildings to be established on 1 January 2025. Private buildings and private transport should not be included in the new ETS before 2029. Revenues from the auctioning of 150 million allowances under the ETS II shall be made available for the Social Climate Fund to address the challenges for low-income families.
Free allowances to be phased out from 2026 and disappear by 2030, five years earlier than proposed by the Commission. The free allowances should be reduced to 90 % in 2025, 80 % in 2026, 70 % in 2027, 50% in 2028, 25% in 2029 and 0 % in 2030.
A bonus-malus system to be introduced from 2025. MEPs want to introduce a bonus-malus-system from 2025 so that the most efficient installations in a sector will get additional free allowances. Those who do not implement the recommendations of the energy audits or certified energy systems or do not establish a decarbonisation plan for their installations, will lose some or even all of their free allowances.
Targeted solidarity and support for new technologies. MEPs remind that a well-defined share of the auctioning revenue of the ETS should be used as an own resource to finance the EU budget as a general income. Both EU and member states must spend all of their ETS (I + II) revenues on climate action but cannot be used to support nuclear energy-related activities and technologies. MEPs support the Commission's proposal on a Modernisation Fund.
Both reports will be voted at the June plenary session, after which Parliament will be ready to start negotiations with Member States.
Several industry organisations have issued press releases sharing their concerns about the reports, arguing that they risk seriously undermining European competitiveness (BusinessEurope) and need to be urgently "fixed" (Eurofer).