Insights Blog

Further legislation to speed up energy transition and drive down emissions has been agreed.

We last checked in on progress in April here and here. Developments since then leading to finalised instruments are set out below.

EU Emissions Trading Scheme & Carbon Border Adjustment Mechanism

The Council adopted several instruments to underpin a strengthened EU ETS and new Carbon Border Adjustment Mechanism, which means they will now be signed by the Council and Parliament, published in the OJEU, and enter into force.

In addition to adjusting the EU ETS to further reduce emissions (by 62% in 2030 compared to 2005), the revised legislation brings in emissions from shipping and phases out free allowances for aviation, with full auctioning in that sector to be in place from 2026. The institutions also agreed proposals to require from 2025 increasing volumes of sustainable fuel to be blended in aviation fuel.

A new, separate emissions trading system for buildings, roads and small industry will apply from 2027 to distributors supplying fossil fuel to those sectors.

The Carbon Border Adjustment Mechanism, intended to complement the EU ETS, will eventually require companies importing goods from outside the EU to purchase certificates reflective of the difference in the carbon price in the country of production and the price of carbon allowances in the EU ETS. The Mechanism will be phased in gradually, comprising reporting obligations only up to the end of 2025. Further information is available here and here.

Meanwhile, the Commission reported on recent emissions trends within the EU ETS, noting an overall declining trend notwithstanding an 0.5% increase in 2022 compared to 2021. Further information is available here.

CO2 Emissions Performance Standards 

Regulation (EU) 2023/851 on performance standards for new cars and light commercial vehicles has been published in the OJEU and comes into effect on 15 May 2023.