The European Union has reached an agreement to reform the EU carbon market, in which greenhouse gas emissions in the ETS sectors will be cut by 62% by 2030, compared to 2005 levels. This represents a substantial increase compared to the 43% reduction target under the existing legislation.
In order to attain this objective, the union will implement a one-off reduction to the EU-wide quantity of allowances of 90 MtCO2eq in 2024 and 27 MtCO2eq in 2026, in combination with a 4.3% annual reduction of allowances from 2024 to 2027 and a 4.4% annual reduction from 2028 to 2030.
The free allowances to companies and industries in the ETS will be phased out gradually from 2026 (2.5%) to 2034 (100%). The Carbon Border Adjustment Mechanism (CBAM), on which the European Parliament reached an agreement with EU governments earlier in December 2022 to prevent carbon leakage, will be phased in at the same speed that the free allowances in the ETS will be phased out. The CBAM will therefore also start in 2026 and be fully phased in by 2034.
A separate new ETS II for fuel for road transport and buildings (as well as for other sectors such as manufacturing) that will put a price on emissions from these sectors will be established by 2027. ETS II could nonetheless be postponed until 2028 to protect EU citizens if energy prices are exceptionally high.
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