European Commission reveals its "Fit for 55" climate legislation

Key Findings

• The proposals aim to revamp the bloc’s emissions trading scheme, proposes a foreign levy on polluting imports, increases renewable energy targets, and includes measures to finally end the usage of the internal combustion engine.

• EU Commission has proposed to remove Member States ability to not issue GoOs to energy producers who receive financial support. This could potentially increase GO issuance to the tune of 200 TWh, especially from Germany, into the GO market.

• The proposals will need to be agreed upon and adopted by EU governments and the European parliament to become an EU law and in that process, we can typically expect to see a lot of changes at the very least.

Today, the European Commission unveiled a package of proposals called "Fit for 55" aimed at ensuring that policies related to European economic activities are substantial enough in reducing Greenhouse Gas (GHG) emissions by at least 55% by 2030 compared to 1990 levels. These proposals and emission targets are crucial in contributing to the EU's long-term net-zero by 2050 target under the EU Green Deal. 

The proposals presented today are meant to enable the necessary acceleration of greenhouse gas emission reductions in the next decade.  The proposals aim to revamp the bloc’s emissions trading scheme, proposes a foreign levy on polluting imports, increases renewable energy targets, and includes measures to finally end the usage of the internal combustion engine.

In terms of the Guarantees of Origin market under the Renewable Energy Directive (REDII) the EU Commission has proposed to remove Member States ability to not issue GoOs to energy producers who receive financial support. This could potentially increase GO issuance to the tune of 200 TWh, especially from Germany, into the GO market.

However, these proposals are just the starting point in what is expected to be years of complex negotiations over regulations and directives that necessarily touch on all parts of economic life. The proposals will need to be agreed upon and adopted by EU governments and the European parliament to become an EU law and in that process, we can typically expect to see a lot of changes at the very least.

A breakdown of the proposals

EU Emissions Trading System (ETS)

• The Commission is proposing to lower the overall emission cap even further and increase its annual rate of reduction.
• The Commission is also proposing to phase out free emission allowances for aviation and align with the global Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
• For the first time emissions related to shipping are proposed to be included under the EU ETS scheme
• To address the lack of emission reductions in transportation and buildings, a separate new emissions trading system is set up for fuel distribution for road transport and buildings.
• Lastly, the Commission proposes to increase the size of the Innovation and Modernisation Funds.

Flows of emission trading revenues

• To complement the substantial spending on climate in the EU budget, it proposed that the Member States should spend the entirety of their emissions trading revenues on climate and energy-related projects.

Renewable Energy Directive II

• Commission to remove Member States’ ability to not issue Guarantees of Origin to a producer that receives financial support.
• To set an increased target to produce 40% of energy from renewable sources by 2030.
• Sustainability criteria for the use of bioenergy are strengthened and Member States must design any sustainable support schemes for bioenergy.

Effort Sharing Regulation 

• The Effort Sharing Regulation assigns strengthened emissions reduction targets to each Member State for buildings, road and domestic maritime transport, agriculture, waste, and small industries.

Land-use, Forestry and Agriculture Regulation

• Sets an overall EU target for carbon removals by natural sinks, equivalent to 310 million tons of CO2 emissions by 2030.
• By 2035, the EU should aim to reach climate neutrality in the land use, forestry, and agriculture sectors.

Road transportation 

• Requirement for average emissions of new cars to come down by 55% from 2030 and 100% from 2035 compared to 2021 levels.
• All new cars registered as of 2035 will be zero-emission.

ReFuelEU Aviation and Maritime Initiative

• Will oblige fuel suppliers to blend increasing levels of sustainable aviation and maritime fuels.
  
• Setting a maximum limit on the GHG content of energy used by ships calling at European ports.

Revision of the Energy Taxation Initiative 

• Proposes to align the taxation of energy products with EU energy and climate policies

New Carbon Border Adjustment Mechanism

• Will put a carbon price on imports of a targeted selection of products to contribute to global GHG emission reductions.

President of the European Commission, Ursula von der Leyen, said “The fossil fuel economy has reached its limits. We want to leave the next generation a healthy planet as well as good jobs and growth that does not hurt our nature. The European Green Deal is our growth strategy that is moving towards a decarbonised economy. Europe was the first continent to declare to be climate neutral in 2050, and now we are the very first ones to put a concrete roadmap on the table. Europe walks the talk on climate policies through innovation, investment and social compensation.”

Source:

EU Commission