This spring, the European Parliament adopted a reform of the EU ETS as part of the “Fit for 55 in 2030” package, the EU’s plan to reduce greenhouse gas emissions by 55% by 2030 compared to 1990 levels. Emissions trading is one of the cornerstones of EU climate policy, putting a clear price on the emissions of companies in the sectors covered by the scheme, thus encouraging companies to cut their emissions. With the reform, a new separate ETS II for road transport fuel use and building-spesific heating will enter into force in 2027. The reform will be postponed until 2028 if energy prices remain exceptionally high.
What does this mean in practice?
Fuel distributors are the participants in the emissions trading system, so the reform will affect SMEs as a possible increase in cost levels. In a few years, companies in road freight transport and the real estate sector will thus face the effects of the new emissions trading system. The higher cost of using fossil fuels is of course intended to encourage a shift to less emission-intensive energy sources. It is therefore important for companies in these sectors to try to anticipate the future environmental actions and to integrate sustainability into their business strategy now at the latest.
Achieving the objectives of the “Fit for 55” climate package requires ambitious measures and keeping an eye on the horizon. With 99% of EU businesses being SMEs and accounting for 63% of emissions of the EU business sector, involving SMEs in the green transition is essential to meet the EU’s climate targets. In the EU, incentives are being developed for more sustainable business development and green transition, especially for emission-intensive sectors. In addition to the Emissions Trading Scheme, a good example of this work is the EU taxonomy, the classification system for sustainable finance. While the intensified regulation doesn’t directly target SMEs at this point, they will still feel the effects through the sustainability assessments conducted by banks and within the value chains of larger corporations. An ambitious strategy for sustainable business development will also be a competitive advantage for SMEs in the future and an essential part of cost and risk management.
In adapting to changes in the business environment, it is important above all to understand the risks and threats to your business from changes in the environment and society, and the impact of your business on the environment and society. The first step is to analyze your own climate risk profile, which begins by identifying emissions and the greenness of your business operations. After this, you can start planning your future business based on the analysis of your company’s climate risk profile.
Are you an entrepreneur or SME manager looking for more understanding on emissions inventories, greening your business, assessing climate risks and developing a sustainable business strategy? Contact the esgResilience team, we are happy to help you.
