Parliament and Council adopt the ETS and CBAM reform. A new system for buildings and transport from 2027

On 18 April 2023 the European Parliament adopted key acts 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 Council of the EU approved them on 25 April 2023, concluding the legislative procedure. For the sectors linked to renewable gases, waste and fertilisers this means concrete changes: higher prices of emission allowances, a new system for heating and transport, and border charges on imports of, among other things, fertilisers.

What is changing

The ETS reform tightens the emission reduction target for the sectors covered by the system to 62% by 2030 compared with 2005, gradually phases out free allowances (by 2034), includes maritime transport and creates ETS2, which from 2027 will cover fuels used for heating buildings and in road transport. For municipal waste incinerators, an obligation to monitor emissions from 2024 was introduced, along with a review of the possibility of including them in the emissions trading system. CBAM requires importers to account for the emissions embedded in products from selected sectors, including fertilisers, and the Social Climate Fund is to cushion the impact on households.

For the biogas industry, three channels of influence are of primary importance: a higher cost of natural gas and fossil-fuel energy, which improves the competitiveness of biomethane, a rise in the prices of mineral fertilisers, and pressure to reduce waste incineration.

Significance for the industry in Poland

Poland is a country where the transformation of the power and heating sectors is particularly costly, so the rise in allowance prices and the inclusion of building heating in ETS2 will be felt. Biomethane and heat from biogas can be an alternative for customers who want to avoid ETS2 costs. In agriculture, CBAM raises the cost of imported fertilisers, which increases the attractiveness of organic fertilisers, including digestate.

In the waste sector, the reform encourages separate collection and the fermentation of biowaste at the expense of incineration. Local authorities should take into account in their investment plans the potential rise in waste incineration costs.

Impact on prices

Higher allowance costs feed into electricity and heat prices, but their impact depends on the fuel mix in a given country. For gas customers, ETS2 means an additional cost, which is to be cushioned by funds from the Social Climate Fund. From the perspective of biogas producers, it is important that renewable gases are exempt from emission allowance costs under ETS2, provided they meet the sustainability criteria, which improves their competitiveness against natural gas.

What next

The acts will be signed and published in the Official Journal of the EU in May. CBAM will start in a transitional period from 1 October 2023. Member States must prepare for the implementation of ETS2 and the Social Climate Fund, including the social climate plans.