Fit for 55 in a nutshell

In its Green Deal, the EU set a bold target to be the first climate-neutral continent in 2050. Although time flies, the year 2050 still seems far away, which makes it difficult to envision what we, as a society, have to undertake today or tomorrow (or should have undertaken yesterday?). For this reason, the EU has set an intermediate target for 2030 of reducing greenhouse gas (GHG) emissions by at least 55% compared to 1990 levels. The in June 2021 adopted European Climate Law enshrined these targets into binding EU Law, which means that GHG emissions must be reduced significantly in the coming years. In order to reach the 2030 target, the European Commission adopted the so-called ‘Fit for 55’ package. The package has one simple goal: making the EU’s climate, energy, land use, transport, and taxation policies fit for reducing net GHG emissions.

The role of the Fit for 55 package

There is no doubt that the current EU policy framework is insufficient to achieve a 55% reduction by 2030, let alone reach climate neutrality by 2050. Without any policy changes, the European Commission predicts a mere 60% reduction by 2050. A whole lot less than needed. Adopted to align the EU’s energy and climate policies with its ambitious emission targets, the Fit for 55 package thus plays a pivotal role in reaching these targets. It consists of 13 legislative proposals that have consequences for a broad range of legislation. Although it will therefore impact business operations in a wide array of industries, it mainly affects some of the most emitting sectors, such as the building, agriculture, aviation, energy, maritime, and road transport sector.

Proposed adaptions to reach the reduction target

The majority of the Commission’s proposals aim to adapt key EU climate, energy, and transport legislation to align it with the 2030 and 2050 ambitions. Among others, the Commission has proposed an extension of the scope of the EU Emissions Trading System (ETS), an increase of national emissions targets under the Effort Sharing Regulation, a review of renewable energy and energy efficiency targets, a new Energy Taxation Directive, and more stringent CO2 emission standards for new cars and vans. A summary of all proposed adaptations can be found in Table 1 below.

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In addition to adaptations of existing legislation, the Commission has also proposed new legislative initiatives with the Fit for 55 package. It proposed, for example, an initiative to combat carbon leakage by means of a carbon border adjustment mechanism (CBAM). Given that the EU cannot tackle climate change on its own, it is crucial that its climate objectives are not undermined by EU-based companies moving carbon-intensive production abroad to take advantage of less ambitious standards. Therefore, the CBAM aims to equalize the price of carbon between domestic products and imports while ensuring compatibility with the rules of the World Trade Organization (WTO), encouraging foreign producers and EU importers to reduce their carbon emissions. The CBAM proposals also aims to prevent that EU products could be replaced by more carbon-intensive imports.

Besides the CBAM, the EU has also proposed initiatives to stimulate the fuel transition in the maritime and aviation sectors, the FuelEU Maritime and ReFuelEU Aviation Initiative, respectively. In addition to the ReFuelEU Aviation Initiative, which focuses on accelerating the use of sustainable fuels, two other proposals of the Fit for 55 package are specifically relevant for the aviation industry: the revision of the EU ETS, which aims to reduce the overall emission cap and phase out free emission allowances for aviation, and the revision of the Energy Taxation Directive, which will remove outdated tax exemptions and incentives for the use of fossil fuels in EU aviation transport.

The Commission is also proposing a social climate fund, aimed at mitigating any negative financial impacts that will arise from extending the EU ETS to the building and road transport sector on vulnerable households, micro-businesses, and transport users. The latter initiative fits well into the EU’s goal of ensuring that the climate transition will be a just and socially fair transition that leaves nobody behind. It is also especially relevant considering the current developments regarding high energy prices, causing an increase in energy poverty in Europe, with currently between 50 to 125 million people unable to afford proper indoor thermal comfort. An overview of the proposals for new legislative initiatives can be found in Table 2 below.

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Making impact with Fit for 55

Although currently still a set of proposals, the Fit for 55 package will undoubtedly impact organizations across many sectors from ‘boots to boardroom’. It requires not only technical attention regarding energy reduction measures but also strategic direction when it comes down to investments in low carbon solutions.

To conclude, it should be noted that before the 13 proposals are truly ‘adopted’, the Council of the EU and the European Parliament must reach an agreement under the ordinary legislative procedure, which is a rather extensive process. The package, which was submitted to the Council in July 2021, is currently being discussed in the appropriate committees within the European Parliament. There is also a detailed timeline of the European Green Deal and Fit for 55.

Authors
Zena Klaps

Zena Klaps

Consultant, Sustainalize

Lot Elshuis

Lot Elshuis

Consultant, Sustainalize

Published on: 23 May 2022

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