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EU takes aim at more emissions with Fit for 55 package of proposals

The European Commission (EC) announced 14 proposals, including legislative revisions, targeting lower emissions under its Fit for 55 package on 14 July.

Since June, the EU has had a legal duty to get on track for net-zero carbon emissions under its goal of a 55% GHG reduction by 2030 from a 2005 baseline under the newly-adopted Climate Law, and earlier this year it pushed through measures to finance states' greening and recovery plans.

"Today is about putting it all together. We have the goals, we have the Climate Law, we have it all underpinned by investment, and now it's about the roadmap," said EC President Ursula von der Leyen in a speech to announce the package.

Von der Leyen called the proposals "realistic and optimistic," and highlighted the key role that would be played by an expansion of the EU Emissions Trading System (ETS), paired with a Social Climate Fund to compensate poorer consumers for higher fuel costs. "If you look at transformations in Europe, in every transformation we were successful when we combined market-driven measures with the rise of social balance," she added.

Shaking up both industrial and consumer-facing sectors that use fuels that pollute the air, land, and sea, the complex Fit for 55 package had been postponed from an earlier date in the second quarter of 2021.

During a briefing on the proposals, EC Vice President Frans Timmermans played down concerns about the impact of EU Allowance (EUA) prices on emissions being included in more consumer commodities. "Yes, it is difficult. Yes, it is hard. But it's also an obligation, because if we would renounce our obligation to help humanity live within planetary boundaries, we would fail, not just ourselves, but we would fail our children and grandchildren, who in my view, if we don't fix this, will be fighting wars over water and food," he warned.

"We are putting a price on carbon, so that people have the incentive to use less carbon; and we put a premium on decarbonizing so that we stimulate innovation, adaptation; and we stimulate bringing to market new technologies that will take us where we need to be," added Timmermans.

If approved by the European Parliament and the EU Council, Fit for 55 would expand the ETS; impose border tariffs on carbon for the first time; enact new methane emissions reductions; raise renewable energy mandates and subsidies; mandate further passenger car emissions reductions; and change land use rules related to agriculture and carbon sinks. Where new costs are imposed, they would be offset to some degree by subsidies and payments aimed at ensuring environmental justice and limiting the impact on people in less-wealthy EU nations.

Among the measures that already are grabbing headlines across the bloc, the EU would use CO2 emission performance standards to enact a de-facto ban the sale of new internal combustion engine cars by 2035, while setting mandates of a 55% reduction in emissions from cars by 2030 and 50% from vans. "From 2026, road transport will be covered by emissions trading, putting a price on pollution, stimulating cleaner fuel use, and re-investing in clean technologies," the EC said in an announcement.

The plan also would raise the bloc's goal for renewable energy's share of final energy consumption by 2030 to 40%, from the current 32%, and set a new energy efficiency target of 36% (also by 2030), compared with the current 32.5%.

The proposals are expected to weather two years of debate before they have a chance to be adopted. The European Parliament and the Council will need to come to a joint agreement before the new and revised laws can be adopted, except for the energy taxation proposals, as the Council is the only body that needs to approve those plans.

The package fulfills the aims of the European Green Deal, the net-zero pledge announced by von der Leyen as she assumed her post in December 2019. Both the European Parliament and the EC had called for such a move previously.

Without the new and revised laws in Fit for 55, the EC estimates that the region would achieve a 60% GHG emissions reduction by 2050, rather than net-zero.

Goals, penalties, no shoot-outs

The "comprehensive and interconnected" package raises the bar on what is required to comply with the EU's environmental legislation, introducing new targets for member states and industrial sectors.

It expands the EU ETS while adding higher goals for the Renewable Energy Directive (RED) and Energy Efficiency Directive, among other things.

The ETS covers approximately 41% of EU emissions, primarily through allowances for power generation and industrial uses. The ETS has reduced emissions from power generation and energy-intensive industries by 42.8% in the last 16 years, the EC said, putting the bloc nearly a decade ahead of schedule to meet a prior 2030 goal of 43%.

But since the EU is now legally bound to align to net zero, the EC has proposed new rules that would change the ETS' emissions reduction target to 61% by 2030 by reducing emissions allowances and adding new sectors.

For the first time, it will use the force of the EU ETS to begin to reduce CO2 emissions from the shipping industry; before, NOx and SOx had been the main target of international regulations and CO2 had been reported. The EU is targeting CO2 emissions from large ships sailing between EU ports, as well as 50% of the emissions from voyages starting or ending outside of the EU.

Also for the first time, a separate ETS will be used to account for the emissions caused by heating buildings and road transportation including vehicles, sectors where emissions allowance prices are likely to be paid by consumers.

By 2027, it will apply ETS burdens to intra-EU aviation as well, which had benefitted from exemptions previously, and will begin regulating international aviation emissions by using the EU ETS to implement CORSIA, the Carbon Offsetting and Reduction Scheme for International Aviation.

Airplane emissions around the world are traded through the voluntary CORSIA program, and Airlines for Europe (A4E), a trade group, said it supports the plan to bring CORSIA under the ETS umbrella. However, the group warned that other measures in the Fit for 55 plan, such as mandated use of sustainable aviation fuel, could result in double taxation of the same emissions.

"Badly designed European taxes will not reduce emissions. By making flying more expensive, it may shift demand globally and reduce traffic locally. But it will not tackle the source of the emissions," A4E said in a statement.

Renewables' slice of the pie

The Renewable Energy Directive, which has been in effect for more than 20 years and has been amended to RED II, would be strengthened again. From the current goal of renewable energy attaining a 32% share of final energy consumption by 2030, the Fit for 55 plan would raise the target to at least 40%.

The Energy Efficiency Directive would be tightened too, less than three years after it was raised to a goal of 32.5% energy efficiency in 2030 (compared with projected energy use). An analysis in 2020 found that the measures in place would enable a reduction of 29.4%-29.7%, or a few percentage points short of the goal.

To close that gap, the EC will direct additional attention toward transportation and buildings, including through the updated ETS and RED legislation, and new standards also will be imposed for the public sector and industry. For example, the public sector in each EU member nation will be required to renovate 3% of its buildings each year.

A proposal that drew wide attention around the globe is a Carbon Border Adjustment Mechanism, a new tariff on imports of certain products — iron and steel, cement, fertiliser, aluminium and electricity generation — that are produced using high levels of GHGs.

The concept was first made public when the European Green Deal was announced, and questions were raised at the time about whether it would violate World Trade Organization rules on competition and subsidies. But the EC said it is crucial to create a comprehensive plan that does not allow shifting of carbon emissions (known as "leakage") to other nations, and to protect its manufacturers and power producers from competition with those abroad that aren't under pressure to lower emissions.

In justifying the inclusion of the tariff, the EU noted that "as the Union increases its climate ambitions, the divergence with third countries' level of climate action is expected to widen, with an increased risk of carbon leakage for the EU."

The US is considered one of the nations that would be affected by the border adjustment tax, thus raising potentially tricky trade issues. US Secretary of the Treasury Janet Yellen was quoted this week as saying that "it's very important to think through if a country adopts a carbon border adjustment … how it should treat countries that have also achieved environmentally friendly production techniques but through different means."

Reactions

Early industry reactions to the package were mixed. Despite many industry trade groups agreeing with the overall aims, targeted sectors opposed elements of the package.

However, environmental groups generally argued that the 55% ambition fell at least 10% short of what was required to meet global Paris Agreement goals, but admitted that the proposals moved the EU in the right direction.

"What the Commission says is 'Fit for 55' is unfit for our planet and unfair to society. Without a fossil fuel phase-out, the fuel industry will pass on emission costs for buildings and transport to citizens and still keep making immense profits," said Barbara Mariani, policy manager for climate for EEB, a coalition of 170 organizations that promotes sustainability.

Providing free CO2 allowances for industrial emissions under the ETS is another concern, Mariani said.

The package "shows that no single policy will be sufficient to create momentum for change throughout a sectoral value-chain; close coordination and integration between policies that impact OEMs, fuels, infrastructures and customer choices are needed," said FuelsEurope, a refining industry trade group. "The combination of multiple policy tools should be calibrated for an effective stimulus for investments."

While a nearly total dependency on electric vehicles might be part of the EU's long-term solution, FuelsEurope noted that fleet turnover will take decades, and biofuels and other lower carbon fuels can provide cost-efficient emissions reductions today.

Eurelectric, a trade group of power producers, said it supports the strong emphasis on electrification of the economy.

But it also said that permitting delays are interfering with both the installation of renewable power and the transmission lines needed to move it to users, and scaring off investors required for the €375 billion-€425 billion needed for upgrading energy infrastructure this decade. "Radical changes to the permitting processes are needed," said Jean-Bernard Levy, president of Eurelectric and CEO of EDF Group, in a statement.

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