EU Emissions Trading System Revision
On 14 July, as part of the 'Fit for 55' package, the Commission published a legislative proposal for a revision of the EU Emissions Trading System (ETS), to align it with the target of a 55 % reduction of EU net greenhouse gas (GHG) emissions by 2030, compared to 1990 levels.
These comprehensive amendments are integral components of the EU's broader "Fit for 55" package, which aims to achieve climate neutrality by 2050.
Directive (EU) 2023/959 amend Directive 2003/87/EC concerns the ongoing phase 4 of the ETS (2021-2030). It consists of five main elements:
1. a reduced cap and more ambitious linear reduction factor for GHG emissions,
2. revised rules for free allocation of allowances and the market stability reserve
3. extension of the ETS to maritime transport
4. a separate new ETS for buildings and road transport
5. increase of the Innovation and Modernisation Funds and new rules on use of ETS revenues
Unlike the existing EU ETS, which operates downstream, ETS2 regulates emissions upstream by requiring fuel suppliers to monitor, report, and surrender allowances for their emissions.
It will be fuel suppliers, rather than end consumers such as households or car users, that will be required to monitor and report their emissions. These entities will be regulated under the ETS2, which means they will be required to surrender sufficient allowances to cover their emissions. Regulated entities will purchase these allowances at auctions. The ETS2 cap will be set to bring emissions down by 42% by 2030 compared to 2005 levels.
Key Revisions and Expansions:
1/ Enhanced Emission Reduction Targets:
-> The directive increases the emission reduction target for sectors covered by the EU ETS to 62% by 2030, relative to 2005 levels. This is a substantial rise from the previous target of 43%.
2/ Inclusion of Maritime Transport:
-> Starting in 2024, the EU ETS will encompass greenhouse gas emissions from maritime transport, with a two-year phase-in period. This inclusion aims to address emissions from ships, a sector previously excluded from the ETS.
3/ Creation of a New Emissions Trading System (ETS2):
-> A separate emissions trading system, known as ETS2, has been established to cover CO₂ emissions from fuel combustion in buildings, road transport, and additional sectors, primarily small industries not covered by the existing EU ETS. ETS2 is set to become fully operational in 2027.
-> In ETS2, fuel suppliers will be responsible for monitoring and reporting emissions, and they will need to purchase allowances through auctions to cover these emissions.
-> The cap for ETS2 is designed to achieve a 42% reduction in emissions by 2030 compared to 2005 levels.
4/ Establishment of the Social Climate Fund (SCF):
-> A portion of the revenues generated from ETS2 will be allocated to the SCF, aimed at supporting vulnerable households and micro-enterprises in transitioning to greener alternatives. Member States are mandated to utilize the remaining ETS2 revenues for climate action and social measures.
5/ Adjustments to the Market Stability Reserve (MSR):
-> The directive amends Decision (EU) 2015/1814 concerning the MSR to ensure the stability of the carbon market, addressing issues like surplus allowances and market imbalances.
6/ Inclusion of Municipal Waste Incineration:
-> The Commission will assess the potential extension of the EU ETS to cover emissions from municipal waste incineration from 2028.
🔗 EP, EC
These comprehensive amendments are integral components of the EU's broader "Fit for 55" package, which aims to achieve climate neutrality by 2050.
Directive (EU) 2023/959 amend Directive 2003/87/EC concerns the ongoing phase 4 of the ETS (2021-2030). It consists of five main elements:
1. a reduced cap and more ambitious linear reduction factor for GHG emissions,
2. revised rules for free allocation of allowances and the market stability reserve
3. extension of the ETS to maritime transport
4. a separate new ETS for buildings and road transport
5. increase of the Innovation and Modernisation Funds and new rules on use of ETS revenues
Unlike the existing EU ETS, which operates downstream, ETS2 regulates emissions upstream by requiring fuel suppliers to monitor, report, and surrender allowances for their emissions.
It will be fuel suppliers, rather than end consumers such as households or car users, that will be required to monitor and report their emissions. These entities will be regulated under the ETS2, which means they will be required to surrender sufficient allowances to cover their emissions. Regulated entities will purchase these allowances at auctions. The ETS2 cap will be set to bring emissions down by 42% by 2030 compared to 2005 levels.
Key Revisions and Expansions:
1/ Enhanced Emission Reduction Targets:
-> The directive increases the emission reduction target for sectors covered by the EU ETS to 62% by 2030, relative to 2005 levels. This is a substantial rise from the previous target of 43%.
2/ Inclusion of Maritime Transport:
-> Starting in 2024, the EU ETS will encompass greenhouse gas emissions from maritime transport, with a two-year phase-in period. This inclusion aims to address emissions from ships, a sector previously excluded from the ETS.
3/ Creation of a New Emissions Trading System (ETS2):
-> A separate emissions trading system, known as ETS2, has been established to cover CO₂ emissions from fuel combustion in buildings, road transport, and additional sectors, primarily small industries not covered by the existing EU ETS. ETS2 is set to become fully operational in 2027.
-> In ETS2, fuel suppliers will be responsible for monitoring and reporting emissions, and they will need to purchase allowances through auctions to cover these emissions.
-> The cap for ETS2 is designed to achieve a 42% reduction in emissions by 2030 compared to 2005 levels.
4/ Establishment of the Social Climate Fund (SCF):
-> A portion of the revenues generated from ETS2 will be allocated to the SCF, aimed at supporting vulnerable households and micro-enterprises in transitioning to greener alternatives. Member States are mandated to utilize the remaining ETS2 revenues for climate action and social measures.
5/ Adjustments to the Market Stability Reserve (MSR):
-> The directive amends Decision (EU) 2015/1814 concerning the MSR to ensure the stability of the carbon market, addressing issues like surplus allowances and market imbalances.
6/ Inclusion of Municipal Waste Incineration:
-> The Commission will assess the potential extension of the EU ETS to cover emissions from municipal waste incineration from 2028.
🔗 EP, EC
- Categories
- GHG EmissionsEmissions Reduction
- Legislation instrument
- Directive
- Pillars
- Environmental
- Audience
- Business
- Legislation status
- In Force
- Applicable area
- EU
- Directive (EU) 2023/959
Timeline
- ProposedJul 14, 2021
- ApprovedApr 25, 2023
- AdoptedMay 10, 2023
- PublishedMay 16, 2023
- In ForceJun 5, 2023
- In ApplicationJan 1, 2025
Application Dates
Monitoring and Reporting Phase:
-> Start Date: January 1, 2025
-> Details: Regulated entities are required to begin monitoring and reporting their emissions to prepare for the full implementation of ETS2.
Full Operational Start:
-> Scheduled For: January 1, 2027
-> Details: ETS2 becomes fully operational, covering CO₂ emissions from fuel combustion in buildings, road transport, and additional sectors.
Potential Postponement Clause:
-> Provision: The start of ETS2 may be postponed by one year (to 2028) in case of exceptionally high energy prices.
Monitoring and Reporting Phase:
-> Start Date: January 1, 2025
-> Details: Regulated entities are required to begin monitoring and reporting their emissions to prepare for the full implementation of ETS2.
Full Operational Start:
-> Scheduled For: January 1, 2027
-> Details: ETS2 becomes fully operational, covering CO₂ emissions from fuel combustion in buildings, road transport, and additional sectors.
Potential Postponement Clause:
-> Provision: The start of ETS2 may be postponed by one year (to 2028) in case of exceptionally high energy prices.
General Information
Overview
EnglishInformation
FAQ – Maritime transport in EU
EnglishQ&A
ETS2: buildings, Road Transport and Additional Sectors
EnglishInformation
Union Registry
EnglishInformation
Monitoring, Reporting and Verification
EnglishInformation
Regulatory Instruments
Monitoring and Reporting of Greenhouse Gas Emissions (revision)484 kB
EnglishImplementing ActIn Force
Operation of the Innovation Fund (revision)742 kB
EnglishDelegated ActIn Force
Supportive Documents
ICAP Executive Summary EU ETS 2
EnglishGuidance
ICAP ETS Map
EnglishInformation