Meeting in Luxembourg for the last ministerial meeting under the French Presidency of the Council of the European Union, the EU27 Environment Ministers had not yet managed to agree on a common negotiating position (‘general approach’) on five dossiers of the climate legislation package (‘Fit for 55’ package), at the time of going to press, on Tuesday 28 June. This is due to continuing divisions over the revision of the EU Emissions Trading System (ETS), including the creation of a second carbon market covering buildings and road transport (ETS2 or ETS BRT), as well as over the ‘Social Climate Fund’.
At the start of the ministerial meeting, at around 9.50 am, the French Presidency recalled the links between the five proposals under discussion (see EUROPE 12980/4), stressing the need to preserve the coherence and balance of the ‘Fit for 55’ package.
“Either we reach a historic agreement on the five dossiers, or there is no agreement”, warned the French Minister for Energy Transition, Agnès Pannier-Runacher.
Like the European Commission’s Executive Vice-President in charge of the Green Deal, Frans Timmermans, the chair of the meeting then called on her colleagues to show a “spirit of compromise” in order to enable the EU Council to complete the five dossiers in question and to be able to start negotiations with the European Parliament (‘trilogues’) as soon as possible.
More than three hours later, after a round table discussion in which each country presented its position, Ms Pannier-Runacher was nevertheless forced to propose to the ministers that they suspend the discussions on the ‘Fit for 55’ package and return to it later in the day on the basis of new compromise suggestions.
The round table showed that there were still too many divisions to reach an agreement on two of the five dossiers submitted for approval: - the revision of the EU Emissions Trading System (ETS), including the creation of a second carbon market covering greenhouse gas (GHG) emissions from space heating and road transport (ETS2 or ETS BRT); - the creation of a ‘Social Climate Fund’ (SCF) to mitigate the potential negative socio-economic impacts of the ETS2, in particular for the most vulnerable households.
At the time of going to press, a second round of discussions, which began just before 7pm, was underway, with new proposals from the French Presidency.
What size for the SCF?
The ministers discussed, among other things, the fault lines on the Social Climate Fund (SCF): volume, launch and duration of the Fund, governance and centralised community management versus shared management…
The biggest divisions were over the size of the SCF, which the French Presidency of the EU Council had set at the start of the meeting at €59 billion for the period 2027-2032, of which €18.6 billion would be for the net beneficiaries of the Fund, compared to the Commission’s initial proposal of €72 billion for 2025-2032.
At the opening of the second round, the French Minister, Agnès Pannier-Runacher, said that the French proposal still seemed to her to be the most appropriate to address the various concerns.
“We believe that our proposal represents a point of balance”, said the minister, adding that assurances would be given that the volume of the Fund would “reflect the level of decarbonisation" implemented with the ETS2.
To ensure that the money does not flow through national budgets, a fear raised by some countries, the Commission - not the Member States - will also be responsible for auctioning the ETS2 allowances. The French Presidency also proposes to make more transfers of resources from the Fund to cohesion fund programmes as requested by several countries, but the Commission will first have to approve these transfers.
These new suggestions, however, have not convinced the Member States.
While ‘heavyweights’ such as Italy were able to indicate on Tuesday morning that they could accept this French compromise on the SCF, other ‘heavyweights’, led by Germany, have launched an offensive to reduce the size of the Fund.
Earlier in the day, Berlin proposed a compromise of €48.7 billion. This is a “major concession, according to the German minister, Robert Habeck, who was supported by Denmark, Finland, Sweden and the Netherlands. The latest proposals from the French minister had still not convinced them at the time of going to press.
These so-called ‘frugal’ countries have never been keen on the SCF tool, believing that other forms of support exist. The Danish Minister, Dan Jorgensen, stressed his refusal to see the creation of what he likened to a “new cohesion fund”. He also stressed that the European recovery plan and the new Multiannual Financial Framework already devote a large part - “more than 600 billion” - to cushioning energy transitions. The Finnish Minister, Maria Ohisalo, also expressed her desire to reduce the size of the Fund, limit the share of the ETS2 that will finance it and reserve its amount for net recipient countries.
Like the latter two countries, the Netherlands supported the German proposal and pushed for a faster entry into force of the ETS2, which was delayed by one year with “the same initial ambitions”.
Obtained by EUROPE, the German proposal discussed during the day redefines the calculation as follows: 18% of the revenues of the ETS2 (as opposed to 25% in the current compromises) would be used to finance the Fund up to 41.2 billion (with an assumed price of €50 per tonne of carbon); 150 million carbon allowances from ETS2 would also finance the Fund to the tune of €7.5 billion and would no longer be allocated to the Innovation Fund.
Poland and countries like Malta and Cyprus could not support such an idea, pointing out that the SCF is already insufficient, in their view, to cushion the socio-economic shock of the transition to low-carbon economies.
The war in Ukraine “has only increased the negative effect on the population and at the same time the Fund has been reduced, which is unacceptable”, said the Polish Minister, Anna Moskwa.
“We need the fund now and a period of eight years sounds good”, she added, advocating for more support through direct aid and a larger transfer under shared management.
Bulgaria also expressed its wish that the Fund should remain as close as possible to the Commission’s original proposal. On Tuesday morning, it said that it could not accept the French proposals. In the second round, Greece pointed out that with a price per tonne of carbon that could also be €100, this would amount to feeding the Fund with “15%” of the ETS2 revenues, which would represent a considerable decrease in the volume of the Fund and would be unacceptable.
Dossiers held hostage
As a direct result of the divisions over the ETS and SCF, the other three proposals - the revision of the Effort Sharing Regulation (ESR); the revision of the Land Use, Land Use Change and Forestry Regulation (LULUCF); and the revision of CO2 emission standards for new cars and vans - have been put on hold.
Even if the draft general approaches on the first two dossiers are at priori relatively stable (see EUROPE 12981/2, 12981/3), the texts could be reopened in order to reach an agreement on all five proposals.
On the issue of CO2 emission standards for new cars and vans, the meeting showed that this is still a divisive issue between Member States (see EUROPE 12981/4). (Original version in French by Damien Genicot and Solenn Paulic)