FIT FOR 55 LEGISLATIVE PACKAGE

Fit for 55 is  a mammoth collection of policy measures aimed at enabling the EU to cut emissions by at least 55 percent by 2030. Massive changes are in store for everyone: people, businesses, governments.

The Commission is looking to revise existing proposals, from emission standards for cars to new renewable energy and efficiency targets, as well as come up with a whole new levy for polluting imports and a social fund to shield poor and vulnerable households from rising fuel prices

1. Revision of the EU Emissions Trading System (ETS): The cornerstone of Europe’s climate policy, the ETS is a market-based mechanism that puts a price on each tonne of carbon emitted by around 10,000 installations in the power sector and manufacturing industry, as well as intra-EU flights. The current scheme covers around 40% of the EU’s total greenhouse gas emissions, the remaining 60% being covered by the effort sharing regulation, which addresses emissions from transport, industry and agriculture. The system works by setting a cap of total emissions that decreases over time. Companies can then buy and trade emitting permits. The current cap was designed to enable emissions reductions of 40% by 2030. With the reform, the European Commission aims to adjust the cap to the EU’s new target of cutting emissions by 55%. Environmental groups, like Climate Action Network Europe, have urged the EU to remove 450 million allowances from the market as quickly as possible in order to prop up the carbon price. NGOs have also criticised the practice of distributing allowances to some industries free of charge, saying it goes against the polluter pays principle. EU auditors found that these have hampered the EU’s attempt to decarbonise. As part of the revision, the Commission plans to expand the ETS to cover the maritime sector. A separate sytem would be created covering buildings and road transport. This has caused concern among countries like Poland and some EU lawmakers because of its possible impact on Europe’s poorest households. But some, like industry body Eurogas and the think tank Agora Energiewende support the move.
2. Climate action social facility: To tackle the potential social impact of the new ETS, the European Commission is planning to introduce a climate action social fund. At least 50% of revenues generated by the ETS would l be earmarked to the new fund. Part of the revenues generated from emissions trading in road transport and buildings could be put into a dedicated fund, so that member states can use those revenues to compensate the cost of this transition to vulnerable citizens.
3. Revision of the Effort Sharing Regulation (ESR): Working in tandem with the ETS is the effort sharing regulation, which covers agriculture, transport, buildings and waste – or around 60% of Europe’s emissions. The regulation covers the sectors left out by the ETS, and sets binding targets for each EU country, depending on their GDP. It is unclear yet how the updated regulation will work with the new ETS for buildings and transport. According to EU officials, buildings and transport will remain covered by national-level targets while the new ETS will come on top, acting as a price signal to incentivise decarbonisation. WWF, a green NGO, has warned against completely scrapping the regulation, saying this would remove incentives for climate action at the national level. “Repealing the effort sharing regulation is completely unacceptable. It is Europe’s most significant climate regulation and is a key driver of both national measures and member state support for EU measures,” it said.
4. Revision of the Regulation on the inclusion of greenhouse gas emissions and removals from land use, land use change and forestry (LULUCF). Adopted in 2018, it sets a binding requirement for each EU country to make sure that emissions from these sectors are compensated by CO2 removals – the ‘no debit’ rule. EU countries already had that commitment under the Kyoto Protocol – the predecessor to the Paris Agreement – but the regulation will see this brought into EU law for the first time for 2021-2030. More pressure is likely to be put on LULUCF now because of the inclusion of carbon sinks in the EU’s 2030 greenhouse gas reduction target. During the negotiations on Europe’s climate law, the Commission said it would consider proposing a target of sequestering 300 million tonnes of carbon – up from the current aim of 225 million. The Commission is aiming for -310 million tonnes of carbon sequestration.
5. Proposal for a carbon border adjustment mechanism: The carbon border adjustment mechanism, or CBAM is a measure that aims to protect European businesses from environmental dumping and prevent “carbon leakage” whereby industries relocate production or new factories abroad in search of lower production costs. It will take the form of a regulation, covering cement, fertilisers, iron & steel, aluminium, and electricity. Free allowances under the ETS would l also be phased out for sectors covered by CBAM, although it is not yet clear when. This will be crucial to determine whether CBAM is compatible with rules set out under the World Trade Organisation (WTO), which prohibit double compensation for industries. Brussels is walking on eggshells with the proposal, which has already raised concern from the US, China and other emerging economies. Recent plans show no exemptions for developing countries – instead, the Commission appears to be going for a system of climate finance for developing countries, funded by the measure. While the European Parliament has been strongly in favour of the idea and called for the mechanism to be in place by 2023, others have been more cautious. The European aluminium industry has already come out against it saying it would be preferable to keep free ETS allowances instead. The European Parliament also rejected plans to scrap free allocations to industry, which could become an issue for the scheme’s WTO compatibility.
6. Revision of the renewable energy directive: The renewable energy directive performs two main roles: defining what energy sources are regarded as ‘renewable’ and setting out binding targets for renewables in Europe’s energy mix. The EU’s aim to hit net zero emissions by mid-century will require a huge increase in Europe’s renewable energy generation capacity. In 2018, the EU set a 32% target for renewable energy in Europe’s mix by 2030, up from around 20% currently. This will need to roughly double to 38-40% in order to reach the bloc’s updated climate ambition, according to the European Commission. The directive has met criticism over the role of bioenergy, with campaigners expressing concerns about the environmental impact of increased biomass production, and the forestry sector, which wants biomass sustainability criteria to remain unchanged from the 2018 version. There are also concerns that the European Commission could open the door to fossil gas through the inclusion of ‘low-carbon’ fuels in the EU’s renewable energy directive.
7. Revision of the energy efficiency directive: Last revised in 2018, the energy efficiency directive aims to achieve savings of at least 32.5% by 2030. The target is currently non-binding but the European Commission now plans to make it a legal obligation. Energy efficiency and renewable energy will go hand in hand to ensure Europe reaches its goal of net zero emissions by 2050. Put simply, the more energy-efficient Europe is, the less renewable energy it will need.Campaigners have called for an energy savings goal of at least 45% and nationally binding targets to ensure accountability across EU countries. Renovation is also a core part of the directive. There is currently a 3% target for renovating publicly owned and occupied buildings, but this is tiny compared to the mass of European buildings that will need renovating before 2050. To tackle this, the target should be expanded to “all public buildings, prioritising schools, hospitals and social housing according to the Coalition for Energy Savings.
8. Revision of the energy taxation directive: Last agreed in 2003, the energy taxation directive is in desperate need of an update. It sets minimum tax rates for energy products, like heating, transport fuels and electricity, but was never adjusted to inflation. Another issue is that, under the current system, oil and gas is taxed less than electricity, something that will need to change since the electrification of buildings, transport and industry is a key pillar of the green transition. There are also issues for road transport, where more-polluting diesel is taxed less than petrol, as well as in aviation where kerosene is entirely exempt from tax. Because of this, the revision could have a huge impact on the fossil fuel industry. Currently, fossil fuel sees exemptions and lower tax rates amounting to around €35 billion every year – nearly four times the tax expenditures for renewables. Any changes will need to be agreed with unanimity from EU countries. A previous attempt to revise the legislation started in 2011, but the European Commission withdrew the proposal in 2015 in the face of opposition from EU member states who stuck to the unanimity rule.
9. New EU forest strategy: The Commission plans to adopt stronger and more transparent governance rules for forestry and reaffirm its commitment to strictly protect all primary and old-growth forests, which would be defined at EU level. The  draft is welcomed by environmental NGOs but criticised by the forestry industry, which says the plan ignores the economic role of forests. In Parliament, the European People’s Party (EPP) has called on the European Commission to fix the imbalance between the role of forests in tackling climate change and their role in the economy. Countries with large forest industries, such as Finland and Sweden, are seen opposing the Commission’s plan and could receive backing from others like France.
10. Revision of the directive on deployment of alternative fuels infrastructure: In updating the 2014 AFID directive, the EU executive aims to make it easier for alternatively powered vehicles to recharge and refuel across the bloc – a particularly pressing mission as consumers are increasingly turning to electric vehicles. In addition to facilitating recharging for electric cars and refuelling for hydrogen trucks, the revision seeks to end the current lack of transparency on pricing and facilitate cross-border payments when charging e-vehicles, an issue flagged by the European Court of Auditors in a recent report. The European Commission has already announced its ambition to increase the number of electric charging points to 1 million by 2025, rising to 3 million by 2030.
11. Revision of the regulation setting CO2 standards for new cars and vans:  A key part of the EU’s drive to cut road transport emissions, the revised regulation is expected to impose CO2 performance standards requiring vehicles to be almost emissions-free. Last updated in 2019 (and only in force since the start of 2020), the regulation allocates vehicle manufacturers a carbon budget based on the weight of vehicles registered in a given year. Should emissions exceed the CO2 target assigned, the manufacturer must pay a penalty on the excess emissions. This carbon budget will likely be curtailed further in the revision, as the EU pushes to end tailpipe emissions. Drafts of the regulation update require a 60% to 90% cut in emissions from new vehicles by 2030, with hefty penalties for carmakers who fail to meet the target. The move is widely seen as laying the groundwork for an EU-wide switch to electric mobility. A related draft emission standard proposal called ‘Euro 7 has already drawn fire from the automotive industry, with some car manufacturers labelling it “a ban through the back door “” of the combustion engine.
12. RefuelEU Aviation – sustainable aviation fuels : ReFuelEU Aviation aims to cut emissions in the notoriously carbon-intensive aviation sector by increasing the amount of green jet fuel used within the EU. To increase the supply of sustainable aviation fuels (SAFs), the EU is set to impose a blending mandate. All aircraft departing from EU airports will be required to refuel using green jet fuel. Sources with knowledge of the proposal indicate that there will be a 2% SAF requirement in 2025, moving to 5% in 2030, 20% in 2035, 32% in 2040, and 63% in 2050. In addition, a sub-mandate for e-fuels – such as hydrogen produced from electrolysis – is under discussion, potentially starting at 0.7% in 2030 and increasing to 25% by 2050. At present, SAFs, which are made from advanced biofuels and renewable electro-fuels, count for less than 1% of the aviation fuels used in the EU. This is partly due to SAFs being limited in supply and up to five times more expensive than kerosene. However, one big advantage of SAFs is that they can be mixed with kerosene without any changes to the aircraft engine – up to around 50%. This makes them an attractive means to decarbonise flights as low-carbon aviation technology comes to maturity.
13. FuelEU Maritime – green European maritime space: Similar to its aviation counterpart, FuelEU Maritime aims to decarbonise the shipping industry by ramping up the use and production of sustainable alternative fuels. Ship traffic currently accounts for some 11% of EU transport emissions, which is around 3-4% of total EU CO2 emissions. However, decarbonising shipping is no easy task. As alternative fuels generally have a lower energy content than oil, ships will need bigger tanks to travel the same distance. Unlike in aviation, the Commission is not expected to mandate a certain share of green fuels used in shipping, such as renewable hydrogen or ammonia. Rather it will set “greenhouse gas intensity targets” that will increase over time. This flexibility in fuelling options was strongly pushed for by industry during the legislative consultation period. Given the specific fuel needs of the shipping industry, the Commission is expected to back liquefied natural gas (LNG) in shipping’s fuel mix, on the grounds that LNG represents the cleanest fossil fuel available at scale. The legislation also includes the use of first-generation biofuels. The move has already been condemned by environmental groups, who say it will lock in fossil fuels and “unsustainable” biofuels for decades to come.