EU Adopts Laws to Reduce Greenhouse Gas Emissions

Photo source: EU Council.

The European Union (EU) Council has recently adopted five new laws designed to support the cutting of greenhouse gas emissions across major sectors, including a new emissions trading system for buildings, road transport, and small industry.

The new measures, collectively known as the “Fit for 55” package, are aimed at bringing EU policies into line with a commitment to reduce greenhouse gas emissions by at least 55 percent compared to 1990 levels by 2030, and to achieve climate neutrality by 2050.

The Council’s vote marks the final step in the decision-making process.

The new rules increase the overall ambition of emissions reductions to 62 percent compared to 2005 levels within sectors covered by the EU Emissions Trading System (EU ETS).

Photo source: EU Council.

The 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.

For the first time, shipping emissions will be included in the EU ETS, with shipping companies obliged to surrender allowances gradually over the next five years. Non-CO2 emissions (methane and N2O) will also be included in the “Monitoring, Reporting, and Verification” regulation by 2024 and the EU ETS by 2026.

The new emissions trading system, which will apply to distributors that supply fuels to buildings, road transport, and small industry, will begin in 2027. A safeguard has been put in place so that if oil and gas prices are exceptionally high in the run-up to the system’s launch, it will be postponed until 2028.

Free emission allowances for the aviation sector will be gradually phased out, with full auctioning implemented by 2026. The EU ETS will apply to intra-European flights, while the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) will apply to extra-European flights to and from third countries participating in CORSIA from 2022 to 2027.

Additionally, the Carbon Border Adjustment Mechanism (CBAM) will apply as a reporting obligation until the end of 2025, after which it will be phased in gradually.

Photo source: EU Council.

At the same time, the Social Climate Fund will be established to support vulnerable households, micro-enterprises, and transport users to cope with the price impacts of an emissions trading system.

The fund will be financed by revenues from the new emissions trading system, up to a maximum of 65 billion euros, supplemented by national contributions.

The adoption of these measures signals the EU’s determination to lead the world in reducing greenhouse gas emissions and combatting climate change.

By creating new emissions trading systems and phasing out free emission allowances, the EU aims to incentivize companies to reduce their emissions and move towards a more sustainable, low-carbon future.