ESG: Regulations Summary

Five laws were approved by the Council today that will allow the EU to reduce greenhouse gas emissions in the major economic sectors while ensuring that the most vulnerable citizens, microbusinesses, and sectors that are vulnerable to carbon leakage are effectively supported in the climate transition.

The legislation are a part of the 'Fit for 55' package, which aligns EU policies with its promise to reduce net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and to attain climate neutrality by 2050.

The final step of the decision-making process is the Council vote.

EU Emissions trading system

The new regulations raise the overall target for emissions reductions in the EU ETS sectors from 2005 levels to 62% by 2030.

Maritime transport emissions

For the first time, shipping-related emissions will be covered by the EU ETS. There will be a gradual introduction of requirements for shipping corporations to surrender allowances: 40% for certified emissions starting in 2024, 70% in 2025, and 100% in 2026.

Buildings, road transportation, and other industries

To assure cost-effective emissions reductions in these sectors, which have so far proven challenging to decarbonize, a new, independent emissions trading system has been formed for buildings, road transport, and additional sectors (mostly small industry). Distributors who distribute fuel to buildings, roads, and other sectors will be subject to the new system starting in 2027.

Aviation-related emissions

Free emission allowances for the aviation industry will be phased out gradually, and full auctioning will begin in 2026. 20 million permits will be set aside until December 31, 2030, to encourage aeroplane operators to switch to alternative fuels.

Carbon Border Adjustment Mechanism

A method called the Carbon Border Adjustment method (CBAM) is focused on importing goods from carbon-intensive sectors. The goal of CBAM is to prevent, in full compliance with international trade regulations, that the EU's efforts to reduce greenhouse gas emissions are undermined by rising emissions outside of its borders as a result of shifting production to nations with less aggressive climate change policies or increasing imports of carbon-intensive goods.

The Social Climate Fund

In order to help vulnerable households, microbusinesses, and transport users deal with the economic consequences of an emissions trading system for buildings, road transport, and other sectors, member states will use the Social Climate Fund to finance initiatives and projects.