The European Council has approved five laws that will enable the European Union to reduce greenhouse gas (GHG) emissions across the primary sectors of the economy, marking the final step in the decision-making process.
The new rules increase the overall ambition of emissions reductions by 2030 in the sectors covered by the EU Emissions Trading System (EU ETS), such as energy-intensive industries, the power generation sector and the aviation sector, to 62% compared to 2005 levels. Free emission allowances for the aviation sector will be gradually phased out, with full auctioning of allowances starting in 2026. For the first time, shipping emissions will be included in the EU ETS: the new rules will require shipping companies to gradually surrender allowances for their emissions, with the full obligation starting from 2026.
A new separate emissions trading system has been established for sectors that have been difficult to decarbonize, such as buildings and road transport. This system will apply to distributors that supply fuels to these sectors from 2027. A safeguard has been put in place to postpone the start of the system until 2028 if the prices of oil and gas are exceptionally high.
Moreover, the Carbon Border Adjustment Mechanism (CBAM), a mechanism concerning imports of products in carbon-intensive industries (such as cement, aluminium, fertilisers, electric energy production, hydrogen, iron and steel), will apply initially as a reporting obligation until the end of 2025 and will then be phased in gradually. Free allowances for sectors covered by the CBAM will be phased out over a nine-year period between 2026 and 2034. The CBAM aims to promote imports of goods from non-EU countries that meet high climate standards.
Finally, a €65bn Social Climate Fund funded by revenues mainly from the new emissions trading system will be used by member states to offset the price impacts of the new emission trading system for the buildings and road transport sectors on vulnerable households, micro-enterprises and transport users. The fund will be supplemented by national contributions and is set up over the 2026-2032 period.
The laws will now be signed by the Council and the European Parliament and published in the EU’s Official Journal before entering into force. They are part of the 'Fit for 55' package, which sets the EU’s policies in line with its commitment to reduce its net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and to achieve climate neutrality in 2050.
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