22/07/2021 Briefing

The 2019 European Green Deal kicked off with an impact assessment leading to the Climate Target Plan which signalled the need for radical action and investment, and promised to revamp EU law and policy accordingly. A new European Climate Law is soon to be enacted as an EU Regulation which will bind the EU and Member States to meeting the new 2030 target and zero net emissions by 2050. Fit for 55 aims to begin the legislative changes needed to deliver this target. The Communication on ‘Fit for 55’: delivering the EU’s 2030 Climate Target on the way to climate neutrality indicates what to expect in the effort to decarbonise EU economies in this “make-or-break” decade.

The Fit for 55 package consists of proposals to amend existing legislation as well as new initiatives in climate, energy and fuels, transport, buildings, and land use and forestry. That many of the proposals would amend laws which were updated as recently as 2018 in the Clean Energy Package is indicative of the rapid change in course needed to respond to the climate challenge.

The Commission categorises the mix of tools it has selected to be “Fit for 55” into three groups – Pricing, Targets, and Rules/Standards – underpinned by a fourth, Support Measures.

Pricing

Changes to the EU Emissions Trading Scheme (EU ETS): lower caps and more sectors

 

The Commission considers that carbon pricing has been highly effective in bringing down emissions. An amending Directive would strengthen the EU ETS by lowering the emissions cap on applicable sectors, first through a one-off reduction of the overall cap by 117 million allowances, followed by annual cap reductions of 4.2% (the current rate is 2.2% per year). This is intended to reduce the applicable sectors’ emissions by 61% by 2030 compared to 2005 levels (up from the current target of 43%). A proposed Decision would amend the Market Stability Reserve (whereby surplus allowances are removed from the market) to maintain current parameters beyond 2023 up to 2030 to ensure market predictability.

 

Sector-wise, in addition to power, heat and energy-intensive industrial installations, the EU ETS would be extended over 2023 to 2025 to the maritime sector. An amending Directive would phase out free emissions allowances for aviation by 2026. The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) would be implemented through the EU ETS, as described in a proposed Decision.

 

It is proposed to start capping emissions and providing for allowance trading in fuels used in road transport and buildings. This is to be implemented in a separate system, which would regulate upstream fuel suppliers, to become operational in 2025.

 

New Carbon Border Adjustment Mechanism: imports to be subject to carbon pricing

 

To prevent carbon leakage (whereby production is transferred from the EU to countries with lower emissions reduction targets) a proposed Regulation would establish a mechanism to put a price on imports of certain products based on their carbon content (unless importers can prove that a carbon price has already been paid during production).

 

Updated Energy Taxation Directive

 

A proposed recast Directive aims to restructure taxation of energy products and electricity to align the minimum tax rates for heating and transport fuels with EU climate and environmental objectives. It proposes to remove exemptions and other incentives for the use of fossil fuels and to promote the uptake of clean fuels.

 

 

Higher Targets for Member States

Emissions Reductions: 2030 target to increase from 30% to 40%

 

A proposed Regulation would amend the Effort Sharing Regulation which sets binding emissions reduction targets on Member States in several sectors (buildings, road and domestic maritime transport, agriculture, waste and small industry sectors). The EU-wide target would be to reduce emissions by 40% by 2030 compared to 2005. Principles for setting national targets remain unchanged (still based on GDP per capita). The national targets will change in 2023 with Ireland’s target set to increase significantly from 30% to 42%.

 

Renewable Energy: 2030 target to increase from 32% to 40%

 

A proposed Directive would amend the Renewable Energy Directive to set a target of 40% of gross final consumption of energy being met from renewable sources by 2030. National contributions set through the climate governance framework would indicate what each Member State should contribute to reach the collective target. (Ireland has already set a target in its Climate Action Plan of meeting 70% of electricity demand from renewable sources by 2030.) Further efforts would be made to decarbonise the energy sector including measures to facilitate renewable Power Purchase Agreements; accelerated permitting for renewable energy projects; promotion of cross-border cooperation including through a renewable energy financing mechanism and offshore pilot projects; and sub-targets and certification for renewable hydrogen. There are increased efforts to decarbonise other sectors as well, with new targets for renewables’ use in transport, heating and cooling, buildings and industry. Bioenergy sustainability criteria is also set to be strengthened.

 

Energy Efficiency: 2030 target to increase from 32.5% (for both primary and final energy consumption) to 39% (for primary energy consumption) and 36% (for final energy consumption)

 

A proposed Directive amending the Energy Efficiency Directive will increase again the target to reduce energy consumption by 2030 to 39% and 36% for primary and final energy consumption respectively relative to 2007 consumption projections. The new targets are expressed as a 9% reduction in energy consumption by 2030 compared to new 2020 consumption projections. Each Member State would determine its indicative national contribution (based on a formula of criteria and benchmarks) which would be assessed by the Commission. The obligation on Member States to achieve annual energy efficiency savings in end-use consumption (through for example energy efficiency obligation schemes) would be increased from 0.8% to 1.5% per year from 2024-2030. There are measures to boost building renovation including a requirement for the public sector to renovate 3% of its buildings each year. Revision of the Energy Performance of Buildings Directive is anticipated later in 2021.

 

Land Use, Land Use Change & Forestry: 2030 target to increase from 268 to 310 million tonnes of CO2 equivalent

 

A proposed Regulation would amend the LULUCF Regulation which requires accounted emissions from land use to be compensated by equivalent removal of CO2 from the atmosphere. The new target would be to obtain net carbon removals of 310 million tonnes of CO2 equivalent by 2030, an increase of around 15% on the current target. There would be a further target of climate neutral land use by 2035. Specific national targets are proposed to contribute to this shared goal with Ireland in this case having an allowance of just under 4 million tonnes of CO2 equivalent. Member States will retain some flexibility in dividing the effort between the Effort Sharing Regulation and LULUCF sectors.

 

 

Harmonised Rules / Increased standards

Towards zero CO2 emission vehicles

 

A proposed Regulation would amend the Regulation on CO2 emission performance standards for new passenger cars and light commercial vehicles to reduce the average emissions of new cars by 55% from 2030 and 100% from 2035, compared to 2021 levels.

 

Roll out of Alternative Fuels Infrastructure

 

A revised Regulation would require Member States to expand charging and refuelling infrastructure to support the changing vehicle fleet and set standards to ensure interoperability and user-friendliness. Major motorways would see minimum permitted intervals of 60 kilometres for electric charging points and 150 kilometres for hydrogen refuelling stations, and adequate coverage of rural and remote areas would be required.

 

ReFuelEU Aviation Initiative

 

ReFuelEU would oblige fuel suppliers to blend increasingly high levels of sustainable aviation fuels into existing jet fuel uploaded at EU airports and to incentivise the uptake of synthetic fuels (e-fuels).

 

FuelEU Maritime Initiative

 

FuelEU would impose a maximum limit (to become progressively more stringent) on the greenhouse gas content of energy used by ships arriving to or departing from EU ports.

 

 

Support Measures

The Fit for 55 Communication notes the unprecedented resources that have been earmarked to support transition to carbon neutrality, including through the EU long-term budget, NextGenerationEU, the Recovery and Resilience Facility, the Just Transition Mechanism, and the Sustainable Finance package (which aims to divert private capital towards sustainable investment).

The Fit for 55 proposals contain dedicated financial instruments based on the revenues to be generated by expanded emissions trading. A new Social Climate Fund would complement the introduction of emissions trading to road transport and buildings by supporting citizens at risk of energy or mobility poverty. Enhanced Innovation and Modernisation Funds would, respectively, leverage finance for innovative projects and infrastructure to decarbonise industry, and support modernisation of the power sector in lower-income Member States.

Next Steps

The package of proposals will now be negotiated between the Council and Parliament during the legislative process. Several points are already clear. Whatever the sector, failure to change to a sustainable business model will cost you. Decarbonisation of challenging sectors such as transport and heating and cooling can no longer be put off. In Ireland, there are already high levels of renewable energy (meeting around 40% of electricity demand), but further decarbonisation of the energy sector will require significant investment in the grid and market systems to allow fair participation of renewable power in the Single Electricity Market. As the Climate Target Plan recognised, the ambition of the 2030 target is staggering, with investment in the energy system alone (including transport) needing to increase over the period 2021-2030 by an additional €350 billion on average each year (compared to 2011-2020) to enable the EU to be “Fit for 55.” The mechanisms needed to ensure wider societal investment in the scale of change required will therefore also be key.

The authors would like to thank Caoimhe Cummins for her contribution to this briefing.