On 21 April 2021, the European Parliament and the Council of the EU, on the European Commission's proposal, reached a provisional political agreement on the European Climate Law, including a net carbon emissions reduction target of at least 55% by 2030 compared to 1990 levels.
During the negotiations among EU institutions, the most emblematic points of contention were on (i) the level of the 2030 target (the Parliament was calling for a 60% target while the Council was supporting “at least 55%” as proposed by the Commission), (ii) whether the target should be net or gross and (iii) whether the climate neutrality objective should be achieved collectively by the Union as a whole or also individually by each Member State. For more information, you can read the following blog post by Sara Feijao.
The political agreement is highly symbolic as it will enshrine the net zero by 2050 target into a binding legal instrument and sends a strong signal to the international partners, especially in the context of US President Biden’s Leaders' Summit on Climate. At the same time, it remains a high-level development setting objectives at a macro level.
With this important hurdle cleared, the Commission is now turning its attention to the alignment of its more granular sectoral legislation with the newly agreed target. To that end, it will publish its “Fit for 55 Package” later this year.
First announced in September 2020 and as mentioned in the Commission's Work Programme for 2021, the Fit for 55 Package encompasses a suite of legislative initiatives across various sectors, including energy, transport and buildings, most of which are expected to be published on 14 July (though this date may yet change). The below table offers a high-level (and by no means exhaustive) summary of some of the main elements anticipated as part of the Package.
Sectoral legislation
What to expect?
Timeline
Revision of the EU Emissions Trading System (ETS)
Possible extension of the current system to new sectors (buildings, transport (road, maritime), etc.)
According to our latest intel, it could also be an “adjacent” scheme
Possible reduction of allowances allocated for free to airlines
Introduction of a Carbon Border Adjustment Mechanism (CBAM)
End goal is to reduce the risk of “carbon leakage” for selected sectors
Possible scope will be initially limited to steel and cement, but ultimately broadened to include other sectors including fertilisers, non-ferrous metals, chemicals, pulp, paper, glass and electricity imports, amongst others
Several design options are considered, including:
a carbon tax on selected products – both on imported and domestic products (consumption tax);
a new carbon customs duty or tax on imports; or
the extension of the EU ETS to imports (this is the most likely option according our latest intel)
On carbon content and carbon pricing, the evaluation will be based on a system of EU-wide benchmarks already in place under the current EU ETS in sectors where applicable, and will also look at alternative approaches. The CBAM should not be a fixed cost applied to all third countries, but rather the difference between the carbon price and the price in the EU ETS.
Particular focus on aviation and maritime industries with the following considerations: (i) minimum excise rates, (ii) sectorial tax differentiation and (ii) product coverage
Revision of the Renewable Energy Directive (RED II)
Possible increase of the minimum 32% target for renewable energy set at Union level, including a review of the level of ambition of sector specific measures
Increased deployment of renewables in the power, heating & cooling and transport sectors
Better use of waste heat
Better integration of renewables in buildings
Further promotion, development and use of renewable and other low-carbon fuels, including advanced biofuels, synthetic liquid and gaseous fuels & hydrogen
Possible provisions on the renovation of public buildings, public procurement, energy audits, heating & cooling and recovery of waste heat and energy services
Focus also on related topics as security of supply, resource-efficiency, circular economy and competitiveness
Revision of the energy performance of Buildings Directive (EPBD)
Possible phased introduction of mandatory minimum energy performance standards for different types of buildings (i.e. public and private, non-residential and residential)
Updated framework for Energy Performance Certificates
Revision of the Third Energy Package for Gas (decarbonising gas markets)
Introduction of rules fostering hydrogen infrastructure and markets (third-party market and network access rules and guarantees for neutral hydrogen network operations, repurposing of existing natural gas infrastructure, rules for import of hydrogen and hydrogen storage)
Introduction of rules for the integration of renewable and low-carbon gases into the existing gas infrastructure and markets
Other elements of the Fit for 55 package will include revisions of (i) the Effort Sharing Regulation (ESR) (more info here), (ii) the Regulation on the inclusion of greenhouse gas emissions and removals from land use, land use change and forestry (LULUCF) (more info here), (iii) the Directive on deployment of alternative fuels infrastructure (more info here) and (iv) the Regulation setting CO2 emission performance standards for new passenger cars and for new light commercial vehicles (more info here).
We keep following these developments closely, and will post an update in due time, when the bulk of the Package comes out.
Lothar Van Driessche (Managing Associate, Energy & Infrastructure)
Elisa Sourmelis (EU Law & Policy Advisor)
With the important hurdle of the European Climate Law cleared, the Commission is now turning its attention to the alignment of its more granular sectoral legislation with the newly agreed target. To that end, it will publish its “Fit for 55 Package” later this year.
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