Directive (EU) 2023/959 of the European Parliament and of the Council of 10 May 2023 amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union and Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading system (Text with EEA relevance)

New Directive (EU) 2023/959 implementing significant changes to the Directive on greenhouse gas emission allowance trading (Directive 2003/87/EC) and to Decision (EU) 2015/1814 which establishes the market stability reserve and sets out corresponding operating rules was published in the Official Journal (OJ) of the EU.
Directive 2003/87/EC establishes the regulatory framework for greenhouse gas emission allowance trading scheme (ETS) within the EU to promote long-term carbon emission reduction. Following the Paris convention in 2015 and the adoption of the European Green Deal in 2019, the EU passed the Fit for 55 legislative package to bring about a carbon emission reduction of 55% compared to the levels of 1990 by 2023, an interim measure so-to-speak to reach the objectives of the Paris agreement.
This new directive particularly aims at implementing new regulatory measures to bring under the scope of the ETS those industries that were so far left out from the ETS and to make necessary adjustments to above noted directive and decision to reach the carbon neutrality goals of the EU by 2050 and the interim goal set out in the Fit for 55 legislative package. Some of the key provisions are briefly noted below; for detailed, comprehensive information, please refer to the original legal text.
##### Key provisions of the new Directive
– It brings the shipping sector under the scope of the ETS, thereby defining the scope of ships subject to the ETS scheme, the greenhouse gases included in the scheme, and a phased-in carbon pricing model for reported emissions beginning 2024.
– It further restricts the allocation of free emission allowances to stationary installations beginning 2026 by making such free allowances conditional on investments that will increase energy efficiency and reduce green house gas (GHG) emissions.
– It aligns the quantity of allowances of the ETS that may be granted by increasing the linear reduction factor that is currently applied to derive the number of allowances issued within the EU.
– It requires EU member states to adopt implementing acts to increase the minimum adjustment factors of the benchmarks for free allocations to account for technological improvements, excluding certain steel producing installments.
– It sets a 95% threshold for zero-rated biomass combustion for installments heavily relying on bio-mass to come under the scope of the ETS and thus be allocated free allowances.
– It provides for further additional free allowances for high emission district heating infrastructures provided that the value of the free allowances are used by system operators to invest in new technology to decarbonize their installments.
– It permits a further use of the (additional) revenues generated by the ETS, particularly those from the inclusion of the maritime sector, to support low- and middle-income households, e.g. by reducing renewable electricity-related taxes or other types of fees. In this context, the directive also stipulates that 2.5% of the income from all ETS allowances shall be contributed to the Modernization fund to help lower income states with their transition to net zero carbon emission.
– It requires the monitoring of the new Carbon Border Adjustment Mechanism (CBAM) and the re-evalution of the mechanism to ensure it achieves its objectives (for details on the CBAM, please see EventID 21143).