The European Commission has unveiled its long-awaited 'Fit for 55' climate policy proposals that seek to transform economic life across the European Union in the most radical attempt in history by a major economy to bend the arc of its future carbon emissions and achieve net zero emissions by 2050.
The measures announced Wednesday by the executive arm of the 27-member bloc aim to slash its carbon emissions by 55% by 2030 compared to 1990 levels. They involve strengthening the cap-and-trade EU Emissions Trading System (ETS), introducing a levy on carbon-intensive imports and forcing companies in several industrial sectors that have proved difficult to decarbonize to pay for the full costs of all their emissions by the mid-2030s.
"Our current fossil fuel economy has reached its limits," said the president of the European Commission, Ursula von der Leyen, at a press conference held as the report was released.
"We know that we have to move on to a new model, one that is powered by innovation, one that has clean energy [and] is moving to a circular economy," Von der Leyen added. "Europe is now the very first continent to present a comprehensive architecture to meet our climate ambitions. We often talk about taking our own destiny in our hands. This package, this transition is the true meaning of that."
Carbon emissions across the European Union fell by 25% over 1990-2019, and if member states agree to enact the measures - a process likely to take upwards of two years - they will have less than a decade to cut emissions by a further 30 percentage points.
"It's going to be bloody hard," said Frans Timmermans, European Commission executive vice president of the Green New Deal, who led the development of the proposals announced Wednesday.
Noting extreme weather events and temperatures this year in North America, central Europe and Siberia, Timmermans added: "If we would renounce our obligation to help humanity live within planetary boundaries, we would fail not just ourselves but...our children and grandchildren who in my view, if we don't fix this, will be fighting wars over water and food."
"Humanity has a fighting chance," said Timmermans, if the EU succeeds in achieving its 2030 target, which is a legal obligation since the EU parliament passed its climate law last month, he noted. "The rest of the world is watching us, following us and really looking to us for the best examples to get us there."
A few of the key proposals in the package include:
A one-off cut in the number of allowances in the European Union ETS and a sharper downward trajectory in the supply of future allowances.
The EU ETS is widely regarded as the crowning achievement of EU climate policy-making and currently covers around 40% of overall EU emissions, forcing the producers of those emissions to buy European Union emissions allowances (EUAs). The 10,000 high-carbon emitting installations subject to the ETS have reduced their emissions by 42.8% over 2005-2019, but the Commission says that future supply of EUAs must fall at a faster rate if the EU is to cut greenhouse gas emissions by 55% over 1990-2030.
Under the current terms of the EU ETS, the supply of EUAs falls by 2.2% each year, encouraging both a ratcheting up of prices and incentivising ETS installations to reduce emissions. The European Commission now proposes that this annual fall in EUA supply, known as the linear reduction factor, will be 4.2%.
"The increased linear reduction factor is combined with a one-off downward adjustment of the cap so the new linear reduction factor has the same effect as if it would have applied from 2021," said the European Commission in the 581-page document released Wednesday. "This ensures that the overall quantity of allowances (' the cap') will decline at an increased annual pace resulting in an overall emission reduction of sectors under the EU ETS of 61% by 2030 compared to 2005."
Extending the EU ETS so that emissions from shipping are subject to EU allowances
The Commission proposes to include the maritime sector in the EU ETS in the wake of a study it released last year showing that the 11,600 ships with a gross tonnage of over 5,000 that conducted operations in the European Economic Area in 2018 emitted 138 million tons of carbon. That represented around 3.7% of overall emissions that year.
"We need this, because we just have to consider that one single cruise ship alone uses as much CO2 per day [as] 80,000 cars," noted Von der Leyen in the press conference Wednesday.
"The extension of the EU ETS to maritime transport applies in respect of emissions from intra-EU voyages, half of the emissions from extra-EU voyages and emissions occurring at berth in an EU port," the European Commission document says, meaning that shipping companies will be obligated to buy carbon credits for 50% of the emissions produced when traveling between EU and non-EU ports.
Creating a second ETS for road transportation and the heating of buildings
"Buildings today consume 40% of [EU] energy consumption and road transport emissions have continuously increased, not decreased. We must reverse this trend," said Von der Leyen in her statement.
"Emissions in these sectors have not decreased," said Timmermans. He said that applying the EU ETS to emissions from vehicles from internal combustion engines was necessary, even as the sales of electric vehicles rises. "Our CO2 standards for cars and vans work well. They bring cleaner and more zero emissions cars to the market. They only apply to new cars and will not enable us to make the change fast enough. Even after the moment when combustion engines will not be produced anymore, there will still be a long period of legacy."
Several prominent EU environmental campaign groups oppose the extension of the ETS to road transportation, arguing that the consequent reductions in carbon emissions will be modest.
They argue that the proposals risk sparking a backlash from lower-income consumers similar to the 'Gilets Jaunes' protests that sparked nationwide social unrest in France in 2018 due to a road fuels tax proposal. Applying the ETS to the sectors would be "politically suicidal", French MEP Pascal Canfin said last month.
"We need real incentives for change," said Timmermans. "We also need to generate the revenues to seriously invest in that change. This in a nutshell is why we propose applying emissions trading to transport and heating fuels. Fuels suppliers - so not individual drivers, homeowners or tenants - will have to buy allowances to put fuels on the market," said the European Commission executive vice president.
Road transportation currently contributes around 20% of overall EU greenhouse gas emissions, according to the Commission.
Introducing a Carbon Border Adjustment Mechanism to prevent 'carbon leakage'
One of the most eagerly-anticipated parts of Wednesday's proposals concern which sectors would be subject to a carbon border adjustment mechanism (CBAM).
This is a levy that the Commission wants to be applied to some carbon-intensive imports to the EU, which will reflect the cost of the carbon emitted when creating those products.
That would confront the main drawback of the European Union's ETS: it puts a price on carbon emitted by 10,000 carbon-producing installations across the EU, forcing the operators of those sites to buy emissions allowances, but it puts those European businesses at a competitive disadvantage compared to exporters outside of the bloc.
The EU Commission assessed the potential for applying the CBAM to dozens of economic sectors, including refined oil products. In the event, imports in the cement, iron and steel, aluminum, fertilizers and electricity sectors would be subject to a CBAM based on the price of the EU ETS starting in 2026, according to documents released by the Commission Wednesday.
Phasing out of free allowances in the EU ETS
Installations in several economic sectors that are hard to decarbonize receive free EU emissions allowances, which they can then sell on the secondary EU ETS market.
The Commission now proposes to phase out those allowances incrementally, with free allowances falling by 10 percentage points every year starting in 2026, the same year in which the CBAM will be introduced. The phase-out would affect the airline industry as well as the sectors covered by the CBAM.
--Reporting by Anthony Lane, alane@opisnet.com
--Editing by Rob Sheridan, rob.sheridan@ihsmarkit.com
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