EU set for major expansion of carbon market

June 30, 2022

The European Parliament and then the Council vote in favour of major expansion of the EU carbon market to include shipping and road transport

Late in the evening of June 28th, EU government ministers put the seal on a major expansion of the EU’s carbon market by expanding the EU’s flagship climate tool to shipping and road transport. However, in rejecting an expansion of the carbon market to all departing flights from the EU, something elected parliamentarians had voted for earlier this month, European governments showed that they were not completely ready to put the polluter pays principle first.

Shipping polluters made to pay

After a 10 year fight, big shipping polluters will finally be made to pay. Polluters will have to pay for all CO2 they produce with methane and nitrous oxide to be added potentially in 2026,  when sailing within the EU and 50% of voyages outside of the bloc until 2027. After 2027, the scope of the carbon market will be automatically extended to 100% of ships entering and leaving European ports. Lawmakers did however bow to pressure by including exemptions for ice-going ships and ships travelling to outermost regions, delaying the decarbonisation of these vessels. 

Ministers also agreed to already monitor emissions of some smaller cargo ships. The upcoming negotiations with the European Parliament will be an opportunity to extend this coverage to most vessels between 400 and 5,000 gross tonnage.

However, unnecessary exemptions could undermine the effectiveness of the carbon market and create an unlevel playing field in the market. In particular, the exemptions for ferries to islands with under 200,000 inhabitants will only increase air pollution for those islands and reduce incentives to clean up those vessels.

Carbon market for road transport 

EU ministers agreed to the first ever carbon market for road transport and heating, including both private and commercial users. They propose for their emissions to be regulated from 2027.  

Member states however missed the opportunity to split the carbon price between fuel suppliers and citizens, a provision proposed by Parliament which would ensure Big Oil pays at a time when they are making bumper profits off the war in Ukraine. 

Forget polluter-pays for aviation

On aviation, ministers refused to integrate flights outside of the EU carbon market, as proposed by the European Parliament a few weeks ago. Over 60% of aviation’s pollution will therefore avoid paying for their pollution. 

Non-CO2 effects were not mentioned despite accounting for two thirds of aviation’s climate impact. Ministers proposed to adopt a limited amount of SAF allowances to help airlines pay for green fuels. This will accelerate the transition to clean aviation if, and only if, the right type of SAFs are used, T&E warns. 

Carlos Calvo Ambel, senior director at T&E, said: “We welcome member states’ decision to green light the first ever carbon market on international shipping. But the outcome of the Council meeting is a step back for European aviation, as they continue to exempt huge chunks of emissions in this industry. The French Presidency fell short on tackling aviation’s climate problem. More polluters are being made to pay. But still not enough.”


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