Fit for 55: What Manufacturers Need to Know in 2026

The EU's Fit for 55 legislative package, adopted in stages between 2023 and 2025, commits the bloc to reducing net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels^[1]. For Nordic manufacturers, this is not a distant policy goal. It is a collection of binding regulations that are reshaping production economics right now.

This guide breaks down the three Fit for 55 mechanisms with the most immediate impact on manufacturing: the revised EU Emissions Trading System (ETS), the Carbon Border Adjustment Mechanism (CBAM), and the updated Renewable Energy Directive (RED III).

ETS Phase 4: The Tightening Cap

The revised EU ETS (Directive 2023/959)^[2] entered its Phase 4 in 2024 with significantly steeper emission reduction targets. The cap on total allowances now decreases by 4.3% annually from 2024 to 2027, then by 4.4% from 2028 to 2030, compared to the previous 2.2% annual reduction rate. For energy-intensive manufacturers, the math is straightforward: fewer allowances means higher carbon costs.

Free allocation to industry is being phased down in parallel with CBAM's phase-in. From 2026, free allowances for CBAM-covered sectors (cement, iron and steel, aluminium, fertilisers, electricity, hydrogen) decrease by 2.5% per year, accelerating to 7% annually from 2028. By 2034, free allocation ends entirely for these sectors.

The financial impact is substantial. With EU Allowance (EUA) prices averaging EUR 65 to 80 per tonne CO2 in early 2026, a medium-sized steel plant emitting 200,000 tonnes annually faces carbon costs of EUR 13 to 16 million per year. As free allocation declines, the share that must be purchased on the market grows each year.

CBAM: Levelling the Carbon Playing Field

The Carbon Border Adjustment Mechanism (Regulation 2023/956)^[3] entered its transitional phase on 1 October 2023. Since 1 January 2026, importers of CBAM goods must purchase CBAM certificates corresponding to the carbon price that would have been paid if the goods had been produced under EU ETS rules.

For Nordic manufacturers, CBAM has a dual effect. Companies that import raw materials from outside the EU, particularly steel, aluminium, and cement, now face additional costs on those imports. However, companies manufacturing within the EU gain a competitive advantage: their products are not subject to CBAM when sold domestically, while non-EU competitors must effectively pay the EU carbon price.

The reporting requirements are demanding. Importers must report the actual embedded emissions of each imported product, verified by accredited verifiers. Default values can be used only when actual emissions data is unavailable, and the European Commission's default values are deliberately set higher than average to incentivize actual data collection.

RED III: Renewable Energy Targets

The revised Renewable Energy Directive (Directive 2023/2413)^[4] raises the EU's 2030 renewable energy target to 42.5%, with an ambition of 45%. For industry specifically, it introduces a binding target of 1.6 percentage points annual increase in renewable energy use.

For energy-intensive manufacturers, this translates to concrete obligations. Industrial heat, which represents roughly 70% of industrial energy demand, must increasingly come from renewable sources: heat pumps, sustainable biomass, green hydrogen, or direct electrification with renewable power. Companies in Finland and Sweden benefit from relatively clean electricity grids (nuclear and hydro dominate), but must still demonstrate renewable sourcing through guarantees of origin.

The hydrogen sub-target is particularly relevant for chemical and steel manufacturers. RED III sets a target that 42% of hydrogen used in industry must be from renewable sources by 2030. The definition of "renewable hydrogen" under the Delegated Acts requires both temporal and geographic correlation with renewable electricity generation, creating complex compliance tracking requirements.

The Compound Effect on Nordic Manufacturing

These three mechanisms do not operate in isolation. A Finnish steel manufacturer, for example, faces the ETS carbon price on its direct emissions, CBAM costs on imported iron ore from non-EU sources, and RED III requirements on its energy sourcing. The compound effect can represent 8 to 15% of total production cost, depending on the product and energy intensity.

Nordic manufacturers do have structural advantages. Clean electricity grids reduce Scope 2 emissions. Proximity to raw materials shortens supply chains. Strong engineering traditions enable energy efficiency improvements. But these advantages only materialize if companies track, optimize, and report their environmental performance systematically.

What to Do Now

Map your exposure. Calculate your carbon costs under ETS Phase 4 with decreasing free allocation. Model CBAM costs for all non-EU imports. Identify where RED III targets require energy sourcing changes.

Automate carbon accounting. Manual carbon calculations in spreadsheets cannot keep pace with quarterly CBAM reporting and annual ETS verification. Integrate carbon tracking into your ERP and production systems at the transaction level.

Plan your decarbonization investments. With carbon costs rising predictably over the next decade, energy efficiency and fuel switching investments have increasingly clear payback periods. Use the ETS price trajectory to build business cases for heat pump installations, electrification projects, and green hydrogen procurement.

References

[1] European Commission, COM(2021) 550 final, "Fit for 55": delivering the EU's 2030 Climate Target on the way to climate neutrality, 14.7.2021.
[2] European Parliament and Council, Directive (EU) 2023/959 amending Directive 2003/87/EC (EU ETS revision), OJ L 130, 16.5.2023.
[3] European Parliament and Council, Regulation (EU) 2023/956 (Carbon Border Adjustment Mechanism — CBAM), OJ L 130, 16.5.2023.
[4] European Parliament and Council, Directive (EU) 2023/2413 (Renewable Energy Directive — RED III), OJ L, 31.10.2023.

Next step: Model your Fit for 55 exposure with automated carbon accounting. DWS IQ integrates ETS, CBAM, and RED III compliance tracking into a single platform connected to your ERP. Explore at dws10.com.