Climate deal back on track as centre-right, socialists clinch deal on carbon tax

MEPs have revived climate laws that until a few days ago were ‘killed’ by eleventh-hour amendments that were not accepted by the plenary, to reach a new deal on emissions trading and a carbon tax.

The provisional agreement on ETS and CBAM between negotiators from the centre-right EPP, the liberals Renew, and social democrats S&D, will be tabled immediately for a new vote to be taken in plenary.

Broadly speaking, new dates have been agreed for the phase-out from free emissions allowances (ETS) to be contingent on the phase-in of the carbon mechanism CBAM.

“We have two winners – climate ambition and the European economy,” said EPP MEP Christian Ehler. “The EPP line was backed by industry, which wanted the CBAM and ETS phase-out to be made feasible for them without reducing Europe’s climate ambition.”

The EPP said the deal gave both industry breathing space on the ETS, without discarding the European Commission’s ambitious targets on climate.

On 8 June, MEPs voted down important climate laws proposed by the European Commission – an EU carbon border tax (CBAM), revising the emissions trading scheme, and creating a social climate fund – due to opposition by Green and centre-left MEPs.

The development came after centre-right MEPs managed to include amendments into the proposals to phase out ETS allowances to European industry from 2028 to 2034, even as they started to benefit from the carbon border tax on their competitors.

These dates were significantly later than the 2026-2032 phase out proposed by the European Commission and the 2025-2030 phase-out adopted by the parliament’s environment committee – which vets the final law before it is presented to the parliament.

CBAM is a tax that will be used to protect European industry from unfair competition from companies in countries with less stringent climate rules, by levying imported goods with a higher carbon footprint with a tax. This should, in theory, prevent European companies from shifting production outside the EU to avoid domestic climate legislation.

CBAM is itself connected to ETS reform, which phases out free emissions allowances for companies. Until now, European companies were granted free allowances in the European ETS as a protection against ‘dirty’ competitors and to prevent so-called carbon leakage – the shift of their production outside the EU.

Additionally, the social climate fund is meant to shield consumers from the costs of an increasing carbon price from the ETS and CBAM, which could be passed on to struggling consumers and households.

Industry, which the EPP and Renew appeared to court on this debate, argued for a longer transition period, which is why green and centre-left MEPs refused to support the legislation in the final plenary vote, because it companies would get double compensation.

The centre-right’s proposal was less ambitious than that voted by the environment committee in May: a 63% cut by 2030, compared with the committee’s 67%. The gradual cutback of free ETS allowances would have been slowed by removing 70 million allowances from the market in 2024, then 50 million in 2026, instead of the timeline of the Commission’s bid to have 117 million removed in 2024.

The centre-left managed to kill the amended law to take it back to the environment committee and forge a new deal with the centre-right.