EU Raises 2030 Carbon Reduction Target To 62% Vs 2005 Levels

European leaders agreed a reform of the EU ETS on 18 Dec, increasing carbon cutting ambitions to 2030, detailing the removal of free allowances and confirming the inclusion of maritime shipping and a new ETS II for buildings and transport.

• The headline agreement requires the ETS 10,000 covered installations to reduce their carbon emissions by 62% on 2005 levels by 2030, one percentage point more than proposed by the EC and a 44% hike on the current level.
• A one-off reduction in EU allowances of 90mn t Co2e in 2024 and 27mn t COE2 in 2026 would help Europe deliver on the target, in combination with an annual reduction in EUAs of 4.3% from 2024-2027 and 4.4% from 2028-2030.
• It also agreed free carbon allowances to sectors exposed to carbon leakage would be phased out over a nine-year period between 2026-2034, allowing the gradual introduction of the Carbon Border Adjustment Mechanism.
• A separate EU ETS II for fuel for road transport and buildings is to be in place by 2027, a year later than proposed by the EC.