The EU Green Deal in 2026: What New Climate Regulations Mean for Business

The Green Deal Takes Effect

The European Green Deal, launched in 2019 under European Commission President Ursula von der Leyen, set the most ambitious climate target of any major economy: net-zero greenhouse gas emissions by 2050, with a binding intermediate target of at least 55% reduction below 1990 levels by 2030.

In its early years, the Green Deal was primarily a legislative drafting exercise — hundreds of pages of regulations, directives, and delegated acts working their way through the European Parliament and Council. In 2026, the paperwork phase is over. Major provisions are taking effect, and businesses across Europe and beyond are scrambling to comply.

This analysis breaks down the key regulations, their compliance timelines, the sectors most affected, and how the EU approach compares to the United States' contrasting strategy under the Inflation Reduction Act.

CBAM: The Carbon Border Tax

The Carbon Border Adjustment Mechanism (CBAM) is arguably the most consequential trade policy instrument of the decade. Its purpose is to prevent "carbon leakage" — the shifting of production from the EU (where carbon emissions are priced under the ETS) to countries without equivalent carbon pricing.

How it works: Importers of certain goods into the EU must purchase CBAM certificates corresponding to the carbon emissions embedded in their products. The certificate price is linked to the EU ETS carbon price (which has fluctuated between EUR 60-80 per ton through 2025). If the exporting country has its own carbon pricing system, importers can deduct that amount.

Timeline:

• October 2023 to December 2025: Transitional phase. Importers must report the embedded emissions in covered products but do not yet pay the carbon adjustment.
• January 2026: The definitive phase begins. Importers must purchase and surrender CBAM certificates for the embedded emissions. Free allocation of ETS allowances to domestic producers in CBAM sectors is phased out simultaneously.

Covered sectors (initially): Iron and steel, aluminum, cement, fertilizers, electricity, and hydrogen. The Commission will evaluate expansion to additional sectors — potentially organic chemicals, polymers, and manufactured goods — by 2030.

Who is affected: Any company exporting covered products to the EU. This includes steel producers in Turkey, India, and Russia; aluminum smelters in China and the Gulf states; cement manufacturers in North Africa; and fertilizer producers worldwide. The impact extends through supply chains — an automaker sourcing steel from a non-EU mill faces higher input costs.

CBAM has drawn criticism from developing countries who argue it unfairly penalizes economies that historically contributed least to climate change and have limited capacity to decarbonize heavy industry quickly. The EU has established technical assistance programs, but the fundamental tension between climate ambition and trade equity remains.

CSRD: The New Sustainability Reporting Standard

The Corporate Sustainability Reporting Directive (CSRD) dramatically expands which companies must produce detailed sustainability reports and what those reports must contain.

Scope of coverage:

• January 2024: Companies already subject to the Non-Financial Reporting Directive (NFRD) — approximately 11,700 large public-interest companies.
• January 2025: Large companies meeting two of three criteria: 250+ employees, EUR 50M+ revenue, EUR 25M+ balance sheet. This brings approximately 50,000 companies into scope.
• January 2026: Listed SMEs, small and non-complex credit institutions, and captive insurance undertakings. This adds another estimated 40,000 companies.
• January 2028 (proposed): Non-EU companies with EU turnover above EUR 150M and at least one EU subsidiary or branch.

What must be reported: Companies must disclose according to the European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG). The ESRS cover:

• Climate change mitigation and adaptation (including Scope 1, 2, and 3 greenhouse gas emissions)
• Pollution of air, water, and soil
• Water and marine resources
• Biodiversity and ecosystems
• Resource use and circular economy
• Own workforce conditions
• Workers in the value chain
• Affected communities
• Consumers and end-users
• Business conduct

This is not voluntary or flexible. CSRD reports require limited assurance from an independent auditor — with a transition to reasonable assurance expected by 2028. The data must be machine-readable (XHTML format with digital tagging) and published alongside financial reports.

The EU Green Taxonomy

The EU Taxonomy Regulation provides a classification system defining which economic activities qualify as "environmentally sustainable." It is not a regulation that bans or mandates specific activities — instead, it creates a common language for investors, companies, and policymakers.

An economic activity qualifies as taxonomy-aligned if it:

1. Makes a substantial contribution to one of six environmental objectives (climate mitigation, climate adaptation, water, circular economy, pollution, and biodiversity)
2. Does no significant harm to any of the other five objectives
3. Complies with minimum social safeguards

Why it matters for business: Financial institutions subject to the Sustainable Finance Disclosure Regulation (SFDR) must report what proportion of their portfolios is taxonomy-aligned. This creates a powerful signal — capital flows toward taxonomy-aligned activities and away from those that are not.

Large companies subject to CSRD must report their taxonomy-aligned revenue, capital expenditure, and operating expenditure. For a diversified manufacturer, this means breaking down financial performance by activity and classifying each against the taxonomy criteria.

The taxonomy has been controversial. The inclusion of natural gas and nuclear energy as "transitional" green activities generated fierce debate, with environmental groups arguing it undermined the taxonomy's credibility. Nevertheless, the framework is being adopted globally — Singapore, South Korea, South Africa, and others are developing taxonomy systems modeled on or compatible with the EU's.

Fit for 55: Sector by Sector

The Fit for 55 legislative package is the operational engine of the Green Deal — a set of interrelated laws designed to deliver the 55% emission reduction target by 2030. Key measures affecting business:

Transport:

• New cars and vans must be zero-emission from 2035 (effectively banning internal combustion engine sales). Intermediate target: 55% CO2 reduction by 2030.
• A new ETS for road transport and buildings fuel (ETS2) begins in 2027, putting a carbon price on fuel distributors.
• Sustainable aviation fuel mandates (ReFuelEU Aviation) require blending of 2% SAF in 2025, rising to 6% in 2030 and 70% in 2050.
• FuelEU Maritime requires progressive reduction in the greenhouse gas intensity of shipping fuel.

Industry:

• Tightened ETS cap reducing free allowances. Industrial installations face a 4.3% annual reduction in the emissions cap (up from 2.2%).
• CBAM replaces free allowances for covered sectors (see above).
• Energy Efficiency Directive sets binding targets for member states to reduce final energy consumption.

Buildings:

• Energy Performance of Buildings Directive (EPBD recast) requires all new buildings to be zero-emission from 2028 (public buildings) and 2030 (all new buildings).
• Worst-performing existing buildings (energy class G) must be renovated by 2030 for non-residential and 2033 for residential.

Agriculture and land use:

• Land Use, Land Use Change, and Forestry (LULUCF) regulation sets a target of 310 million tons of CO2 equivalent net removals by 2030.
• Nature Restoration Law requires member states to restore at least 20% of EU land and sea areas by 2030.

US Comparison: Carrots vs. Sticks

The EU and US approaches to climate policy represent fundamentally different philosophies.

The EU relies primarily on regulation and carbon pricing — mandates, bans, reporting requirements, and the ETS. Compliance is non-optional, and penalties for non-compliance are significant.

The United States, through the Inflation Reduction Act (IRA) of 2022, relies primarily on subsidies and tax incentives — $369 billion in clean energy tax credits, grants, and loan guarantees designed to make clean alternatives cheaper than dirty ones. There is no federal carbon price, no economy-wide emission cap, and minimal mandatory reporting (beyond SEC climate disclosure rules, which themselves face legal challenges).

Advantages of the EU approach: Creates a level playing field. All companies in covered sectors face the same rules. Revenue from carbon pricing and CBAM funds the transition. Clear regulatory direction enables long-term investment planning.

Advantages of the US approach: Politically achievable (the IRA passed with zero Republican votes; a carbon tax would not pass at all). Industry-friendly — subsidies are popular while regulations are not. Has triggered a manufacturing renaissance, with over $300 billion in announced clean energy manufacturing investments since passage.

The tension: CBAM effectively imposes EU carbon pricing on foreign producers, including American ones. US officials have complained that CBAM functions as a tariff on American exports. The EU argues it merely levels the playing field between EU producers who pay carbon costs and foreign competitors who do not. This tension is likely to be a major transatlantic trade issue through the rest of the decade.

What Businesses Should Do Now

For companies affected by Green Deal regulations — which includes any business operating in, selling to, or sourcing from the EU — the time for preparation is now:

1. Assess your reporting obligations. Determine when CSRD applies to your organization and begin implementing ESRS-aligned data collection systems. This cannot be done overnight.
2. Calculate your carbon footprint. Scope 1, 2, and 3 emissions are now a regulatory requirement, not a nice-to-have. Invest in measurement infrastructure.
3. Evaluate CBAM exposure. If you import covered products into the EU, model the cost impact and evaluate supply chain alternatives.
4. Align capital expenditure with the taxonomy. As capital markets increasingly channel funds toward taxonomy-aligned activities, businesses that can demonstrate alignment will access cheaper financing.
5. Engage with policymakers. Many implementation details — delegated acts, technical screening criteria, CBAM expansion — are still being finalized. Industry input shapes outcomes.

The EU Green Deal is not a future aspiration — it is current law, with compliance deadlines arriving now. Businesses that treat it as a strategic opportunity rather than a regulatory burden will be best positioned for the decade ahead.