‘Fit for 55’: Council adopts key pieces of legislation delivering on 2030 climate targets

The Council today adopted five laws that will enable the EU to cut greenhouse gas emissions within the main sectors of the economy, while making sure that the most vulnerable citizens and micro-enterprises, as well as the sectors exposed to carbon leakage, are effectively supported in the climate transition.

The laws 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.

The vote in the Council is the last step of the decision-making procedure.

EU emissions trading system

The EU Emissions Trading System (EU ETS) is a carbon market based on a system of cap-and-trade of emissions allowances for energy-intensive industries, the power generation sector and the aviation sector.

The new rules increase the overall ambition of emissions reductions by 2030 in the sectors covered by the EU ETS to 62% compared to 2005 levels.

Maritime transport emissions

Emissions from shipping will be included within the scope of the EU ETS for the first time. Obligations for shipping companies to surrender allowances will be introduced gradually: 40% for verified emissions from 2024, 70% from 2025 and 100% from 2026.

Most large vessels will be included within the scope of the EU ETS from the start, while other big vessels, namely offshore vessels, will be included in the ‘MRV’ regulation on the monitoring, reporting and verification of CO2 emissions from maritime transport first, and only later included in the EU ETS.

Non-CO2 emissions (methane and N2O) will be included in the ‘MRV’ regulation from 2024 and in the EU ETS from 2026.

Buildings, road transport and additional sectors

A new, separate emissions trading system for the buildings, road transport and additional sectors (mainly small industry) has been established, in order to ensure cost-efficient emissions reductions in these sectors, which have thus far proven difficult to decarbonise. The new system will apply to distributors that supply fuels to the buildings, road transport and additional sectors from 2027. A safeguard has been put in place whereby if the price of oil and gas are exceptionally high in the run up to the start of the new system, this will be postponed until 2028.

Emissions from aviation

Free emission allowances for the aviation sector will be gradually phased out and full auctioning from 2026 will be implemented. Until 31 December 2030, 20 million allowances will be reserved to incentivise the transition of aircraft operators from the use of fossil fuels.

The EU ETS will apply for intra-European flights (including departing flights to the United Kingdom and Switzerland), while CORSIA will apply to extra-European flights to and from third countries participating in CORSIA from 2022 to 2027 (‘clean cut’).

Transparency on aircraft operators’ emissions and offsetting will also be improved and a monitoring, reporting and verification framework for non-CO2 aviation effects will be set up. By 1 January 2028, building on the results of that framework, the Commission will propose, where appropriate, mitigation measures for non CO2 aviation effects.

Carbon Border Adjustment Mechanism

The Carbon Border Adjustment Mechanism (CBAM) is a mechanism which concerns imports of products in carbon-intensive industries. The objective of CBAM is to prevent – in full compliance with international trade rules – that the greenhouse gas emissions reduction efforts of the EU are offset by increasing emissions outside its borders through the relocation of production to EU countries where policies applied to fight climate change are less ambitious than those of the EU or increased imports of carbon-intensive products.

Until the end of 2025 the CBAM will apply only as a reporting obligation. CBAM will be phased in gradually, in parallel to a phasing out of the free allowances, once it begins under the revised EU ETS for the sectors concerned. Free allowances for sectors covered by the Carbon Border Adjustment Mechanism – cement, aluminium, fertilisers, electric energy production, hydrogen, iron and steel, as well as some precursors and a limited number of downstream products – will be phased out over a nine-year period between 2026 and 2034.

CBAM promotes the import of goods by non-EU businesses into the EU which fulfil the high climate standards applicable in the 27 EU member states. This will ensure a balanced treatment of such imports and is designed to encourage the EU’s partners in the world to join the EU’s climate efforts.

The Social Climate Fund

The Social Climate Fund will be used by member states to finance measures and investments to support vulnerable households, micro-enterprises and transport users and help them cope with the price impacts of an emissions trading system for the buildings, road transport and additional sectors.

The fund will be funded by revenues mainly from the new emissions trading system up to a maximum amount of EUR 65 billion, to be supplemented by national contributions. It is established temporarily over the period 2026-2032.

Background

The Council today voted on the following laws of the ‘Fit for 55’ package:

• Revision of the ETS Directive
• Amendment of the MRV shipping Regulation
• Revision of the ETS Aviation Directive
• Regulation establishing a Social Climate Fund
• Regulation establishing a Carbon Border Adjustment Mechanism

Presented by the European Commission on 14 July 2021 under the European Green Deal, the ‘Fit for 55’ package will enable the EU to reduce its net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and achieve climate neutrality in 2050.

The Council and the European Parliament reached a provisional agreement on ETS aviation on 7 December 2022, on CBAM on 13 December 2022 and on the EU ETS and the SCF on 18 December 2022. The Parliament formally adopted the laws on 18 April 2023.

Next steps

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.