The European Parliament today approved the deals reached with EU member countries in late 2022 on several key pieces of legislation that are part of the “Fit for 55 in 2030 package”, the EU’s plan to reduce greenhouse gas (GHG) emissions by at least 55% by 2030 compared to 1990 levels in line with the European Climate Law. The 27 EU countries are collectively the third largest emitter of GHGs globally.
The legislation now requires final approval from EU member countries over the course of the next few weeks. This bulletin summarizes key highlights from the legislation adopted today:
EU ETS strengthened. Members of the European Parliament (MEPs) voted to reform the EU Emissions Trading System (ETS), which will now require GHG emissions in covered sectors to be reduced by 62% by 2030 compared to 2005 levels. The reforms also phase out free allowances starting in 2026 and place a price on GHG emissions from road transport and buildings starting in 2027 or 2028 (termed ETS II).
Moreover, the ETS will be expanded to cover GHG emissions from the maritime sector, and revised for aviation, phasing out free allowances for the sector by 2026 and promoting the use of sustainable aviation fuels (SAF).
CBAM rules adopted. MEPs adopted the rules for the new EU Carbon Border Adjustment Mechanism (CBAM), which aims to incentivize non-EU countries to increase their climate ambition while ensuring that EU and global climate efforts are not undermined by carbon leakage (production being relocated from the EU to countries with less ambitious policies). The goods covered by CBAM are iron, steel, cement, aluminium, fertilizers, electricity, hydrogen, and indirect emissions under certain conditions. Importers of these goods would have to pay any price difference between the carbon price paid in the country of production and the price of carbon allowances in the EU ETS. The CBAM will be phased in from 2026 until 2034 at the same rate as the free allowances in the EU ETS are phased out.
SCF implemented. MEPs adopted just transition legislation that implements the EU Social Climate Fund (SCF). The SCF will aim to provide assistance to vulnerable households, micro-enterprises, and transport users that are affected by energy and transport poverty. The aim is for the SCF to be funded from auctioning ETS II allowances up to an amount of €65B, with an additional 25% covered by EU member national resources (amounting to an estimated total of €86.7B).
For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at lisa@resilientllp.com.
