European Union negotiators reached a political agreement on Sunday to reform the carbon market, cut carbon dioxide emissions faster and impose new costs on carbon dioxide emissions from fuels used in road transport and buildings starting in 2027, Reuters and News.ro reported.

The EU’s carbon market requires around 10,000 plants and factories to buy permits for CO2 emissions when they pollute the environment – a system needed to meet the EU’s target of cutting net emissions by 55% by 2030 compared to 1990 levels.

Under the deal agreed by EU negotiators and the European Parliament, the EU carbon market will be reformed to cut emissions by 62% from 2005 levels by 2030.

The plan calls for removing 90 million CO2 allowances from the system in 2024, 27 million in 2026, and reducing the rate at which the system’s CO2 emission limit falls to 4.3% in 2024-2027 and 4.4% in 2028-2030.

“Starting in 2027, this is a critical moment. Everyone has to cut emissions by then or they will have to pay a lot,” said the European Parliament’s chief negotiator, Peter Liese, adding that he hoped the near-term deadline would boost investment in green energy.

Between 2026 and 2034, the EU will phase out the free CO2 allowances it currently offers to industries to protect them from foreign competition.

Those permits will be scrapped as the EU implements a border carbon tariff designed to prevent domestic companies from being overtaken by foreign competitors.

The new carbon market

After 30 hours of talks that began on Friday, the EU also agreed to launch a new carbon market in 2027, covering suppliers of CO2-emitting fuels used in cars and buildings.

After EU lawmakers opposed the inclusion of households in the system, negotiators agreed on several measures to protect citizens from high CO2 prices.

If fuel prices are as high in 2027 as they are today, the launch of the new carbon market will be delayed until 2028.

If the price of CO2 reaches €45, then additional CO2 permits will be issued on the market to try to lower prices.

The price of EU carbon permits has risen sharply in recent years on expectations that stricter EU emissions targets will reduce the number of CO2 permits under the scheme.

The benchmark price for carbon emissions in the EU ended on Friday at around €84 per tonne of CO2, roughly ten times higher than five years ago.

The EU will also launch an €86.7 billion fund to help consumers and small businesses deal with CO2 costs and invest in energy-saving building retrofits or electric vehicles – funded partly by revenues from the new EU CO2 market and partly by national governments .

The preliminary agreement must be officially approved by the European Parliament and the European Council.