Reform of EU Emissions Trading system (ETS) - Emissions reductions to 62 % by 2030
19 December 2022
The EU Emissions Trading System (ETS), introduced in 2005, puts a price on greenhouse gas (GHG) emissions to foster EU emissions reductions. Under the Fit for 55 package, the ambition for ETS was further increased, and a separate carbon market, ETS 2, is also being created for buildings and road transport. The co-legislators, the European Parliament and the Council, have reached a deal on 18 December 2022 that will, once confirmed, bring a new era for the emissions reduction.
European Union negotiators reached agreement early on Sunday morning to reform the ETS, the biggest carbon market in the world and the bloc’s flagship climate policy instrument. They agreed to increase the overall ambition of emissions reductions by 2030 in the sectors covered by the EU ETS to 62%.
ETS 2 is now confirmed; the new system will apply to distributors that supply fuels to the buildings, road transport and certain other sectors. We welcome the fact that the co-legislators decided to extend the initial Commission’s proposal by a year – by 2027 – for the introduction of this separate ETS for transport and buildings. Most importantly, we welcome the “emergency break” by which it could be further postponed until 2028 to protect the citizens if energy prices (continue to be) exceptionally high.
The agreement also extends the scope of the system to fuels used in certain industrial sectors. As a consequence, it has been agreed to increase the size the Social Climate Fund correspondingly (from €72 billion proposed by the European Commission to €86.7 billion running from 2026 until 2032) , which will support vulnerable households, micro-enterprises and transport users.
Nevertheless, and specifically given the current context, the inclusion of the building sector will have a huge impact on EU citizens’ household budgets. Those who heat their homes with gas or oil will see their fuel heating bills more expensive at a time when millions of Europeans are struggling to cover their expenses during a cost-of-living crisis.
Following the Emmanuelle Causse, UIPI’s Secretary General commented: “ETS extension to buildings is meant to send a market signal. Increasing energy prices should lead to reduced consumption, that’s the principle! The final deal reached ultimately came down to whether, when and to what degree European households should be burdened with the cost of their emissions. Yet it remains to be seen how impactful the deal will be on heating bills and to which extent we can protect the most vulnerable – but also a growing number of middle classes – struggling to pay their energy bills with a fund that has indeed been increased but is still not sufficient to face the considerable challenges of energy crisis.”
The deal is provisional pending formal adoption in both institutions.
To know more about the agreement on the ETS reform: