Overview

Description

In July 2021, the European Commission proposed the “Fit for 55” package of reforms to align EU climate and energy policy with the objectives of the “European Green Deal”, most importantly the ambitious 2030 climate target of reducing net emissions to at least 55% below the 1990 level. The package included important amendments to the EU ETS framework, including a proposal to extend emissions trading to new sectors. These amendments were adopted in the first half of 2023 and are now in force. A new, separate emissions trading system (ETS 2) will be established for emissions from fuels used for combustion in buildings, road transport and additional sectors (mainly small industry not covered by the existing EU ETS). The ETS 2 will complement other policies of the European Green Deal in the covered sectors, helping Member States achieve their emission reduction targets under the “Effort Sharing Regulation” (Regulation (EU) 2018/842). The ETS 2 is based on the ‘cap-and-trade’ principle. It will cover emissions upstream, meaning the obligation to surrender allowances will fall on the fuel suppliers rather than end-consumers. The ETS 2 cap will be set to bring emissions down by 42% by 2030 compared to 2005 levels. The ETS 2 is due to become fully operational in 2028, following a decision in September 2025, finalized in March 2026, to delay implementation by one year. A share of revenues from the ETS 2 will be used to support vulnerable households and micro-enterprises through a dedicated Social Climate Fund, created as part of the “Fit for 55” package. Member States will be required to use the remaining ETS 2 revenues for climate action and social measures.

Recent Developments

In September 2025, there was a provisional agreement by the EU Council and European Parliament to delay full operationalization of EU ETS 2 until 2028. The decision was adopted in 2026

Coverage

Not Specified

Pricing and Allocation Approaches

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Compliance Approaches

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Relation to Other Compliance CPIs

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Covered Sectors

No eligible activities specified for this instrument.