The European Union (EU) seeks to carry out early auctions of its carbon credits or allowances this year, starting from July.
The goal of this decision is to raise extra funds to help EU nations reduce emissions and end reliance on Russian gas, says the European Commission (EC).
€8 Billion from Carbon Credit Sales
Established in 2005, the EU Emissions Trading System (ETS) is the world’s biggest carbon market, covering about 40% of total EU emissions.
The bloc aims to secure 20 billion euros ($21.62 billion) in grants from its carbon market. And €8 billion of that will come from the sales of EU carbon credits or permits happening earlier than scheduled.
- According to the EC, there are about 16.5 million additional carbon credits for auction early in 2023.
The remaining €12 billion will be from a carbon market fund intended to support green technological innovations. But this will only begin until the EU makes some changes in its law on carbon market auctions to verify the new volumes.
In December last year, the EU made a new deal to reform its carbon market. The agreement is to make three major changes to the market:
- To accelerate emissions cuts,
- Phase out free allowances (carbon credits) to industries, and
- Targets fuel emissions from the building and road transport sectors.
With the new deal, the original target of reducing the bloc’s emissions 55% by 2030 relative to 1990 levels increases to 62% from 2005 levels. Industries covered by the EU ETS must cut their emissions by that amount.
The Commission further said that selling 27 million carbon credits from a reserve into the market will replenish the EU carbon fund.
Decarbonizing Heavy Industries
EU member states are allowed to use the grants in renewable energy and energy-saving renovations to substitute Russian gas. They can also spend the money to help heavy industries decarbonize.
After all, the EU’s core policy for reducing emissions is to force power plants and factories to pay for their pollution by buying carbon credits.
For the first time in history, EU carbon prices hit over 100 euros per ton in February. That’s a significant increase from just a few years ago when the price was only 10 euros/ton.
The price surge increases costs for industries but also improves the chance to invest in green technologies.
Happened in the same month, the EC also set out $270 billion to support the bloc’s race to green transition and boost its net zero industry. This refers to the EU Green Deal Industrial Plan. The Plan will help ensure that the EU has access to various green technologies and solutions that are key to its net zero transition while bringing more quality jobs.
As part of the Plan, the EC proposed the Net-Zero Industry Act to ramp up manufacturing of clean technologies. The Act will establish a simpler and more predictable legal framework for net zero industries in the region. It will also make the bloc’s energy system more secure and sustainable during transition.
The Commission said that the carbon credits for auction will be sold in the same volumes by August 2026.