By Kate Abnett

BRUSSELS (Reuters), – Legislators and officials negotiating a reform of the EU carbon markets are struggling to find a common ground over plans for imposing CO2 taxes on polluting fuel suppliers. The bloc could be putting its climate change goals at risk.

The European Union launched the Emissions Trading System (ETS), which was established in 2005. It is the main instrument for cutting greenhouse gasses. This works by forcing factories and power plants to purchase CO2 permits when polluting and limiting the supply.

Although the scheme has reduced emissions by these sectors by 43%, it is currently facing an overhaul as the EU aims to achieve a goal of 55% reduction in net emissions by 2030 from 1990 levels.

Jytte Guiteland, negotiator for the European Parliament said that there is no room to water down. She added that “We must preserve the ambition for making sure we comply with the climate law,” referring to legally binding climate targets.

Each side is divided over the plans for a new ETS to be launched in 2026. This would place CO2 prices on fuel suppliers and heat home owners.

A revamp proposal by the European Commission was made last year. It is crucial as transport emissions continue to rise and many buildings in Europe have been heated using fossil fuels. They account for about a third of all EU emission.

However, it was met with strong opposition by some members states. With gas prices at record highs, they fear this will lead to higher energy bills and worsen the lives of poorer people.

These concerns prompted countries to consider compromises. They could delay the ETS extension to 2027/2028 or gradually phase in CO2 costs.

It could be that the EU fails to meet its climate targets. A note by the Commission, seen by Reuters, stated that the EU would receive 45% of extra CO2 emissions from these sectors to achieve the 2030 goal.

The EU proposal could be scrapped and replaced with more aggressive national policies. This would require greater investments, according to the Commission.

SOCIAL FUND

Negotiators indicated that the ETS is likely to go forward if policymakers agree on compensation measures for households.

Commission proposes that the billions in proceeds from the scheme be used to pay off bills and subvention electric cars, as well as fund home-renovations.

Peter Liese (lead negotiator in Parliament) stated that lawmakers believed the fund should have been launched prior to the ETS. This would mean the budget of the 27-country bloc must be paid into the ETS.

Some EU nations want to stay clear of that path, since all members must approve any changes to their budget.

Also, negotiators have to address a lengthy list of issues regarding the ETS. This is being overhauled in order to lower emissions, increase industry’s CO2 permits and expand shipping.

The European Parliament and EU nations will need to reach an agreement on their positions within the next weeks in order to put in place a law this year. This will allow them to have time to finalize the rules.