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Sustainability and green taxes
Changes in the global landscape
While reports show stalled progress in the sustainability agenda, eroded confidence in global frameworks and underperforming key indications on 23 July 2025, the International Court of Justice (ICJ) in The Hague issued a landmark advisory opinion declaring that countries are legally obligated to curb greenhouse gas emissions and protect the climate. This update clarifies that states must act with due diligence and cooperate under international agreements such as the Paris Agreement, to limit global warming to 1.5°C, or risk legal responsibility and requirements to remedy environmental harm.
The Court’s emphasis on compliance with environmental treaties and human rights obligations, signals that climate action is now firmly grounded in international law. The ICJ referenced binding and non-binding agreements, reinforcing the expectation that all actors, including businesses, must align with ambitious climate goals.
The role of green taxation in the EU budget and strategy
The European Commission "Commission" has identified sustainability as strategic enabler boosting its economic growth as outlined in the Competitiveness Compass, (January 2025), the Commissions strategic roadmap. Further climate ambitions were announced on 2 July 2025, when the Commission introduced legislative recommendations to support the EU’s 2040 climate target of reducing net greenhouse gas emissions by 90% from 1990 levels.
On 16 July, the Commission reaffirmed its commitment to its sustainability ambitious in its EUR 2 trillion Multiannual Financial Framework (MFF) for 2028-2034. The MFF focuses on addressing pressing challenges such as security, climate resilience, and economic competitiveness. The budget emphasizes the importance of sustainability through new taxation and incentives measures, including the carbon border adjustment mechanism (CBAM) and the emissions trading system, as well as newly introduced sustainability-based revenues based on non- collected e-waste. These are expected to generate EUR 1.4 billion, EUR 9.6 billion and EUR 15 billion respectively.
Recent selected EU sustainability updates
The Commission announced several updates concerning the implementation of the EU carbon border adjustment mechanism (CBAM) from 2026 and potential future changes to the scope.
- CBAM sectors carbon leakage measures: On 2 July 2025, the Commission announced plans to propose a new measure by the end of 2025 to mitigate the risk of carbon leakage for EU-produced goods in CBAM sectors. The scheme aims to ensure equal treatment for goods whether produced and sold in the EU, imported, or exported.
- Omnibus I updates concerning CBAM from 2026: On 2 July 2025, the Commission announced reforms to the CBAM introducing a new de minimis threshold that exempts 90% of importers, primarily SMEs, from administrative obligations while still covering 99% of the emissions. The simplification package is expected to be formally adopted by September 2025.
Public Consultations
- 25 September 2025: Deadline for the public consultation on rules for converting the carbon price paid in a third country for declared embedded emissions into a corresponding number of carbon border adjustment mechanism (CBAM) certificates.
- November 2025: Deadline for the public consultation on a Circular Economy Act intended to enhance the EU’s economic security and competitiveness, while promoting more sustainable production, circular economy business models and decarbonisation.
Funding and incentives
Funding and incentives the latest developments concern proposals set out in the Competitiveness Compass (January 2025) and the subsequent Clean Industrial Deal (CID) (February 2025) which cover energy intensive industries and the clean-tech sector:
- New state aid framework adopted by European Commission: On 25 June 2025, the Commission adopted a new Clean Industrial Deal State Aid Framework, (CISAF), aimed at facilitating the development of clean energy, industrial decarbonisation, and clean technology across Member States. Effective until 31 December 2030, the CISAF replaces the Temporary Crisis and Transition Framework and simplifies State aid rules in key areas, including the rollout of renewable energy, temporary electricity price relief for energy-intensive users, and support for clean tech manufacturing. The framework also introduces a range of simplified administrative and operational procedures.
- European Commission released Recommendation on Tax Incentives to encourages the adoption of tax measures supporting the Clean Industrial Deal: On 2 July 2025, the Commission issued suggested incentives including accelerated depreciation on clean technology investments and tax credits in strategic sectors such as clean technology manufacturing. These measures are part of the CID, aimed at helping carbon-intensive industries like steel and chemicals transition to low-carbon operations.
- EU ETS revenues support a further 6 projects under the Innovation Fund: On 22 July 2025, the European Climate, Infrastructure and Environment Executive Agency revealed that an additional six projects supported by the Innovation Fund, unlocking nearly €319 million in grant funding. These projects focus on innovating through decarbonisation technologies, in areas such as hydrogen production, ocean energy, advanced energy storage, and recycling solutions.
The US: Final Reconciliation legislation, signed on 4 July, repeals or modifies most of the renewable energy credits
The Final reconciliation legislation introduces notable modifications to sustainability incentives and policy, repealing or adjusting many credits previously established under the Inflation Reduction Act of 2022. Sectors affected include clean vehicle credits, which are scheduled to end on 30 September 2025, as well as clean energy production, which will experience an accelerated phaseout of production and investment tax credits for wind, and solar projects. Additionally, an executive order from President Trump on 7 July 2025, mandates stricter enforcement of the termination of clean energy production tax credits. The legislation also introduces qualifying income provisions related to hydrogen storage and carbon capture for certain publicly traded partnerships and makes revisions to tax credits for zero-emission nuclear power production and other energy credits.