The EU Carbon Market – 2023 Retrospective and Expectations in 2024

We have entered a new year and, above all, we wish you a good and peaceful 2024, with fewer challenges and more achievements in your professional and personal life!

The year 2023 was a tumultuous one both for the CO2 emissions market, but also economically and socially. We don’t think anyone can say they were bored this year, and 2024 is going to be just as intense, from our perspective.

We mention below some of the European directives in the field of carbon emissions, which were revised or taken shape in 2023, some of them continuing to be negotiated in 2024:

• The European Green Deal – legislative package proposing the reduction of CO2 emissions, at the European level, by 55% by 2030, compared to the level of 1990 and reaching NetZero by 2050;

• Revision of the Directive on the European Greenhouse Gas Emissions Trading Scheme (EU ETS 1) – the emission reduction target for the sectors included in the scheme (energy, metallurgy, cement, chemical sector, air transport) has been tightened by 62% to in 2030, compared to the 2005 level, and the scope has also been extended to maritime transport, starting in 2024;

• EU Regulation 956/2023 regarding the establishment of a carbon border adjustment mechanism (CBAM) through which importers of products from the targeted activity sectors (aluminum, iron steel, cement, fertilizers, hydrogen and electricity) will have up to in 2026 quarterly reporting obligations of CO2 emissions incorporated in imported products, and from 2026 they will have to buy CBAM certificates if these products will continue to be more polluting than domestic ones; the first reporting according to the CBAM Regulation must be done by 31.01.2024 for the products imported in the last quarter of 2023. Most likely, many importers do not know about this reporting yet and will face it as they have imports of such products in 2024;

• EU Directive 2022/2464 regarding corporate sustainability reporting (CSRD) – the new sustainability reporting rules will begin to apply gradually between 2024 and 2028, depending on the number of employees and the turniver of the company;

• Revision of Directive 2010/75/EU on industrial emissions, amended in July 2023 – poultry and pig farms are considered, according to this legislative text, industrial installations and must measure their CO2 emissions; they got rid of cow farms for the time being, taking into account social pressure from Holland and Belgium, but we believe that they will be proposed again for inclusion;

• The European emissions trading scheme – EU ETS 2, which will include the following sectors of activity: transport (road and rail), buildings, agriculture, waste and other industrial sectors that are not in the EU-ETS, expected to be applicable from 2027 – under negotiation;

• The EU Carbon Removal Framework” – it targets emissions from agriculture and the promotion of regenerative agriculture – under negotiation;

• Revision of the Directive of the European Parliament and of the Council on due diligence obligations in the field of corporate sustainability and amending Directive (EU) 2019/1937 (CSDDD) – under negotiation

• Count Emissions EU – the proposal of the European Commission regarding the establishment of calculation methodologies for transport emissions, according to ISO 14083:2023 – to be defined;

All these legislative proposals and changes have allowed us to adapt our services and to provide new services, such as assistance in reporting on the carbon mechanism at the border, in order to support Romanian companies in fulfilling their obligations, measurement of the carbon footprint of companies (Scop 1, 2 and 3), and assistance in setting up the strategy or CO2 emission reductions according to the Science based Target Initiative (SBTi).

We would also like to remind you that, at the global level, the UN Climate Change Summit – COP28, held in Dubai in December 2023, did not have the expected results. And if Europe continues with its NetZero policy, in a much too accelerated way and in all sectors of activity, the other big polluting states, such as Russia, China and India, continue to show a lack of ambition and climate urgency. They have not reviewed their voluntary commitments to reduce emissions under the Paris Agreement. In addition, a study published during the Summit showed that current UN countries’ commitments are not enough to close the gap between projected emissions and the level needed to keep global temperature rise below 1.5°C.

In May 2023, our expert, Casiana Fometescu, mentioned in a public conference that “we estimate that the European Union will modify the NetZero target, as it is predicted for the year 2050, to be achieved much earlier, in the year 2040”. However, we did not expect the EU proposal to happen so quickly. In October 2023, the Commissioner for Climate Action, Wopke Hoekstra, proposed a net emissions reduction target of 90% for the year 2040. The calendar of discussions at EU level regarding the establishment of new emission reduction targets, separated by activity sectors , for 2040, was published, and at the end of June it will be included in the EU Strategic Agenda for 2024-2029.

When you have such ambitious new targets, the legislative texts should also be modified so that these are achievable. We were wondering, therefore, which legislative texts will be revised again in 2024 and 2025, as a result of these future new objectives and when the European Commission, will realize the unfortunate consequences of such rapid legislative changes.

We did not intend with this newsletter to worry you, although maybe we did, but above all to make you aware that you must be one step ahead of “compliance”, so that it does not take you by surprise and prepare yourself, as the Romanian is a good householder and prepares ahead of time for the winter and storm.

What do you need to do to prepare? Regardless of the activity sector you are in, be it industrial, agricultural or services, you should measure the company’s emissions (in all 3 fields of application or scopes), compare yourself with a benchmark in your field of activity and make a strategy and concrete plans to reduce emissions, according to the new EU targets, i.e. the one foreseen by Net Zero until 2040. Otherwise, if you don’t fulfill the “plan”, you will be charged soon, and the taxes and CO2 certificates will be stinging.

We are with you on this journey and we want it to be easy for you!