The European Union’s “Green Deal” provides a masterplan for a just transition to a sustainable, climate-friendly future, aiming to make Europe the first climate-neutral continent by 2050. Presented in December 2019, the Green Deal anticipates the coming three decades, with the aim of modernizing Europe sustainably and fairly. More than a buzzword, the Green Deal is the set of principles and targets in the background of all major EU initiatives in recent past and for the short- and medium-term future. In addition, these principles and targets are part of the European Climate Law adopted in July 2021.

Legally binding goals

The EU Institutions and the Member States are bound to take the necessary measures at EU and national level to meet the target of net zero greenhouse gas emissions by 2050. The Climate Law includes measures to keep track of progress and adjust our actions accordingly, based on existing systems such as the governance process for Member States’ national energy and climate plans, regular reports by the European Environment Agency, and the latest scientific evidence on climate change and its impacts.

• new target for 2030 of reducing net greenhouse gas emissions by at least 55% compared to levels in 1990
• a process for setting a 2040 climate target
• a commitment to negative emissions after 2050

In order to align current EU laws with the 2030 and 2050 ambitions, the so-called “Fit for 55 package” was launched in July 2021. The package is comprised of thirteen proposals; eight of them are revisions to existing laws and five are new proposals – all related to energy, forests or cutting CO2 emissions.

Targets in the “Fit for 55 package”

75% of total greenhouse gas emissions in the EU comes from the energy sector, thus the Commission is proposing to revise seven interlinked pieces of legislation, which are central to moving towards a climate-neutral energy system.

The EU Emission Trading Scheme will be changed to lower the overall emissions cap per economic sector, phase out free emission allowances for aviation, and include shipping for the first time. Also, an amendment of the regulation setting CO2 emission standards for cars and vans is prepared to require average emissions of new cars to come down by 55% from 2021 to 2030 and net-zero by 2035.

The Renewable Energy Directive will be amended for setting a new 2030 target of 40% (up from 32%) energy use from renewables by 2030 and strengthening bioenergy sustainability criteria. An amendment is also prepared to the Energy Efficiency Directive setting a more ambitious binding annual target at EU level, raised from 32.5% to 36%.

Acknowledging that taxation can help reach climate and environment objectives by encouraging a switch to cleaner energy and greener industry, the Energy Taxation Directive will be updated to align taxation of energy products with climate policies and promote clean technologies. Key measures are included under the review:

• Fuels will start being taxed according to their energy content and environmental performance rather than their volume
• Fuels that have the most negative impact on the environment will be subject to higher minimum rates
• Exemptions for certain products and home heating will be phased out, so that fossil fuels can no longer be taxed below minimum rates
• Fossil fuels used as fuel for intra-EU air transport, maritime transport and fishing should no longer be fully exempt from energy taxation in the EU
• A revision to the Alternative Fuels Infrastructure Directive will require aircraft and ships have access to clean energy supply in major ports and airports.

Some new initiatives

Among the new initiatives, there is the Social Climate Fund, meant to help citizens finance investment in energy efficiency, clean mobility and renewable energy, and financed with 7,2 billion euros over 7 years. In addition to homes, public buildings must also be renovated to use more renewable energy, and to be more energy efficient. The Commission proposes to:

• require Member States to renovate at least 3% of the total floor area of all public buildings annually
• set a benchmark of 49% of renewables in buildings by 2030
• require Member States to increase the use of renewable energy in heating and cooling by +1.1 percentage points each year, until 2030

Also, the ReFuelEU Aviation Initiative and the FuelEU Maritime Initiative will oblige fuel suppliers to blend more sustainable aviation fuels in jet fuel, including e-fuels, respectively, will stimulate uptake of sustainable maritime fuels and zero-emission technologies.

The Carbon Border Adjustment Mechanism (CBAM) will place a carbon price on imports and prevent EU companies being undercut by energy-intensive competitors, the so called “carbon leakage”, which occurs when industries transfer polluting production to other countries with less stringent climate policies, or when EU products are replaced by more carbon-intensive imports.

The EU works for a new, green, mechanism for imports of goods from outside the EU: a system that puts a fair price on the carbon emitted during production, and that encourages cleaner industry in non-EU countries. In its first phase, the CBAM will focus on goods most at risk of carbon leakage: cement, iron & steel, aluminum, fertilizer, electricity. The CBAM will first be introduced in a transitional phase until the end of 2025.

Once fully in place as of 2026, it will work as follows. EU importers of goods covered by the CBAM register with national authorities where they can also buy CBAM certificates. The price of the certificates will be calculated depending on the weekly average auction price of EU ETS allowances expressed in euros per ton of CO2 emitted. The EU importer must declare by 31 May each year the quantity of goods and the embedded emissions in those goods imported into the EU in the preceding year. At the same time, the importer surrenders the number of CBAM certificates that corresponds to the amount of greenhouse gas emissions embedded in the products. If importers can prove, based on verified information from third country producers, that a carbon price has already been paid during the production of the imported goods, the corresponding amount can be deducted from their final bill.

Further proposals and amendments are expected at the end of 2021, including a revision of the Energy Performance of Buildings Directive, and new Climate, Energy and Environmental State Aid Guidelines.

Revised Effort Sharing Regulation

The Effort Sharing Regulation (ESR), as adopted in 2018, sets national targets for emission reductions from road transport, heating of buildings, agriculture, small industrial installations and waste management. These sectors – which were not included until now in the EU Emissions Trading System (EU ETS) – currently generate about 60% of EU greenhouse gas emissions. To meet the EU’s overall emission reductions target by 2030, the Commission is now proposing to reduce emissions under the ESR by at least 40%, compared to 2005 levels. This is an increase of 11 percentage points compared to the existing target of a 29% emission reduction.

The ESR ensures that all Member States contribute in a fair and just manner to EU climate action. It distributes the national efforts by ensuring that Member States with higher GDP per capita have higher emission reduction targets. Annual emissions allocations are set for each Member State, and these are progressively reduced until 2030.

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This article first appeared in the printed edition of Energynomics Magazine, issued in December 2021.

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