The EU Just Made Emissions Even More Expensive

• The EU approved a carbon tax reform to reduce emissions by 62% from 2005 levels by 2030.
• The reform makes emissions more expensive for various industries through carbon permits and the introduction of a tax on emission-intensive imports.
• The EU plans to soften the blow of the carbon tax reform by setting up an 86.7-billion-euro fund.

The European Union finalized the approval of a carbon tax reform that will see polluting industries face higher costs for continuing to generate emissions and incentivize the switch to wind and solar.

Approved by the European Parliament last week, the reform will see the EU’s carbon permit regime extended to more industries, including air and maritime transport, and reduce the availability of these permits with a view to phasing them out entirely by 2034.

In four years, the carbon permit regime will extend further to cover emissions from cars and buildings. To soften the blow, the EU plans to set up an 86.7-billion-euro fund. The money will be raised from the sales of carbon permits.

The price of these permits has soared in the past couple of years, largely in anticipation of the reform. In fact, since the start of 2020, the price per ton of carbon dioxide has tripled to 88 euros, Reuters noted in a report.

Even with this increase in the cost of generating carbon emissions, last year those fell just 1.2% to 1.6%, according to preliminary data released earlier this month. The data covered the industries that are currently within the scope of the emission-trading regime: power generation and heavy industry.

The goal is to reduce the bloc’s emissions by 62% from 2005 levels by 2030, to which end the EU also agrees to introduce a tax on emission-intensive imports from 2026 onward. The import goods that will be subject to the new tax include steel, cement, aluminum, fertilizers, electricity, and hydrogen.

The levy aims to put European producers of such goods on a more equal footing with countries that don’t have as stringent emission-related legislation as the European Union.

A majority of 24 member states voted in favor of the reform, Poland and Hungary voted against it, and Belgium and Bulgaria abstained.

By Irina Slav for Oilprice.com

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