On Monday 6 December, the Slovenian Presidency of the Council of the European Union sent a document to the Member States outlining the progress made on certain files of the European Commission’s ‘Fit for 55’ package of legislative proposals.
The document covers the files managed by the EU Council’s Environment Unit. This includes the three proposals amending the EU Emissions Trading System (ETS), the reform of the EU Effort Sharing Regulation (ESR) (2018/842) and the revision of the EU Land Use, Land Use Change and Forestry (LULUCF) Regulation (2018/841).
After several discussions between Member State experts on these files (eight in the case of the ETS proposals), the Slovenian Presidency said that “considerable further technical work” will be required for most of them “due to their complexity and the introduction of new elements”, but also due to the size of the file in the case of the ETS.
ETS2 is struggling to convince
According to the Slovenian paper, a large number of delegations have expressed their concerns about the Commission’s ETS proposals.
While some called for an increase in the ambition of the proposals, others were concerned about the potential impacts on economic sectors and households, stressing the need to take into account the different situations in Member States.
In particular, a number of delegations expressed “significant reservations” about the creation of a second ETS covering emissions from buildings and road transport (ETS2 - see EUROPE 12762/1), the paper said.
These countries are concerned that the ETS2 will lead to higher energy prices, social and distributional impacts on low-income households, an increased risk of energy poverty and greater disparities between and within Member States.
Some delegations also contested the Commission’s position that ETS2 would be the most effective tool to decarbonise these two sectors, notes the Slovenian Presidency.
On the contrary, a number of them welcomed the proposal to establish a second ETS, pointing out that, unlike alternative decarbonisation measures, carbon pricing generates revenues that can be used to support “mitigating measures against social and distributional impacts”.
However, several Member States have expressed concerns that the Social Climate Fund, as proposed by the Commission (see EUROPE 12762/6), will prove insufficient to mitigate the socio-economic impacts of ETS2 (EUROPE will come back on this).
Some delegations also argued for a narrowing of the scope of the ETS2, for example by excluding residential buildings.
With regard to free carbon allocations, several Member States have explicitly supported the approach of a more targeted free allocation. However, some have expressed strong reservations about the proposal to make the granting of free allocations conditional on the implementation of the recommendations of the energy audit foreseen in the Energy Efficiency Directive.
Regarding aviation (see EUROPE 12764/10), delegations generally welcomed the proposal to phase out free carbon allocations. Some, however, favoured a slower phase-out, particularly in view of the impact of Covid-19, while others supported a faster or even immediate phase-out.
In view of the current rise in energy prices, a number of Member States have also insisted on the need to provide for measures “in the event of excessive price fluctuations” in carbon allocations. Others opposed it, warning that such measures could weaken or undermine the functioning of the ETS.
The inclusion of maritime transport is rather well received
Concerning emissions from shipping, the Commission’s proposal to include this sector in the scope of the current ETS was generally supported, the Slovenian paper says. However, the Member States stressed the importance of preserving the competitiveness of the European shipping industry and taking into account national and geographical specificities.
A number of delegations also expressed doubts as to the sufficiency of the proposed measures to counter the risk of carbon leakage, i.e. the fact that companies in this sector might be tempted to favour non-European ports close to the Member States or to use other modes of transport.
Effort Sharing
With regard to the revision of the regulation assigning national greenhouse gas emission reduction targets to Member States in sectors (transport, buildings, agriculture, waste management) not covered by the currentETS (see EUROPE 12762/2), some countries welcomed the fact that GDP per capita remains the basis for calculating national targets.
Others, however, expressed concern that the proposed methodology does not sufficiently reflect the ‘cost-effectiveness’ criterion and does not allow for sufficient convergence between countries’ objectives.
According to the Slovenian paper, some delegations also indicated that they considered their respective new targets “very challenging”.
Delegations also asked for more information on the interaction between the ESR and the ETS2.
LULUCF
Regarding the LULUCF Regulation, the Presidency report refers to the concerns of a number of delegations concerning the proposed national targets for 2030 (level of ambition, calculation criteria and new compliance mechanism).
The Commission’s proposal sets, for 2026-2030, a collective target of 310 million tonnes of CO2 equivalent of net removals in the sector by 2030 (see EUROPE 12762/4) and distributes this target among Member States in the form of binding national targets.
Some Member States questioned how national characteristics (natural geographical conditions and age structure of forests) were taken into account in the allocation of targets.
Furthermore, with regard to the proposed flexibilities, delegations question whether they will be sufficient, in particular when flexibility is conditional on compliance with the overall EU target (emission reductions).
See the Slovenian Presidency document: https://bit.ly/3dsBXpF (Original version in French by Damien Genicot and Lionel Changeur)