Filenews 25 April 2023
The final green light to a series of legislation concerning greenhouse gas emission reduction targets, as part of the FitFor55 package, was approved on Tuesday morning by the Council of the European Union meeting in the composition of agriculture ministers in Luxembourg.
The legislation adopted and entering into force includes the reform of the EU Emissions Trading System (ETS) by including emissions from maritime transport, the creation of a new emissions trading system for buildings, road transport and other sectors, as well as the full inclusion in the ETS of aviation by removing the free emission allowances that have been in force until now.
The creation of the Carbon Border Adjustment Mechanism (CBAM), which in practice provides an incentive for third countries to reduce carbon dioxide emissions in the production of products exported to the EU, as well as the creation of the Social Climate Fund to protect vulnerable households and businesses, were also approved.
The regulations and legislation adopted are part of the FitFor55 package, which aims to reduce net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and achieve climate neutrality by 2050.
It was originally proposed by the Commission in July 2021 as part of the European Green Deal. The Council of the EU and the European Parliament reached provisional agreements on the legislations during December 2022, and the Parliament formally adopted the laws on 18 April 2023.
More specifically, the new Emissions Trading System (ETS) rules foresee increasing the overall 2030 emissions reduction target in the sectors covered by the ETS to 62% compared to 2005 levels.
In relation to emissions from maritime transport, which for the first time are included in the ETS, shipping companies are obliged to surrender emission allowances of 40% for verified emissions after 2024, 70% from 2025 and 100% from 2026.
Most large vessels will be included in the ETS from the outset, while other large vessels, mainly coastal vessels, will initially be included in the monitoring, reporting and verification (MRV) regulation and later join the ETS. Greenhouse gas emissions beyond carbon dioxide will be included in the MRV regulation from 2024 and in the ETS from 2026.
A new ETS system is also being created specifically for buildings, road transport and other sectors (mainly small industry), which will apply to distributors supplying fuel to these sectors from 2027. If oil and gas prices are extremely high in the period before the start of the new system, its implementation will be postponed until 2028.
In relation to aviation, free allowances for this sector will be abolished by 2026 and 31 million allowances will be set aside by 2030 December 20 to incentivise aircraft operators to switch to non-fossil fuels. The system will now include intra-EU flights (including to the UK and Switzerland), while the global CORSIA emissions reduction regulations will apply to flights to and from third countries participating in it from 2022 to 2027.
Transparency on aircraft operators' emissions and offsetting will also be improved and a monitoring, reporting and verification framework for non-CO2 impacts of aviation will be put in place. By 1 January 2028, based on the results of this framework, the Commission will, where appropriate, propose mitigating measures for the non-CO2 impacts of aviation.
It is also planned to improve transparency on airline emissions and set up a monitoring mechanism, the findings of which will form the basis for the development of mitigation measures.
The Carbon Border Adjustment Mechanism (CBAM) concerns imports of products produced in high-emission industries, and aims to prevent an increase in emissions in third countries due to the relocation of production to countries outside the EU with less ambitious policies to tackle climate change.
By the end of 2025, the mechanism will only apply as a reporting obligation, after which it will be phased out in parallel with a phase-out of free allowances between 2026 and 2034.
Finally, the Social Climate Fund will provide funds to Member States to finance measures and investments to support vulnerable households, micro-enterprises and transport users and help them address the impact of ETS prices on buildings, road transport and additional sectors.
The fund will be financed mainly by revenues from the new emissions trading system with a maximum amount of €65 billion, complemented by national contributions. It is provisionally established for the period 2026 to 2032, it added.
