European Parliament members reached an agreement on legislation concerning Fit for 55 on Tuesday. The agreement supports EU climate targets with new legislation for member states, intending to reduce greenhouse gas emissions. All targets are set for 2030 and measured against 1990’s emissions levels. 

‍The legislation will have implications for various European environmental markets ranging from the EU ETS to biofuels and power purchase agreements. 

EU ETS developments

The target for the EU ETS is now set for a 62% decrease in GHG emissions by 2030 compared to 2005, a target that has already sent EUA prices to an all-time high at €101.25. The new targets imply a cut to the EUA supply of approximately 84 million tonnes of CO2 per year. Additionally, a new ETS II system will be implemented for road transport fuels and buildings, starting in either 2027 or 2028. The maritime sector will phase into the EU ETS starting in 2024. Aviation will see its free allocation phased out over 2024-26, while all free allowances will be phased out from 2026.

FuelEU Maritime

Ships over 5000 gross tonnes will be obliged to decrease their GHG emissions, by 2% from 2025, rising to 80% by 2050. Working towards this obligation can, for example, be done by using alternative fuels. There is some overlap with the EU ETS that could become significant in the 2030s. EU ETS covers non-fuel improvements to carbon efficiency also - like using silicon paint on a ship’s hull. 

Carbon Border Adjustment Mechanism

With a majority vote Parliament also approved new rules for the Carbon Border Adjustment Mechanism. CBAM is an initiative to motivate non-member states to take climate action while safeguarding EU and global climate actions by imposing a carbon border levy linked to the EUA price for imports into the EU for covered sectors. This helps prevent “carbon leakage” into other member states. CBAM will be phased in from 2026 to 2034 and cover goods such as iron, steel, cement, aluminium, electricity, fertilisers and hydrogen. This process will start while free allowances are being phased out. 

Revision of the Renewable Energy Directive (REDII to REDIII)

The revision of the renewable energy directive updates framework targets for renewable energy in the EU until 2030, most significantly it sets a binding renewable target for 2030 to a minimum of 42.5% generation from renewable sources, with sub-targets for e.g. the transport sector. The boost to renewable energy supply is likely to be bearish for GO prices, though with renewable energy development facing headwinds from high-interest rates and the regulatory uncertainty brought on in 2022 due to the energy crisis, there are no guarantees that Europe will be able to meet its targets - or that there will be sufficient supply to meet demand. 

Under REDIII, standards for biomass feedstocks will be tightened up, with implications for biomethane and biofuel use - contact AFS for more details on how this could affect your operations. 

What’s next?

All decisions made by Parliament need approval from the Council. After official endorsement, the texts are published by the EU Official Journal and become effective 20 days later. 

The Committee of Permanent Representatives, comprised of each member state’s deputy permanent representatives, is set to vote on the package today 19 April, with the next possible Council sessions at which the package can be approved on 24 and 25 April. If not in April, the next possible meetings will take place in May. Voting will be with qualified majority rules.

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‍AFS Energy supports its clients on all matters relating to EU regulations, compliance and Fit for 55.

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