Introduction

With the aim of making Europe the first climate-neutral continent, the EU established, under the European Green Deal, a legal framework to achieve ambitious climate targets: climate neutrality by 2050 and a 55 % reduction in net greenhouse gas (GHG) emissions by 2030 compared with 1990 levels. These targets are enshrined in the European Climate Law,¹ adopted in 2021, and implemented through the 'Fit for 55' legislative package. In March 2026, the co-legislators adopted an intermediate 2040 climate target ² of 90 % net emissions reduction compared with 1990 levels, with the possibility of using international carbon credits for up to 5 % of 1990 net emissions.

Although the Commission maintains that the EU 'stays on course' towards climate neutrality, the current political cycle is increasingly shaped by new priorities in response to a changing geopolitical context, energy dependence and growing economic and security challenges. While the Green Deal initially positioned sustainability as a distinct priority, a new plan for the EU's sustainable prosperity and competitiveness – the 'competitiveness compass for the EU' – has been unveiled, including a roadmap for decarbonisation and competitiveness. The current political discourse emphasises that the green transition must be competitiveness-friendly and technology-neutral, and that the industrial transformation and decarbonisation should be pursued simultaneously, while ensuring that EU regulation remains proportionate.³ In response to the European Council's call for simplification, the Commission has, since 2025, developed legislative packages – known as omnibus packages – to revise or withdraw provisions in recently adopted legislation, reduce regulatory requirements and postpone implementation deadlines.

In the area of climate policy, which is largely governed by regulations, the Commission has not announced a dedicated omnibus. However, in line with the simplification agenda, targeted amendments to recent legislation are envisaged with a view to simplifying EU climate policy and facilitating its implementation by Member States and stakeholders. Furthermore, in its 2026 work programme, the Commission confirmed that it is preparing a legislative revision of national targets and flexibilities within the EU climate policy framework, announced for the fourth quarter of 2026. This is expected to cover the Land use, land use change and forestry (LULUCF) Regulation ⁴ and the Effort-sharing Regulation (ESR),⁵ which are key pillars of EU climate policy alongside the EU Emissions Trading System (EU ETS) Directive.⁶ Several elements aimed at facilitating the achievement of the 2040 climate target should be reflected in the forthcoming legislative proposals. By July 2026, the Commission is also expected to table a proposal to review the EU ETS Directive. In addition, the 2026 climate package will include a European climate resilience and risk management initiative, comprising a legal framework for climate resilience and non-legislative measures.

Setting an intermediate EU climate target for 2040

In March 2026, the European Parliament and the Council amended the European Climate Law to set an intermediate climate target for 2040, while also introducing measures to facilitate its achievement. The EU co-legislators agreed that international carbon credits, generated through support for non-EU decarbonisation projects, may partially contribute to meeting the EU's 2040 target of cutting net emissions by 90 % compared with 1990 levels. From 2036 onward, up to 5 % of these reductions may come from high-quality international carbon credits that comply with the Paris Agreement standards. This means that progress towards the 2040 target will no longer rely solely on emissions cuts within the EU, and Member States will be required to account for at least 85 % of emission reductions domestically (instead of 90 %). Among the key elements to be considered by the Commission in its legislative proposals for the post-2030 period are (i) domestic permanent removals (processes that capture and durably store atmospheric CO₂) to offset residual hard-to-abate emissions under the EU ETS and (ii) enhanced flexibility within and across sectors and instruments to support the achievement of targets in a simple and cost-effective way.

Parliament and the Council also agreed to postpone by one year, from 2027 to 2028, the launch of the new emissions trading system, ETS2, which will cover buildings, road transport and additional sectors not included in the existing ETS. This delay is intended to give Member States more time to implement the new carbon market and to better address potential concerns regarding its impact on lower-income households and vulnerable consumers.

Regarding the EU ETS for stationary installations, aviation and maritime transport (ETS1), recital 13 of the revised European Climate Law invites the Commission to examine, in a timely manner, a more gradual phase-out pathway for free allocation of allowances, while addressing the risk of carbon leakage, from 2028 onwards. This would support decarbonisation, investment and employment in the EU, including through an industrial decarbonisation bank and a review of the market stability reserve (MSR), while minimising the risk of carbon leakage.

CO₂ emission performance standards for new passenger cars and light commercial vehicles

In June 2025, the EU adopted a regulation ⁷ that introduces additional flexibility regarding the calculation of manufacturers' compliance with CO₂ emission performance standards for new passenger cars and vans. Carmakers may now fulfil their obligations for 2025, 2026 and 2027 by averaging their performance over the three-year period, rather than on an annual basis. This three-year compliance period provides vehicle manufacturers with greater flexibility in achieving their targets.

Additionally, in December 2025, the Commission tabled a legislative proposal to adjust decarbonisation targets for new cars and vans, responding to manufacturers' calls for 'a more realistic approach' to the 2030 and 2035 emission performance targets. The proposal suggests lowering the 2035 target for new cars registered in the EU from 100 % to 90 % (compared with the 2021 level), with the remaining 10 % offset in 2035 by credits for sustainable fuels (e-fuels, biofuels) and the use of low-carbon EU-produced green steel. For vans, the targets would be adjusted from 50 % to 40 % by 2030 and from 100 % to 90 % by 2035 (both compared with 2021 levels). The proposal also introduces incentives (until 2034) in the form of CO₂ credits for carmakers placing small electric vehicles 'made in the EU' on the market.⁸ In Parliament, the file was referred to the Committee on Environment, Public Health and Food Safety (ENVI).

CO₂ emission performance standards for new heavy-duty vehicles

In March 2026, the EU co-legislators adopted Regulation (EU) 2026/1046, a targeted amendment ⁹ to the Regulation on CO₂ emission performance standards for new heavy-duty vehicles (trucks, buses and coaches), introducing temporary flexibility for manufacturers in meeting their CO₂ emission reduction targets. Current EU law sets emission reduction targets of 15 % by 2025, 43 % by 2030, 65 % by 2035 and 90 % by 2040, compared with 2019 levels. Heavy-duty vehicle manufacturers can earn emission credits during the 2019 to 2039 reporting periods if their fleet outperforms a defined 'reduction trajectory', which is a linear trajectory connecting targets between five-year periods, starting in 2025. Manufacturers can use these credits to avoid paying financial penalties when they exceed CO₂ emission thresholds. The amendment provides manufacturers with additional flexibility in the calculation of emission credits for the 2025-2029 period. Between 2025 and 2029 only, they can accumulate emission credits when their specific CO₂ emissions fall below their annual own specific CO₂ emission targets, rather than the stricter linear reduction trajectory. By allowing manufacturers to generate more emission credits in the lead-up to 2030, this temporary and targeted flexibility aims to facilitate compliance from 2030 onwards.

ETS1 market stability reserve (MSR1): Stationary installations, aviation and maritime transport

On 1 April 2026, the Commission tabled a legislative proposal to end the automatic cancellation of carbon allowances held in the MSR1 when their number exceeds 400 million. The MSR1 has been balancing prices in the carbon market since 2019 by regulating the number of allowances in circulation on this market. When the total number of allowances in circulation (TNAC) exceeds a certain threshold, allowances are removed from auctions and stored in the reserve to reduce oversupply. Conversely, if the TNAC falls below the relevant threshold, allowances are released from the reserve to the market, thus increasing market supply. Once invalidated, allowances are permanently withdrawn from the reserve and are no longer available for market release, thus reducing the potential flow of allowances that could be returned to the carbon market during periods of supply shortage. Stopping the existing automatic cancellation of allowances rule above 400 million allowances would provide the MSR1 with an additional buffer of allowances that can be brought back to the carbon market if needed in the future. This could provide additional liquidity and supply, thereby reducing the price of carbon and easing compliance for entities covered by ETS1.

Market stability reserve for ETS2 (MSR2): Buildings, road transport and additional sectors

In November 2025, the Commission proposed to modify some parameters of the MSR2 while respecting the reserve's overall design, ¹⁰ in order to improve its functioning once ETS2 becomes fully operational in 2028. In June 2026, Parliament and the Council reached a provisional agreement to:

Additionally, the revised MSR2 mechanism allows Member States to reuse ETS2 auction revenues for climate and energy measures in ETS2 sectors.

Omnibus I legislative package

As part of the Omnibus I legislative package, which aims to simplify existing legislation in the area of sustainability, the co-legislators agreed in October 2025 on targeted amendments to the EU carbon border adjustment mechanism (CBAM). In line with the overall objective of achieving a successful green transition while boosting the EU's competitiveness, the adopted regulation ¹² exempts from CBAM rules ¹³ entities that import small or negligible quantities of goods. It introduces a de minimis single mass-based threshold of 50 tonnes of imported goods per importer per year, instead of €150 per consignment. This exemption is expected to apply to no more than 1 % of emissions embedded in imported goods, without compromising the CBAM's climate objectives. The Commission will review annual import data to check for significant changes in the average emission intensities of goods or trade patterns, including circumvention practices. If the calculated threshold deviates by more than 15 tonnes from the current value, the Commission will update it through delegated acts. Additionally, for all importers of CBAM goods above the threshold, the regulation introduces simplification measures related, for instance, to the calculation of embedded emissions and the emission verification rules.

Finally, Omnibus I also simplifies sustainability reporting and due diligence requirements for companies. The obligation to adopt a transition plan for climate change mitigation under the Directive on corporate sustainability due diligence (CS3D)¹⁴ was considered disproportionate and was repealed in order to reduce the administrative burden on companies and supervisory authorities. The legal text ¹⁵ amending and simplifying the corporate sustainability reporting and due diligence requirements entered into force on 18 March 2026.