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Fit for 55: Parliament adopts key laws to reach 2030 climate target

The European Union has formally adopted a comprehensive set of laws to implement the "Fit for 55" policy package, which includes significant reforms to the EU Emissions Trading System (EU ETS). These reforms are essential for the EU to achieve its emissions reduction target of 55% by 2030 and climate neutrality by 2050. The final texts for five legislative proposals were adopted by the European Parliament and the Council, marking the completion of the decision-making process.

The reforms mark a significant milestone for the EU ETS and carbon pricing, placing emissions trading at the core of the EU's decarbonization agenda. The critical elements of the reforms include:

  1. EU ETS cap: The target for emissions reductions in the EU ETS sectors has been raised to 62% below 2005 levels by 2030, with a higher linear reduction factor (LRF) of 4.3% from 2024-2027 and 4.4% from 2028-2030. The cap will be reduced by 90 million allowances in 2024 and 27 million in 2026. 
  2. Carbon Border Adjustment Mechanism (CBAM): A phased-in plan for CBAM has been agreed upon to address the risk of carbon leakage. Importers in sectors covered by CBAM will be required to surrender CBAM certificates equivalent to the embedded emissions of their products starting in 2026. The phase-out of free allocation of EU ETS allowances for CBAM sectors will occur gradually over nine years. 
  3. EU ETS market stability reserve (MSR): The MSR addresses supply and demand imbalances and will be strengthened by maintaining the annual allowance intake rate at 24% of the total number of allowances in circulation until 2030. The number of allowances held in reserve will be limited to 400 million, with any surplus being permanently canceled. 
  4. EU ETS scope expansion: The maritime sector's emissions will be phased into the EU ETS, with coverage expanding from 40% of verified emissions in 2024 to 100% in 2026. It will include Intra-EU voyages, emissions within EU ports, and 50% of emissions from journeys to or from non-EU countries. The inclusion of emissions from municipal waste incineration will be assessed by the end of 2026. New ETS for buildings, road transport, and other sectors: A separate emissions trading system (ETS 2) will be established for direct emissions from buildings, road transport, and other sectors. This new system will complement the EU ETS, covering all significant sectors of the economy except agriculture and land use. Its implementation is subject to energy prices and will come into force in 2027 or 2028. 
  5. ETS revenue use: Revenues from the new ETS 2 will be directed to a Social Climate Fund to alleviate the financial burden on citizens and micro-enterprises impacted by rising energy prices. The existing Innovation Fund will also receive increased funding. 

The laws will undergo final signing, publication, and entry into force. The revised ETS Directive will apply from 1 January 2024, while the CBAM Regulation will have a reporting obligation from 1 October 2023, and full compliance for importers from 1 January 2026. The new ETS 2 will come into force in either 2027 or 2028, depending on energy prices. Therefore, the GAIA project aims to leverage AI, ML and NLP, such as GPT, to integrate them into reliable workflow for fact-finding. This would help analysists navigate the inconsistency in formats of sustainability information published by entities. The goal would be enhancing regulatory reporting and improving compliance by reducing its cost and complexity and enhancing the quality of regulatory data. Ideally, the project will create a unified reporting platform that can be used by financial institutions to report regulatory data in a more efficient and effective manner. 

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