Provisional agreement has been reached by the European Parliament and Council on important legislative proposals of the ‘Fit for 55’ package, the European Union's package of policies 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 agreement pertains to the EU's carbon market, and plans to further reduce emissions and address their social impacts.
The proposals aim to:
- Strengthen the EU Emissions Trading System (ETS). The EU ETS is a cornerstone of the EU's policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively. Introduced in 2005 it is the world's first major carbon market and remains the biggest one. It is a cap-and-trade system which requires, among other things, that energy-intensive industries and the power generation sector buy CO2 permits when they pollute. In 2021, installations covered by the EU ETS accounted for around 40% of the EU's total emissions. Negotiators have agreed to raise the overall target to cut emissions in the sectors covered by the ETS from 43% to 62% by 2030 from 2005 levels, and to apply of the ETS to heating, road transport and shipping for effective economy-wide climate action.
- Gradually phase out free emission allowances to certain enterprises and phase in the Carbon Border Adjustment Mechanism (CBAM) between 2026 and 2034 for the sectors covered. The CBAM is the EU’s tool to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries.
- Establish a Social Climate Fund to protect and support vulnerable households, micro-enterprises and transport users from rising CO2 costs.
The deal also includes shipping emissions in the EU ETS, making the EU the first jurisdiction to put an explicit carbon price on emissions from the maritime sector, and increases the size of the Innovation and Modernisation Funds.
European Commissioner for Financial Services, Financial Stability and Capital Mairead McGuinness, described the provisional deal as "a really significant development” and “a massive transformation of the way we live, work and play.”
On formal adoption by the European Parliament and Council, the new legislation can be published in the Official Journal of the Union and enter into force.