EU Council agrees its position on the ETS, CBAM and the Social Climate Fund

In the night of 28 to 29 June 2022 EU environment ministers agreed their position on three key elements of the "Fit for 55" package: the reform of the EU emissions trading system (ETS), the carbon border adjustment mechanism (CBAM) and the Social Climate Fund. The European Parliament adopted its own position a week earlier, on 22 June, after having earlier rejected its committee's mandate. For sectors linked to biogas, waste and fertilisers, each of these changes matters.

What is changing

The ETS is a system in which companies buy CO₂ emission allowances; the reform tightens the reduction of the cap and reduces free allocations. The Commission's proposals also included a separate system for buildings and road transport (later called ETS2), which would affect fuels used for heating and transport. CBAM is a charge on the emissions embedded in imported goods: it covers, among others, cement, steel, aluminium, fertilisers and electricity. The Social Climate Fund is intended to soften the impact of the new prices on households.

From the point of view of the biogas sector, three threads are important:

• the allowance price affects the cost of energy from fossil fuels and the competitiveness of renewable gases,
• CBAM covers fertilisers, so it changes the price relationship between mineral and organic fertilisers, including digestate,
• ETS2 may increase the cost of natural gas in heating and transport.

Significance for the industry in Poland

Poland is sensitive to allowance prices because of the structure of its power sector, and at the same time it is an important market for and producer of nitrogen fertilisers. CBAM raises the prices of imported fertilisers, which may improve the attractiveness of organic fertilisers and digestate. In turn, higher natural gas costs in heating increase interest in biomethane.

For biogas producers it is important that the new rules do not disrupt support schemes. The impact of ETS2 on fuel prices may also strengthen the arguments for biomethane in transport.

What about waste and incinerators

The ETS debate also raises the question of including municipal waste incinerators in the system. The discussion concerns whether such installations should bear the cost of CO₂ emissions, which could increase waste management fees and change the relationship between incineration, recycling and the fermentation of biowaste. The shape of the rules has not yet been settled and will be the subject of negotiations between the Council and Parliament.

Why these three acts go together

The ETS, CBAM and the Social Climate Fund are linked by a single logic: tightening the emissions trading system raises costs for industry, CBAM protects industry from import competition that bears no carbon costs, and the fund softens the impact on households. A change to one element affects the others, which is why the negotiations are difficult and require compromises between countries with different energy structures.

What next

After the Council and Parliament have taken their positions, trilogue negotiations will begin. The parties must agree the pace of phasing out free allowances, the scope of CBAM, the start date of ETS2 and the size of the Fund's resources. The conclusion of the talks is expected at the end of the year.