European Parliament adopts key laws to reach 2030 climate goal

'Fit for 55' is the EU’s plan 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) was adopted today with 413 votes in favour to 167 against and 57 abstentions.

The reform

• increases the ambition of the ETS, as GHG emissions in the ETS sectors must be cut by 62% by 2030 compared to 2005-levels
• 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).

Parliament also voted to include, for the first time, GHG emissions from the maritime sector in the ETS and agreed to the revision of the ETS for aviation, which will phase out the free allowances to the aviation sector by 2026 and promote the use of sustainable aviation fuels.

New carbon leakage instrument created

MEPs also adopted the rules for the new EU Carbon Border Adjustment Mechanism (CBAM), which "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 goods covered by CBAM are iron, steel, cement, aluminium, fertilisers, electricity, hydrogen as well as indirect emissions under certain conditions.

Importers of these goods would have to pay any price difference between the carbon price paid in the country of production and the price of carbon allowances in the EU ETS.

The CBAM will be phased in from 2026 until 2034 at the same speed as the free allowances in the EU ETS are being phased out.

A Social Climate Fund to combat energy poverty

The deal with member states to set up an EU Social Climate Fund (SCF) in 2026 to ensure that the climate transition will be fair and socially inclusive was also adopted.

Vulnerable households, micro-enterprises and transport users who are particularly affected by energy and transport poverty will benefit from this.

When fully in place, the SCF 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).

The laws still need final approval from EU countries, who will assess them in the next few weeks.

Cover photo: Getty Images