The new European Union Directive 2023/959 is a milestone of EU climate policy by launching a new Emissions Trading System for the fuels used in buildings, road transport and light industry. It is expected to have a significant effect on energy use and accelerate the green transition of Europe, but its impacts, costs, and benefits require careful consideration.

 

On 14 February 2024, the Department of Environment of the Cyprus Ministry of Agriculture, Rural Development and Environment presented the Law transposing the EU Directive and launched its public consultation. The Law is accompanied by an Impact Assessment that was conducted by The Cyprus Institute’s Prof. Theodoros Zachariadis and Constantinos Taliotis, and was also presented to the public on that day.

 

The Impact Assessment study follows best practices and recommendations of the European Scientific Advisory Board on Climate Change and assesses the environmental, energy, fiscal and broader economic impacts of the new Directive, estimates the effect on cost of living and social equity, and evaluates the side-benefits of this legislation on energy security and public health. Some of its major findings are summarized below:

• The new Emissions Trading System will help EU Member states (and Cyprus) decarbonize their energy use and will contribute to the achievement of legally binding environmental commitments; this will also reduce the cost of non-compliance of Cyprus with the EU Effort Sharing Regulation by 2030.
• The new system will be most beneficial if the Cypriot economy reduces fast its emissions in buildings, motor vehicles, and light industry.
• Considering the reduced cost of compliance with the Effort Sharing Regulation, the lower expenditures for energy imports, the public revenues of the new system and the benefits to air quality, this legislation can yield economic, environmental and social benefits to Cyprus up to 2032.
• The new system can lead to a modest increase in the cost of living, especially for low-income households. Thanks to the national revenues to be generated and the EU-wide Social Climate Fund to be created in 2026, such adverse impacts can be mitigated with targeted compensation measures.
• The slower the adaptation of Cyprus to the requirements of the new system the higher the socio-economic costs will be post-2030, keeping in mind the newly proposed EU target for 90% emission reductions by 2040 and the legally binding target for net zero carbon emissions by 2050.

The draft national Law and its accompanying Impact Assessment are available here (in Greek) to those who wish to participate in the public consultation.