The EU drastically cuts sustainability rules
Europe opens a new effort to simplify core environmental rules
California releases its long-awaited climate reporting rules
EU’s carbon tariff - CBAM - kicks in next month
Temperatures have exceeded 1.5 °C for three years
This week, the 10-month whirlwind caused by the EU’s Omnibus Simplification Package reached its final deregulatory act.
Released back in February, the goal was to improve competitiveness while maintaining sustainability goals. The objective was to reduce compliance burden by at least 25% (35% for smaller companies) by simplifying three of the cornerstone sustainability regulations:
The Corporate Sustainability Reporting Directive (CSRD),
The Corporate Sustainability Due Diligence Directive (CS3D), and
The EU Taxonomy.
Regular readers know that the debate over ‘simplification’ was a roller coaster, with some claiming it cut too far and others wanting to cut further. In the final act, the forces of simplification won: The Omnibus deal will likely go well beyond the original 25% goal for burden reduction. The deal struck by the EU Council and Parliament, and welcomed by the Commission, includes:
Only companies with more than 1,000 employees and €450 million in revenue will be in scope for the CSRD - a 90% reduction.
Only companies with more than 5,000 employees and €1.5 billion in revenue will be in scope with the CS3D - a 70% reduction.
The CS3D now allows companies to assess only the areas of their supply chain “where actual and potential adverse impacts are most likely to occur.”
The CS3D removed the obligation to adopt a climate transition plan.
The transposition of the CS3D to member state law is delayed for an additional year until July 2028. Companies have until July 2029 to comply with the simplified mandates.
Importantly, the agreement is underpinned by a new review clause, which could expand the scope of the CSRD and CS3D in the future.
Crucially, the Omnibus rollback does not signal a full retreat from Europe’s climate ambitions.
Despite backtracking on sustainability reporting, the EU also agreed this week to a legally binding 90% reduction in greenhouse gas emissions by 2040 relative to 1990 levels.
Marie Bjerre, Minister for European affairs of Denmark – the current holder of the EU’s revolving presidency, said, “Today we delivered on our promise to remove burdens and rules and boost EU’s competitiveness.”
Not everyone is happy with the outcome, especially as a recent exposé showed that 11 multinationals (mostly American companies), acting through the “Competitiveness Roundtable,” lobbied the EU to weaken sustainability rules.
Also, the extent to which the simplifications will improve EU competitiveness is being debated. Andreas Rasche said, “Europe’s growth challenges stem from other factors. Rolling back 90 percent of the CSRD and 70 percent of the CSDDD will not fix these problems. What it will do is undermine transparency, weaken risk management, and reduce the EU’s ability to compete on standards and trust.
Others think the Omnibus did not go far enough. Exxon, which was part of the “competitiveness roundtable,” said the EU managed to “remove some of the most irrational and harmful parts of CS3D, but they didn’t go nearly far enough.”
This saga culminates in a final plenary vote on December 16th, when it is expected to be approved by the new coalition of center-right and far right members.
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2. From One Omnibus To The Next
This week, the EU announced another Omnibus. This time, the focus will move away from sustainability reporting and due diligence to “industrial emissions, circular economy, environmental assessments, and geospatial data.”
The 10-page document focuses on:
Streamlined environmental assessments: Faster, simpler permitting with digital tools, especially for key low-carbon and social housing projects.
Simplified industrial emissions rules: Fewer requirements and reduced reporting for farmers.
Hazardous substances in products: The Substances of Concern in Products database will be replaced with more efficient tools, such as the Digital Product Passport.
Simplified Extended Producer Responsibility: EU producers no longer need to maintain authorized representatives in every Member State, reducing compliance costs.
Teresa Ribera, Executive Vice-President for Clean, Just, and Competitive Transition, said, “This legislative simplification provides a careful balance, facilitating businesses to operate more efficiently while preserving our core environmental and health goals.” However, the same issues that the EU’s Ombudswoman called “maladministration” in the first Omnibus appear to be repeating with no proper public comment period or impact assessment. WWF said in a statement that this new simplification drive “comes with no impact assessment and focuses only on reduced compliance costs, ignoring the far larger price of pollution, ecosystem decline, and climate-related disasters.”
The EU Council and Parliament will take up these proposals in the new year, where a similar debate process to Omnibus 1 will ensue.
3. California’s Draft Climate Regulation Released
The California Air Resources Board (CARB) released the first draft of its proposed regulations for California’s climate risk reporting law (SB 261) and emissions reporting law (SB 253). They also issued an accompanying staff reasoning document on why they landed on their decisions.
The regulation lands very close to the guidance issued by CARB in its late November public workshop. However, it does clarify some key aspects of the rules and adds some additional nuance:
Companies are covered if they generate over $500 million in total annual revenue and are either domiciled in the state or have more than $735,000 in sales in the state.
“Revenue” will be defined as “gross receipts,” and companies will be considered as covered entities if the lower years revenue over the last two years is above the threshold.
“Doing business in California” is defined under the California Revenue and Taxation Code, except for property ownership and teleworking payroll.
CARB will establish two funds to administer its rules, and companies will contribute to these funds annually. Each covered entity will pay an equal share of the regulation's overall cost to cover its administrative costs.
While the climate risk rule (SB 261) remains on hold pending a legal injunction (to be decided in January), the emissions reporting rule (SB 253) is not. The new regulations provide companies with more clarity for emissions reporting before the August 10th, 2026 deadline.
The draft regulation will be formally published on December 26, 2025, kicking off a 45-day public comment period ending on February 9, 2026, ahead of a public hearing on February 26th, at which the reporting rules will be adopted and finalized.
4. CBAM Closes In
Despite the rollbacks, Europe is moving ahead with its Carbon Border Adjustment Mechanism (CBAM), the world’s first carbon tariff, which will take effect on January 1st, 2026. It will require importers of seven carbon-intensive products (steel, aluminum, cement, etc.) to pay a carbon tax above a threshold, at the price in the EU’s emissions trading system (currently €80 per ton).
CBAM is designed to protect EU producers from cheaper, more carbon-intensive foreign products. Its global impact is expected to be significant, especially in the hard-to-abate sectors, such as the steel and cement industries, which will need to reduce the carbon associated with making their products to remain cost-competitive in the lucrative EU market. Several countries have already begun to respond to avoid CBAM tariffs, prompting Jennifer McIsaac of Clear Blue Markets to say, “the EU’s high tide is going to lift all the ships.”
The EU has withstood last-minute attempts by detractors such as India, China, and Saudi Arabia - all of which sought exemptions from what they say is a trade measure rather than a climate one. EU Climate Commissioner Wopke Hoekstra said, “If you are asking for[low-carbon production] from companies in Europe, then it also makes sense to ask it from companies from outside of Europe [which are selling into the EU].”
On the eve of the CBAM, the EU is also set to cover many more products than the current seven. A new review is designed to close loopholes that allow producers to set up factories near EU borders and convert the covered raw materials into more complex products like washing machines, car parts, and tools. However, some industry observers believe this move is being made too hastily - Solar Power Europe said “any extension should be done gradually to allow companies to adapt without causing product shortages or sudden price spikes.”
5. Three-year Temperature Average Exceeds 1.5°C
As Samantha Burgess of Copernicus said, the 1.5°C “is not abstract.” The goal of the Paris Agreement to limit warming to under 1.5°C was chosen because it represents a threshold at which other cascading feedback loops could trigger a runaway greenhouse gas effect. However, as Professor Richard Betts, of the University of Exeter said, “Crossing 1.5°C should not mean we give up. We can still limit further damage by rapid action — but the longer we leave it, the harder and more expensive it gets.”
We have seen the cost of climate inaction climb year over year. These temperature milestones are increasingly measured in lives lost through extreme weather events like the devastating tropical storms in Southeast Asia this month, areas being uninhabitable due to extreme heat, and in the rising costs of natural disasters. So far, the first 6 months of 2025 have been the most expensive yet for weather disasters.
The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer.
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