EU governments Saturday agreed to implement reforms to the Emissions Trading System (ETS). The reforms aim to reduce industrial emissions and invest in more climate friendly technologies as the EU progresses towards climate neutrality.

The EU’s new law highlights its “polluter pays” principle as a way to tackle climate change. As part of the “Fit for 55 in 2030 package,” the reformed ETS aims to reduce emissions in the ETS sectors by 62 percent by 2030–a further step towards the EU’s goal to reduce greenhouse gas emissions by a minimum of 55 percent by 2030 compared to 1990 levels. Commenting on the recent changes, rapporteur Peter Liese said:

This deal will provide a huge contribution towards fighting climate change at low costs. It will give breathing space for citizens and industry in difficult times and provide a clear signal to European industry that it pays off to invest in green technologies.

Multiple areas of reform to the ETS were highlighted in order to achieve these emission reductions, including an ETS II for buildings and transport, and an obligation for EU countries to measure, report and verify emissions from municipal waste incineration installations from 2024.

A significant area of change announced was the phasing out of free allowances to companies as the Carbon Border Adjustment Mechanism (CBAM) is phased in, with a goal of full implementation by 2034. EU lawmakers agreed to the deal to establish a Carbon Border Adjustment Mechanism to target carbon leakage last week. The deal will apply to EU products operating under the ETS, including iron and steel, cement, aluminum, fertilizers and electricity. Under this incentive, companies will be required to purchase CBAM certificates to pay the difference in carbon prices between where the product is produced and the price of carbon allowances in the EU ETS.

The reforms to the ETS are set to come into law following agreement by the EU Parliament and Council.