Reform of the emissions trading system
The European Parliament has approved the core directives and rules of the Fit for 55 package at first reading, setting ambitious targets for 2030 relative to 1990 levels and climate neutrality by 2050. The reform centers on the EU Emissions Trading System ETS, introduces a new Boundary Carbon Mechanism CBAM, and establishes the Social Climate Fund to support households and businesses. Observers noted the energy transition has come with significant costs for Europeans as discussions unfolded in the chamber.
Reform of the emissions trading system
The ETS reform passed with broad support in the Parliament, signaling a commitment to deeper emissions cuts. The scheme’s sectors are expected to cut greenhouse gas emissions by roughly 62 percent by 2030 compared with 2005 levels. The reform also includes a staged withdrawal of free allowances between 2026 and 2034 and the creation of a second ETS for fuels used in road transport and for heating buildings. Under the plan, emissions levies for these sectors are anticipated to begin in 2027, with a possible delay to 2028 if energy prices rise sharply.
For the first time, the Parliament also moved to bring shipping emissions under the ETS and to revise the aviation portion of the system. The measures pave the way for a phase-out of free allowances in aviation by 2026, while shipping coverage received strong support in the chamber. The legislative package demonstrates the goal of aligning transport, energy, and industry with the broader climate objectives of the bloc.
Price Adjustment Mechanism
Another regulation approved by a comfortable majority establishes the CBAM to adjust import prices based on the carbon footprint of goods from non-EU countries. The aim is to encourage climate ambition beyond Europe’s borders and to prevent production from shifting to regions with looser climate rules, which would undermine EU action. The European Parliament noted that the CBAM will apply to key raw materials including iron, steel, cement, aluminum, fertilizer, electricity, and hydrogen. Importers will be required to cover the difference between the external emission costs and the EU ETS price, with the scheme phased in gradually from 2026 to 2034 as free allowances are phased out.
Social Climate Fund
The Parliament endorsed the creation of an EU Social Climate Fund in 2026 with the aim of ensuring a just and inclusive transition. The fund is designed to support vulnerable households, micro-enterprises, and transport users who are most affected by energy and transport poverty. The next step is formal approval by the Council of the European Union, after which member states will implement the regulations according to their national contexts.
Expensive energy transformation
During debate, former Polish Prime Minister and current member of the Parliament Beata Szydło highlighted the financial burden of the energy transition on Europeans. She argued that rushing the transformation amid an ongoing energy crisis would intensify costs. Szydło stressed that the social fund will be essential to cushion the impact on households and businesses, noting that funding will rely on new EU resources, including those generated by the ETS. She warned that beneficiaries of the fund will contribute to its financing through these mechanisms, a point she described as a necessary but challenging feature of the package.
She concluded that while citizen support for the transition is important, the terms proposed in the discussed document require careful consideration and a balanced approach that avoids overburdening Europeans while achieving climate goals.
Buzek happy with the solutions
Former Polish prime minister and now a member of the Parliament, Jerzy Buzek, welcomed the package for improving ETS transparency and stabilizing the market. He noted that strengthening ESMA’s oversight of market participants would help curb speculative behavior and could contribute to more stable electricity and heating bills for consumers. Buzek emphasized that the reforms aim to protect both climate objectives and consumer interests as the EU moves forward with its energy policies.
Overall, the package signals a significant recalibration of Europe’s climate and energy strategy, with a focus on closing gaps between environmental aims and practical economic and social impacts. The proposed rules now await formal approval by the Council, after which work will continue to align national policies with the ambitious European climate agenda as investors, businesses, and households adjust to the changes.