On June 29, the Environmental Council adopted its negotiating position on the GHGs emissions allowance trading scheme (ETS), the Social Climate Fund, the LULUCF, the CO2 standards for cars and vans and the Effort Sharing Regulation.
EU ETS
The Council supported the European Commission’s proposal of 61% of emissions reduction by 2030 and agreed to reinforce the Market Stability Reserve by prolonging the annual intake rate of allowances. Moreover, Member States approved the proposal to end free allowances for CBAM-related sectors over the 2026-2035 timespan.
Buildings and road transportation will be treated via a separate emissions trading system with the auctioning and surrender of allowances scheduled to start from 2027 and 2028 respectively.
Maritime shipping has been included in the scope of the EU ETS with the objective of introducing obligations to surrender allowances. The most affected Member States will be granted a redistribution of 3.5% of the ceiling of the auctioned allowances. The Council also proposed transitional measures for small islands (issue pressed by Greece, Malta and Cyprus).
The aviation sector will be gradually phased out from the free emissions allowance by 2027. The EU ETS will apply for Intra-European flights, including the UK. Extra-European flights will comply with the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
Social Climate Fund
The Social Climate Fund was created by the Commission to help relieve the impact of carbon pricing on vulnerable citizens, households and small enterprises. The Council agreed on the proposal and on the financial help as part of the EU budget 2027-2032.
CO2 standards for cars and vans
The Council proposed a 55% and a 50% cut of CO2 emissions respectively for cars and vans by 2030, with a 100% target for new vehicles by 2035. In 2026, the progress made will be assessed, while in 2030, the regulatory incentive mechanism for zero- and low-emission vehicles (ZLEV) will be terminated.
LULUCF
310 Mt CO2 equivalent of net removals at EU level in the LULUCF sector is the target set by the Council for 2030, a 15% increase from the previous target. Member States’ quotas for the 2026-2030 timeframe have been assigned to achieve a sum of net greenhouse gas emissions and removals. The Ministers included more instruments for flexibility in measuring the effects of climate change and maintained the option to exclude emissions occurring due to natural environmental disturbances from LULUCF accounts.
Deforestation Proposal
The Council also adopted the general approach on fighting deforestation and forest degradation globally by limiting the consumption of products in the EU contributing to deforestation or forest degradation.
The Council agreed to set mandatory due diligence rules for all operators and traders who place, make available or export palm oil, beef, timber, coffee, cocoa and soy. The rules also apply to several derived products, including furniture.
The Council plans to set up a benchmarking system classify producing countries in the EU and outside the EU according to the risk of deforestation (low, standard or high). The applicable obligations in terms of due diligence inspections and minimum control levels will be determined by the ranking of the producing country.
Effort Sharing Regulation
The Council settled on a GHGs reduction target of 40% compared to 2005 for sectors not covered by the ETS, namely domestic maritime transport, agriculture, waste and small industries. The targets assigned to Member States are linear and could be potentially adjusted in 2025. Moreover, the Council has increased the number of annual quotas that can be transferred between Member States, 10% for 2021-2025 and 20% for 2026-2030.