The European Union is in the process of revising certain climate legislative acts to mitigate the impact of the energy crisis on the economy. Recently, it became known how the EU plans to increase the number of free allowances under the Emissions Trading System (ETS), simplify the main anti-deforestation document, and provide farmers with access to increasingly expensive fertilizers.
EcoPolitic has prepared an overview of the key legislative changes currently under discussion in the EU.
A trick for increasing free allowances under the EU ETS
Under the European Emissions Trading System, polluters are granted a certain CO2 emissions cap for which they do not have to pay. This cap is calculated based on the performance of the top 10% in a given sector.
However, the European Commission has found a loophole to increase the number of such allowances, and it is quite subtle. Previously, only direct emissions were considered in these calculations, but in the new draft document, it was decided to also include indirect emissions, in particular those arising from the generation of energy consumed by the enterprise.
To achieve this, the Commissioners took advantage of the vague wording in the relevant directive, as it does not set strict limits on accounting for only direct emissions.
This will effectively allow for an inflated total volume of pollution permitted for certain economic sectors.
Such legal manipulation was the European Commission’s response to mounting pressure from a number of EU member states demanding a fundamental review of the EU ETS due to the energy crisis.
Changes in the scope of application of the forest regulations
The EU is reviewing the Deforestation Regulation (EUDR), appealing to the need to reduce administrative and financial burdens on businesses.
In general, the regulation aims to prevent the sale in the EU of products whose production contributed to deforestation. However, as part of the simplification process, several sectors are slated for exclusion from the document’s scope. Notably, the European Commission proposes to exempt leather production and retreaded tires from the restrictions.
Conversely, new products may be added to the law. These changes may affect instant coffee and certain palm oil derivatives such as soap.
The draft amendments are subject to four weeks of public consultation. The European Commission plans for the changes to come into effect by the end of 2026.
Reducing climate impact for fertilizers
Just like energy, fertilizer prices in the EU are rising steeply for the second time in four years. The European Commission has prepared an action plan to help farmers and fertilizer producers, while also making some adjustments to climate rules. Overall, the European Union intends to recognize fertilizers as a strategic commodity.
Extension of free allowances. Under current rules, free pollution licenses for fertilizer producers were to be gradually phased out by 2034. Simultaneously, the “carbon duty” under the Carbon Border Adjustment Mechanism (CBAM) for importers of these products was meant to increase.
According to the EU action plan, free allowances for fertilizers will be extended beyond 2034. Therefore, EU producers will remain exempt from paying the full amount for CO2 emissions for the foreseeable future.
Direct support for farmers. Starting in 2027, part of the funds the European Union receives from the ETS will be allocated directly to farmers. However, there are conditions – the use of biofertilizers or low-carbon fertilizers, as well as investment in efficient nutrient use methods.
Legislative definition. It is proposed to define biological and low-carbon fertilizers in European Union legislation. In the future biotechnology law, at least partial use of these fertilizers in each fertilizer package may become mandatory. Additional changes will allow mineral fertilizers to be replaced with nitrogen obtained from biogas production residues.
EcoPolitic previously prepared an in-depth review of the internal struggle within the EU surrounding the emissions trading system.
