Fit for 55 Package

The package has several new measures, including:

A Carbon Border Adjustment Mechanism (CBAM) will be implemented for non-EU countries without an equivalent emissions reduction regime. This will see tariffs imposed on goods whose production is carbon intensive and at the most significant risk of carbon leakage: iron, steel, cement, fertilizers, aluminum, and electricity.
Reforming of the EU Emissions Trading System (EU ETS) by making it more ambitious, including an extension to emissions from maritime transport and the gradual phaseout of free emission allowances for aviation and other sectors.
From 2027, ETS 2 will see the fuel supply to buildings and road transport included in the ETS.

Which are the key sectors impacted by Fit for 55?

The penalty for non-compliance is €100 per CO2e in addition to the liability to surrender European Union Allowances.

Shipping will be included in ETS cap for the first time. All emissions from large ships (above 5,000 gross tonnage) calling at an EU port for voyages within the EU (intra-EU) and 50% of the emissions from voyages starting or ending outside of the EU (extra-EU voyages) are in scope. Shipping companies are required to reduce their emissions by 40% from 2024, followed by 70% in 2025 and 100% in 2026.

From 2024 to 2026, the aviation sector will have its free allowances phased out (by respectively: 25%, 50%, and 75%), with a complete phase-out proposed from 2027 onwards.

Energy-intensive industry sectors, including oil refineries, steel works and the production of iron, aluminum, metals, cement, lime, glass, ceramics, pulp, paper, cardboard, acids and bulk organic chemicals, will lose their free allocation between 2026 and 2034.

All fuels used in these sectors will be included in a new Emission Trading System. ETS 2 will come into effect from 2027 and will apply to petrol, diesel, and heating fuels such as natural gas.

How ICE can help

Companies can use ICE environmental markets to meet Fit for 55 obligations and manage their price risk. ICE has been a leader in environmental markets for nearly two decades, annual carbon allowance trading on ICE is the equivalent of over 55% of the world’s energy footprint.

Shipping, aviation and industrials are among a range of sectors that can use ICE European Union Allowance (EUA) Futures to mitigate EU ETS obligations and hedge the price risk of carbon emission allowances. All contracts are physically delivered to enable their use for compliance purposes, and offer hedging on the most liquid price curve. Since 2005, our futures and options contracts have allowed firms to hedge and trade their liabilities while minimizing costs and counterparty risk. With 95% market share, ICE’s EUA contract is the most widely used and actively traded contract of its kind.

ICE’s products span some of the world’s most liquid environmental markets. They provide price signals which participants can use to allocate capital, and indices to help assess climate transition risk as new policy develops. For market participants seeking to benchmark and track the global price of carbon, ICE’s Global Carbon Futures Index is a store of carbon value representing four of the world’s largest carbon markets. The futures contract provides exposure to the four largest cap and trade markets in one financially settled instrument.

Shipping companies can use ICE EUA markets with access they already have for trading the ICE benchmark contracts in Marine Fuel, Wet Freight and LNG Freight.

ICE Nature-Based Solutions Carbon Credit Futures Contract can be used to manage emissions not covered under the Fit for 55 legislation. Each NBS futures contract is equal to 1,000 carbon credits, where each credit represents the removal or reduction of a metric ton of emissions by projects that preserve and maintain natural ecosystems. In addition, ICE provides a Carbon Credit Auctions service, which connects high-quality carbon credit project developers to potential buyers.

Unpacking Fit for 55 Webinar Series

The European Parliament is introducing a set of ambitious new climate legislation called ‘Fit for 55’ in a bid to reduce greenhouse gas emissions by at least 55% by 2030. To understand the implications of Fit for 55, join ICE and industry experts for an educational webinar series.