European Union to change carbon tax policy

TALLINN – The European Commission on Friday presented a reform of the so-called ETS 1, the EU's existing Emissions Trading System, but this may not be the final version, reports the daily Postimees.

The Commission announced that the emissions cap will be reduced by 3.7 percent annually from 2031-2035, and by a further 1.7 percent annually until 2040. The allocation of free allowances will continue after 2030. The Commission also aims to improve the functioning of the Market Stability Reserve to prevent excessive fluctuation in carbon allowance prices.

Several environmental organizations criticized the move as a concession to polluting industries.

The Commission requires member states to invest half of their ETS 1 revenue into the decarbonization of the very industries that are required to pay the tax.

Crucially, new sectors will be added to the ETS 1 system. While it currently covers primarily the energy sector and major polluting industries, the scope of ETS 1 will now extend to aviation. All flights taking off from and landing within 5,000 kilometers of the "center of the European Union" in the European Economic Area will be subject to the carbon tax.

But that's not all. Estonian consumers will also be affected by a new waste incineration tax.

The Commission announced that municipal waste incineration will also be taxed, with the measure being phased in gradually between 2031 and 2034.

The Commission noted that member states can opt out until 2035. However, this new tax cannot simply be ignored; to qualify for an exemption, a country must meet two of the following three conditions: it already has a similar carbon tax, it is meeting recycling targets, or it is meeting landfill or lower landfill occupancy targets.

As a maritime nation, Estonia is also affected by the European Commission's decision to lower the carbon tax threshold for the shipping industry. The current limit of 5,000 gross tonnage (GT) will be lowered to 400 GT, the Commission announced.

Exceptions will be made for icebreakers and ships that provide essential, year-round services to islands with no other permanent connection to the outside world, but only until 2035.

The European Commission also plans to introduce a new carbon tax, dubbed ETS 2, which would come into full effect from 2028. For the general public, this will primarily mean higher costs for home heating and transport fuels. Negotiations on the details are still ongoing at the EU level.

MAJOR PUSH FOR EUROPEAN ELECTRIFICATION

In its official communication, the Commission states that an electric car offers savings of 78 percent compared to a fossil fuel vehicle, and that switching from a gas boiler to a heat pump could save households as much as 60 percent on their bills.

At the same time, the Commission itself notes that electricity can sometimes cost three times more than the very gas it is encouraging people to move away from.

The Commission has presented a plan to electrify Europe. Firstly, the price gap between gas and electricity must be reduced to encourage people to choose electricity. The Commission suggests this can be achieved if countries lower grid fees and ensure that electricity is never taxed more heavily than gas consumption.

Upgrading Europe's aging electricity grid is also a priority for the Commission. The Commission believes that social leasing schemes should also be utilized, and electrification costs must be reduced, especially for the sectors covered by the ETS: transport, buildings, and industry.

These proposals will now be debated in Estonia, which is expected to submit its position to the Commission by the autumn.