How would the "Fit for 55" proposals reform the European carbon market

The EU's "Fit for 55" package proposes a series of legislative changes to the initial phase 4 (2021-2030) framework of the EU's Emissions Trading System (ETS). Some of these reforms are significant; others are more subtle. As the price of EU emissions allowances rose to near a record high of €100 ($110) a tonne before the War with Ukraine, unprecedented risks and opportunities followed.

The plan includes a series of policy proposals affecting all related areas, from renewable energy to fuel standards. This report focuses on ETS and provides a summary of proposed reforms from the overall objectives to the complex details.

In December 2019, the EU increased its emissions reduction target from 40% to 55% in 2030 compared with 1990. This further requires an increase in the emissions reduction target for the sectors covered by the ETS from 43% to 61% in 2030 compared to 2005, when the ETS was introduced.The "Fit for 55" package was proposed in July 2021 to adapt a range of EU climate policies to its increasing emissions reduction targets.