On Wednesday 14 July, the European Commission will unveil its legislative package aimed at achieving a reduction in the European Union’s net greenhouse gas (GHG) emissions of at least 55% by 2030 compared to 1990 levels, while putting the EU on a path to climate neutrality by 2050 (both targets set out in the recent ‘Climate Act’). Called the ‘Fit for 55’ package, it contains no less than twelve legislative proposals, heralding a profound transformation of the Union’s climate and energy policy.
While each of the proposals will be closely scrutinised by stakeholders in the affected sectors, two of them - the reform of the EU Emissions Trading System (ETS) and the creation of a Carbon Border Adjustment Mechanism (CBAM) - are particularly eagerly awaited.
CBAM
Modelled on the current ETS, the Carbon Border Adjustment Mechanism (CBAM) is the Commission’s instrument for preventing possible relocations of production sites located in the EU to third countries with less stringent emission limitation rules. This risk of ‘carbon leakage’ is set to increase as EU climate legislation becomes more stringent.
In concrete terms, the CBAM aims to make companies that import goods into the EU pay if the country of origin does not have a carbon pricing system, via a “CBAM certificate” mechanism.
While the full details of this instrument are not yet known, two draft documents detailed in our columns have already provided a great deal of information, including the sectors covered, as well as the possibility of exemptions based on the environmental effort of the countries which the imports come from (see EUROPE 12733/9, 12756/16).
ETS reform
Another major undertaking is the overhaul of the EU’s ETS - a market-based carbon pricing mechanism covering emissions from the electricity sector, manufacturing and commercial aviation within the European Economic Area - which is likely to cause a stir, according to a draft proposal released by some media, including EUROPE (see EUROPE 12752/1).
In addition to extending the scheme to cover GHG emissions from the maritime sector, the Commission wants to establish a new ETS, adjacent to the existing one, covering emissions from buildings and road transport (see EUROPE 12752/1), an idea particularly supported by Germany and Denmark.
Given the risk that companies in these two sectors will pass on this new cost to end consumers (via an increase in the price of fuel for cars, for example) and that the most vulnerable households will have to bear the cost of the ecological transition disproportionately, the Commission also intends to create a new social fund (see EUROPE 12737/14).
According to an European official, this new instrument, called the ‘Climate Action Social Facility’, should be funded by a large part of the revenues of the new ETS, but not 100% of the latter.
The proposal for this fund is also expected to be presented on 14 July.
Effort Sharing Regulation
In order to involve all sectors of the economy, the institution will also present a proposal for a revision of the EU Effort Sharing Regulation (2018/842) which covers sectors not covered by the ETS: agriculture, road transport, waste, buildings.
The aim is to strengthen each Member State’s targets for reducing emissions in these sectors by 2030.
According to one European official, road transport and the construction sector would thus fall within the scope of both the ETS and the ESR.
The main issue for the Commission here is the proposed method for determining these binding national targets.
While the poorer EU Member States are strongly in favour of maintaining the criterion that the target is based on the country’s GDP per capita, the richer states would like to see more convergence between the different targets, taking greater account of the potential for cost-effectiveness.
“There is the classic EAST-WEST division here on how we should get this done”, summarised one European diplomat.
Renewable energy
The Commission also plans to review the EU’s energy legislation.
Regarding the Renewable Energy Directive (2018/2001) (RED II), the draft obtained by EUROPE indicates that it will not be a complete overhaul of EU law in this area, but a series of amendments (see EUROPE 12743/4).
The intention of the institution is to raise the European target for renewable energy in the Union’s gross final energy consumption by 2030 from at least 32% to between 38 and 40%.
While this EU-wide target will be binding, the Commission does not plan to set binding national targets (see EUROPE 12742/12), much to the dismay of environmental NGOs.
Energy efficiency
Similarly, the Commission intends to maintain indicative national energy efficiency targets for 2030, according to the draft proposal for the revision of Directive 2018/2002.
The document indicates that the EU institution will, on the other hand, strengthen the requirements for Member States to renovate buildings and save energy, while reviewing the rules for energy audits (see EUROPE 12755/2, 12756/17).
Energy taxation
In order to support the development of renewable and low-carbon energy, the Commission will also propose a revision of the Energy Taxation Directive (2003/96).
According to the draft of this proposal detailed in our columns, the institution intends, among other things, to put an end to incentives for the use of fossil fuels by abolishing the existing tax exemptions (see EUROPE 12755/10).
LULUCF
Another initiative included in the ‘Fit for 55’ package is the revision of the Land Use, Land Use Change and Forestry (LULUCF) Regulation (2018/841).
In order to achieve a net absorption of 310 million tonnes of CO2 equivalent by 2030 via its carbon sinks, the Commission intends to set binding national targets for minimum net removals to be achieved by 2030, says the draft (see EUROPE 12755/1).
It would also like to extend the scope to non CO2 emissions from the agricultural sector, including methane emissions.
In addition to the ‘Fit for 55’ package, the Commission is expected to present its new forest strategy (see EUROPE 12750/3).
Emissions from cars and vans
The Commission also wants to tighten the CO2 emission standards for cars and vans set by Regulation 2019/631.
However, it seems reluctant to set a deadline (2030 or 2035, depending on the proposals circulating) for the sale of new petrol and diesel cars and vans.
This option is supported by some Member States, in particular the Netherlands (see EUROPE 12738/20).
Infrastructure for alternative fuels
Finally, the Commission will present a proposal for a revision of the Directive (2014/94) on the deployment of alternative fuel infrastructure, a proposal for a Regulation on sustainable fuels for aircraft (‘ReFuelEU Aviation’), as well as a proposal for a Directive to increase the use of sustainable alternative fuels in maritime transport (‘FuelEU Maritime’).
While the details of the latter two initiatives are not yet known, EUROPE has obtained the draft proposal on alternative fuel infrastructure (see EUROPE 12759/3). (Original version in French by Damien Genicot)