EU carbon rules / Regulations / ETS Revision (Fit for 55)
In force Directive Carbon pricing & border adjustment
ETS Revision (Fit for 55)
Cap contraction, changes to free allocation, aviation, ETS2 framework
- Reference
- Directive (EU) 2023/959
- Key date
- 2023
- Applies to
- All sectors
01
Who the regulation applies to
This regulation applies to:
- The scope of the EU ETS is expanded by this Directive: in addition to the existing Annex I power and energy-intensive industrial installations, maritime transport is added from 2024, and fuel supply for buildings, road transport and small industry is brought into the new ETS2 (Annex III, regulated entities)
- Aircraft operators and shipping companies subject to the new rules of this Directive, and the Member States responsible for allocation and supervision
- (Condition) Installations whose thermal input no longer reaches the 20 MW threshold due to a change of process may opt to remain in the EU ETS
- (Condition) Certain small installations (annual emissions below the threshold) may be excluded after the Member State has applied equivalent emission reduction measures
This act is an amendment to Directive 2003/87/EC; unless otherwise provided, Article 2 of this Directive applies from 1 January 2024.
The following provisions define its scope:
Article 1(1) — amendment to Article 1 (Subject matter) of Directive 2003/87/EC
This Directive also provides for the reductions of greenhouse gas emissions to be increased so as to contribute to the levels of reductions that are considered scientifically necessary to avoid dangerous climate change. It contributes to the achievement of the Union’s climate-neutrality objective and its climate targets as laid down in Regulation (EU) 2021/1119 of the European Parliament and of the Council (*1) and thereby to the objectives of the Paris Agreement (*2).
Article 1(2) — amendment to Article 2 (Scope) of Directive 2003/87/EC
1. This Directive shall apply to the activities listed in Annexes I and III, and to the greenhouse gases listed in Annex II. Where an installation that is included within the scope of the EU ETS due to the operation of combustion units with a total rated thermal input exceeding 20 MW changes its production processes to reduce its greenhouse gas emissions and no longer meets that threshold, the Member State in which that installation is situated shall provide the operator with the options of remaining within the scope of the EU ETS until the end of the current and next five-year period referred to in Article 11(1), second subparagraph, following the change to its production processes. The operator of that installation may decide that the installation is to remain within the scope of the EU ETS until the end of the current five-year period only or also of the next five-year period, following the change to its production processes. The Member State concerned shall notify the Commission of changes compared to the list submitted to the Commission pursuant to Article 11(1).
2. This Directive shall apply without prejudice to any requirements pursuant to Directive 2010/75/EU of the European Parliament and of the Council (*3).
02
What the regulation requires
| Duty | Trigger | Evidence | Timing |
Apply the tightened cap and linear reduction factor
The total number of allowances contracts faster, and free allocation declines according to the benchmark. | Installations covered by the ETS | Allowance account, free allocation records | Phased from 2024 |
Manage the phased phase-out of free allocation in CBAM sectors
Free allocation for steel, aluminium, cement, fertilisers, hydrogen and electricity is phased out between 2026 and 2034. | Holders of free allocation in sectors covered by CBAM | Free allocation and CBAM cost calculations | 2026–2034 |
Comply with new reporting obligations for aviation and maritime transport
Aviation and maritime transport are included in the ETS and must report emissions under the MRV. | Aircraft and ship operators on routes to, from or within the EU | MRV reports, shipping company reports | Maritime from 2024, aviation from 2026 |
03
Key provisions
Article 3ga(1) — maritime scope (50 % / 100 %)
The allocation of allowances and the application of surrender requirements in respect of maritime transport activities shall apply in respect of fifty percent (50 %) of the emissions from ships performing voyages departing from a port of call under the jurisdiction of a Member State and arriving at a port of call outside the jurisdiction of a Member State, fifty percent (50 %) of the emissions from ships performing voyages departing from a port of call outside the jurisdiction of a Member State and arriving at a port of call under the jurisdiction of a Member State, one hundred percent (100 %) of emissions from ships performing voyages departing from a port of call under the jurisdiction of a Member State and arriving at a port of call under the jurisdiction of a Member State, and one hundred percent (100 %) of emissions from ships within a port of call under the jurisdiction of a Member State.
Article 3gb — phase-in of surrender obligations (40 % / 70 % / 100 %)
Shipping companies shall be liable to surrender allowances according to the following schedule: (a) 40 % of verified emissions reported for 2024 that would be subject to surrender requirements in accordance with Article 12; (b) 70 % of verified emissions reported for 2025 ...; (c) 100 % of verified emissions reported for 2026 and each year thereafter ...
Amended Article 9 — cap adjustment and linear reduction factor (4,3 % / 4,4 %)
In 2024, the Union-wide quantity of allowances shall be decreased by 90 million allowances. In 2026, the Union-wide quantity of allowances shall be decreased by 27 million allowances. In 2024, the Union-wide quantity of allowances shall be increased by 78,4 million allowances for maritime transport. The linear factor shall be 4,3 % from 2024 to 2027 and 4,4 % from 2028. ...
04
Industry dossiers covering this regulation