As part of the European Green Deal, with the European Climate Law, the EU has set itself a binding target of achieving climate neutrality by 2050. This requires current greenhouse gas emission levels to drop substantially in the next decades. As an intermediate step towards climate neutrality, the EU has raised its 2030 climate ambition, committing to cutting emissions by at least 55% by 2030.

On 18 April 2023, MEPs adopted the reform of EU´s Emissions Trading System including for aviation and the maritime sector, the Carbon Border Adjustment Mechanism and a new Social Climate fund. The deal on the reform of the Emissions Trading System (ETS) increases the ambition for 2030, phases out free allowances to companies and creates a separate new ETS II for fuel for road transport and buildings that will put a price on emissions from these sectors by 2027.

According to the agreement with EU countries, an EU Carbon Border Adjustment Mechanism (CBAM) will be set up to ensure that importers of goods covered by the EU ETS would have to pay any price difference between the price paid for carbon in the country of production and the price of carbon allowances in the EU ETS. This will incentivise non-EU countries to increase their climate ambition and ensure that EU and global climate efforts are not undermined by production being relocated from the EU to countries with less ambitious policies.

A separate deal with member states sets up an EU Social Climate Fund to ensure that the climate transition will be fair and socially inclusive. Vulnerable households, micro-enterprises and transport users who are particularly affected by energy and transport poverty will benefit from the fund. When fully in place, it will be funded from auctioning ETS II allowances up to an amount of €65 billion, with an additional 25% covered by national resources (amounting to an estimated total of €86.7 billion).

Trilogue on Emissions Trading System

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