The European Council’s recent announcement about the adoption of new laws is a significant development in the EU’s efforts to reduce its carbon footprint and address climate change. These laws are part of the “Fit for 55” roadmap, which is a comprehensive plan to reduce greenhouse gas emissions by 55% by 2030 and achieve climate neutrality by 2050.
One of the most notable laws introduced by the Council is the EU Carbon Border Adjustment Mechanism (CBAM). This measure is aimed at avoiding “carbon leakage,” which occurs when companies move their production of emissions-intensive goods to countries with less stringent environmental and climate policies. The CBAM will equalize the price of carbon paid for EU products operating under the EU Emissions Trading System (ETS) with that paid for products produced in other countries. This means that companies importing into the EU will need to purchase CBAM certificates to offset the difference in carbon pricing.
Another important aspect of the new laws is the update to the EU ETS. The ETS was established in 2005 and places a price on carbon emissions for key greenhouse gas (GHG) intensive sectors, such as electricity and heat generation, oil refineries, steel, cement, paper, chemicals, and commercial aviation, among others.
The updated ETS aims to direct emissions reductions in the covered sectors to 62% by 2030 compared to 2005, which is a significant increase from the prior 43% mandate. In addition, the system will expand to cover shipping emissions from the maritime sector and will phase out free allowances to the aviation sector that allow airlines to avoid paying for carbon emissions on intra-European flights and flights departing to the UK and Switzerland.
The new laws also establish a Social Climate Fund, which aims to support vulnerable households, micro-enterprises, and transport users that may be affected by the price impacts of the ETS on several sectors. This fund will be financed through the auctioning of ETS allowances and supplemented by national contributions, with a total estimated value of up to approximately €87 billion.
Overall, the EU’s adoption of these new laws marks a significant step towards achieving its climate goals and addressing the global issue of climate change. By establishing measures like the CBAM, updating the ETS, and introducing a Social Climate Fund, the EU is taking concrete steps to reduce its carbon footprint and support vulnerable communities impacted by the transition to a low-carbon economy.