European Parliament agrees 2034 ETS free allocation deadline

The European Parliament and Council have reached an agreement to further delay the planned phasing out of free CO2 allowances as part of the Emissions Trading System (ETS), Kallanish learns from official statements.

On 18 December, authorities confirmed in statements that a final agreement was reached. As a result, the complete phase-out of CO2 allowances is set for 2034, two years later than previous indications. Between 2026 and 2034 (as ETS allocations are phased out), the new Carbon Border Adjustment Mechanism (CBAM) will be gradually phased in.

The extension of free allowances was nevertheless counterbalanced by the decision to reduce emissions from the EU ETS sectors by 62% by 2030 – compared to 2005 levels. This is higher than the previous target set at 43%.

Eurofer, the European steelmakers association, welcomed the fact that in the final agreement there are stronger incentives for the uptake of low-carbon technologies such as DRI using green hydrogen. Nevertheless, the association reiterated that a lack of framework for European exports from 2026 could put the steel sector at risk.

“We are highly concerned by the lack of a concrete solution to counter carbon leakage risk on export markets, while a pre-defined free allocation phase-out trajectory is set at this stage. If no concrete solution is found before 2026, €45 billion steel exports are at existential threat, due to the exponentially increasing carbon price in the EU that has no equivalent in the domestic markets of our major trading partners. It is essential that EU institutions revert to this issue as soon as possible in the foreseen review process to deliver an effective measure,” says Axel Eggert, director general of Eurofer.

Emanuele Norsa Italy