Institute for European Environmental Policy IEEP

What the Commission proposes

The European Commission has published an impact assessment and legislative review concerning Directive 2003/87/EC and Decision (EU) 2015/1814 on the EU Emissions Trading System (EU ETS) and the Market Stability Reserve. This initiative serves as the first part of a broad post-2030 framework package aimed at driving competitiveness and cost-effective decarbonisation. It evaluates how stationary installations, aviation, and maritime sectors can deliver necessary emission reductions while ensuring carbon leakage protection and orderly market functioning. The review addresses the shrinking supply of allowances and adapts the system to align with intermediate 2040 targets and 2050 climate neutrality goals.

• Reviews the EU ETS and the Market Stability Reserve to prepare for post-2030 climate targets.
• Assesses pathways toward the 2050 climate neutrality goal and the intermediate 2040 target.
• Focuses on industrial sectors, maritime transport, and aviation to ensure cost-effective decarbonisation.
• Examines carbon leakage protection, free allocation benchmarks, and the funding transition through EU revenues.
• Analyzes market functioning and allowance supply adjustments to prevent trading frictions and price volatility.
• Accompanies related proposals simplifying monitoring, reporting, and verification regulations.

Summary written by AI from the Commission's document.

Key passages on your topics

1. 15 The IDB will be placed within the governance of the future European Competitiveness Fund to ensure that both funding instruments are complementary. The European Competitiveness Fund will also support decarbonisation of EIIs. Considering the high investment needs of those sectors both instruments are needed but should be designed as complementary in supporting technological development, types of instruments offered and role in the project’s investment journey. This will be also facilitated by the common governance framework. 16 EASA, European Aviation Environmental Report, 2025 https://www.easa.europa.eu/en/domains/environment/eaer/downloads#download-2025. 17 Source: Figure 76, Direct CO2 emissions from the EU transport sector by mode, Annex 8, Climate Target Impact Assessment, and Section 1.5.5, page 97.

   Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE..., page 6 (EN)

2. (6) The rapidly changing geopolitical context further emphasised the importance of delivering on the Clean Industrial Deal to enhance resource security and address Europe’s dependence on imported fossil fuels, which is the main cause of higher, and more volatile, energy prices. Conflicts in Ukraine and the Middle East confront the Union once again with volatile and rising energy prices driven by Europe’s dependence on imported fossil fuels, which damage the competitiveness of European industry. The EU ETS should continue to be a robust, predictable and fit for purpose driver of decarbonisation, thereby lowering the EU’s dependence on fossil fuel imports and strengthening its resilience, while fostering investments in the clean energy transition in homegrown renewables and other zero- and low-carbon energy sources.

   Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE..., page 31 (EN)

3. EN 30 EN and prosperous society”4 which was based on an extensive impact assessment, as well as stakeholder input, collected via public consultation. That impact assessment underlies the impact assessment supporting this Directive. (5) The Competitiveness Compass5 and the Clean Industrial Deal6 have identified continued decarbonisation and accelerated circularity as essential elements to further reduce Europe’s dependencies on fossil fuels and strengthen economic competitiveness and resilience, while setting out the direction for adapting the EU Emissions Trading System (ETS) to a changing geoeconomic context while maintaining the fundamentals.

   Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE..., page 31 (EN)

Who has already answered

What the Commission proposes

The European Commission is preparing a new EU Atlantic Maritime and Macro-regional Strategy to be adopted by June 2027, following a request from the European Council. Building on the existing Atlantic Maritime Strategy and Action Plan, the initiative aims to provide a broader, integrated territorial framework to address shared challenges and opportunities across the Atlantic region. It seeks to improve policy coordination, foster innovative solutions, strengthen multi-level governance, and increase the political weight of Atlantic priorities. The strategy targets the four EU Atlantic Member States and will be established through a non-legislative Communication without an impact assessment.

• Development of a new EU Atlantic Maritime and Macro-regional Strategy by June 2027.
• Builds on and integrates the Atlantic Maritime Strategy and the Atlantic Action Plan.
• Aims to improve policy coordination across EU, national, and regional levels and funding instruments.
• Restricted in scope to the four EU Atlantic Member States: France, Ireland, Portugal, and Spain.
• Will incorporate a monitoring framework integrated into the Commission's biennial reports on macro-regional strategies.
• Takes the form of a non-legislative Communication from the Commission without requiring an impact assessment.

What is asked: Respondents are asked to provide views on the Commission's understanding of the problem and possible solutions, and to share any relevant information they may have regarding the Atlantic maritime and macro-regional strategy initiative.

Summary written by AI from the Commission's document.

Key passages on your topics

1. 2 • facilitating knowledge exchange and the transfer of good practices and solutions; • strengthening multi-level governance and stakeholder participation; • increasing the strategic visibility and political weight of Atlantic priorities in the European policy agenda. The initiative aims to provide a more joined up and integrated framework for cooperation. It will enable participating countries and regions to tackle common challenges and harness shared opportunities that support sustainable, resilient and inclusive development across the Atlantic region.

   Communication from the Commission to the European Parliament, the..., page 2 (EN)

2. A. Political context, problem definition and subsidiarity check Political context In its conclusions of 18 December 2025, the European Council invited the European Commission, in cooperation with Member States, to develop an EU Macro-regional Strategy for the Atlantic by June 2027, considering the existing Atlantic Maritime Strategy and the Atlantic Action Plan. In response, the purpose of this initiative is to develop an Atlantic Macro-regional Strategy. It builds on the well- established and successful framework for cooperation between the four Atlantic Member States provided by the EU Atlantic Maritime Strategy since 2011, which has focused on developing a sustainable blue economy and related thematic priorities.

   Communication from the Commission to the European Parliament, the..., page 1 (EN)

3. Basis for EU action (legal basis and subsidiarity check) Legal basis The primary legal basis for this initiative is set out in Articles 174 and 175 of the Treaty on the Functioning of the European Union (TFEU) detailing objectives that establish the EU’s role in strengthening economic, social and territorial cohesion and in reducing disparities between regions. The initiative is also consistent with the legal framework governing European Territorial Cooperation (under Interreg, a series of EU funding programmes to support cooperation).

   Communication from the Commission to the European Parliament, the..., page 2 (EN)

Who has already answered

What the Commission proposes

The European Commission has launched a call for evidence for an evaluation and impact assessment running in parallel regarding VAT rules and the circular economy. The initiative aims to modernise selected value added tax rules that currently hinder circular business models, sustainable consumption choices, and the single market for secondary raw materials. It focuses on three specific pillars: second-hand goods, the donation versus destruction of viable goods, and VAT deduction rules for passenger cars. A legislative proposal is indicatively planned for the second quarter of 2027.

• Evaluates and reviews current EU VAT rules to ensure they align with the circular economy and complement the Ecodesign for Sustainable Products Regulation and the Circular Economy Act.
• Examines the VAT treatment of second-hand, refurbished, and remanufactured goods to address lack of deduction rights and complex margin schemes.
• Addresses economic distortions where destroying viable goods is more advantageous under current VAT rules than donating them.
• Considers aligning VAT deduction rules for passenger cars with sustainability objectives and zero-emission mobility goals.
• Assesses policy options including mandatory or discretionary measures on vehicle deductions, harmonised margin schemes, and VAT relief on donations.

What is asked: The Commission asks respondents to provide feedback and evidence on the evaluation of current VAT rules and the impact assessment of potential policy options regarding second-hand goods, the donation or destruction of viable goods, and VAT deduction rules for passenger cars.

Summary written by AI from the Commission's document.

Key passages on your topics

1. Reducing resource dependencies and keeping materials in productive use for longer are important not only for achieving the EU’s environmental objectives, but also for improving its industrial competitiveness and economic security. This is reflected in the Clean Industrial Deal, in which the Commission identified circularity as one of the key enablers of a competitive and decarbonised European economy and announced a future ‘green VAT initiative’ (also referred to as ‘Circular VAT’). The importance of the circular economy for achieving the EU’s ambition to boost competitiveness and economic security will also be reflected in the forthcoming Circular Economy Act (CEA), which is intended to strengthen the single market for secondary raw materials and is scheduled for adoption in late 2026.

   Proposal for a Council Directive amending Directive 2006/112/EC as..., page 1 (EN)

2. CALL FOR EVIDENCE FOR AN EVALUATION AND IMPACT ASSESSMENT RUN IN PARALLEL TITLE OF THE INITIATIVE VAT and the circular economy LEAD DG - RESPONSIBLE UNIT DG TAXUD (Unit C1 and Unit C5) LIKELY TYPE OF INITIATIVE Legislative proposal INDICATIVE PLANNING Q2-2027 ADDITIONAL INFORMATION - This document is for information purposes only. It does not prejudge the final decision of the Commission on whether this initiative will be pursued or on its final content. All elements of the initiative described by this document, including its timing, are subject to change. A. Political context, evaluation, problem definition & subsidiarity check Political context The transition towards a circular economy is a central element of the European Union’s wider agenda for competitiveness, climate neutrality and resilience.

   Proposal for a Council Directive amending Directive 2006/112/EC as..., page 1 (EN)

3. The Ecodesign for Sustainable Products Regulation (ESPR), which entered into force in 2024 and is being progressively implemented, is a key instrument for making environmentally sustainable and circular products the norm. By establishing requirements relating to durability, repairability and reusability, which thereby support the repair- and second-hand markets, it prolongs product life and encourages customers to make more sustainable choices. In addition, the ESPR also addresses the destruction of unsold but viable consumer products by requiring economic operators to take all necessary measures to prevent them having 1 Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 347, 11.12.2006, p. 1, ELI: http://data.europa.eu/eli/dir/2006/112/oj) Ref. Ares(2026)8589104 - 09/09/2026

   Proposal for a Council Directive amending Directive 2006/112/EC as..., page 1 (EN)

Who has already answered