Under the European Climate Law, EU Member States will work collectively to become climate neutral by 2050. As a first milestone, the EU is aiming to reduce net emissions by at least 55% by 2030 compared to 1990. The revised EU ETS will contribute to delivering this target.
To achieve the necessary emission reductions cost-effectively, the EU ETS has been strengthened, and its scope expanded to maritime transport. Altogether, the cap is tightened to bring emissions down by 62% by 2030 compared to 2005 levels. In parallel, operational parameters of the Market Stability Reserve have been calibrated to continue fostering a balanced EU carbon market. The price fluctuations mechanism has also been reinforced.
To help advance sectoral decarbonisation, free allocation rules have been adapted. This includes conditionality requirements for industry installations to access free allocation (in the form of energy audits and for certain installations, climate neutrality plans) and a gradual phase-out of free allocation in the aviation sector.
Also, in certain industry sectors (cement, aluminium, fertilisers, electric energy production, hydrogen, iron and steel, as well as some precursors and a limited number of downstream products) free allocation will be gradually phase out. This is due to the introduction of the Carbon Border Adjustment Mechanism (CBAM), a new measure to mitigate the risk of carbon leakage as the EU ramps up its climate ambition.
New emissions trading system for buildings, road transport and additional sectors and the Social Climate Fund
To stimulate cost-effective emission reductions in buildings, road transport and additional sectors, the new emissions trading system (ETS 2) has been introduced for fuels combusted in these sectors. It will regulate fuel suppliers rather than consumers, raising revenues for climate and social action.
In particular, revenues from the auctioning of emission allowances in ETS 2 will supply the new Social Climate Fund to address the social impacts arising from the new system on vulnerable groups in the EU. Together with the Member States' contributions, the Social Climate Fund will mobilise EUR 86.7 billion from 2026 to 2032.
The new system is designed to operate in an orderly, smooth and efficient manner from 2027, while the monitoring and reporting of emissions starts already in 2025.
Resources for the green transition
To aid sectors in the decarbonisation challenge, more resources from the ETS framework have been leveraged for the green transition.
The sizes of both the Innovation and the Modernisation Fund funded have been increased. Both are funded by the EU ETS. Additional resources under the Innovation Fund will support breakthrough technologies for the green transition, including through dedicated calls for projects in the maritime and CBAM sectors. Additional resources under the Modernisation Fund will help finance energy transformation in the original ten beneficiary Member States, plus Greece, Portugal and Slovenia.
Finally, revenues from both systems (or their equivalent financial value) will have to be spent to further climate action, energy transformation and a just transition.