21 April 2023


On 18 April, the European Parliament in plenary approved several key pieces of legislation that are part of the "Fit for 55" package, which aims to reduce the EU’s greenhouse gas (GHG) emissions by at least 55% by 2030 compared to 1990 levels. This includes reforms to the Emissions Trading System (ETS), a new Carbon Border Adjustment Mechanism (CBAM), and an EU Social Climate Fund (SCF) to combat energy poverty.

The reform to the ETS increases its ambition by requiring GHG emissions in the ETS sectors to be cut by 62% by 2030 compared to 2005 levels. It also includes the phasing out of free allowances to companies from 2026 until 2034 and the creation of a separate new ETS for fuel for road transport and buildings from 2027, the so-called ETS 2. In addition, the Parliament voted to include GHG emissions from the maritime sector in the ETS and agreed to the revision of the ETS for aviation.

To counteract the expected increase of energy prices due to ETS 2, Member States will also have to set up an EU Social Climate Fund (SCF) in 2026 to ensure that the climate transition is fair and socially inclusive. When fully in place, the SCF will be funded from auctioning ETS 2 allowances up to an amount of € 65 billion, with an additional 25% covered by national resources for an estimated total of € 86.7 billion. CLECAT regrets however that ETS 2 allowances are not earmarked towards the decarbonisation of the road freight sector. It is now up to national government to provide sufficient financial incentives to companies in the form of purchase subsidies or positive fiscal incentives to accelerate the transition of the sector towards zero-emission logistics.

MEPs also adopted the agreement reached in trilogues on CBAM in December, which aims to incentivise non-EU countries to increase their climate ambition and ensure that EU and global climate efforts are not undermined by production being relocated from the EU to countries with less ambitious policies. The goods covered by CBAM include 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.

After formally endorsement by the Council and publication in the EU Official Journal, the legislation will come into effect 20 days later.

Source: European Parliament