The European Parliament has adopted the reform of the EU’s Emissions Trading System including for aviation and maritime, the Carbon Border Adjustment Mechanism (CBAM) and a new Social Climate fund. The reforms are part of the Fit for 55 in 2030 package, which aims to reduce greenhouse gas (GHG) emissions by at least 55% by 2030 compared to 1990 levels in line with the European Climate Law.
The reform of the Emissions Trading System (ETS) increases the ambition of the ETS, as GHG emissions in the ETS sectors must be cut by 62% by 2030 compared to 2005-levels. It also phases out free allowances to companies from 2026 until 2034 and creates a separate new ETS II for fuel for road transport and buildings that will put a price on GHG emissions from these sectors in 2027 (or 2028 if energy prices are exceptionally high).
In addition, the new EU Carbon Border Adjustment Mechanism (CBAM) aims to incentivise non-EU countries to increase their climate ambition and to ensure that EU and global climate efforts are not undermined by production being relocated from the EU to countries with less ambitious policies. The sectors covered by CBAM are iron, steel, cement, aluminium, fertilisers, electricity, hydrogen as well as indirect emissions under certain conditions.
The reform includes a Social Climate Fund (SCF) to combat energy poverty, which will be funded from auctioning ETS II allowances up to €65bn, with an additional 25% covered by national resources, raising the total to €86.7bn.
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