30.11.22 Saving the planet and safeguarding prosperity Author: Mirko Heinemann • Reading time: 7 min.

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Summary

In its Fit for 55 package, the European Union has set an ambitious climate target that covers all areas of the economy. 

In July 2021, the European Commission presented the European Green Deal, a plan intended to make Europe the first climate neutral continent by 2050, which was approved by all 27 member states. “Our goal is to save our planet while also safeguarding our prosperity,” explained Commission President Ursula von der Leyen at the presentation of the European Green Deal. 

The first package of measures is called Fit for 55. It includes a variety of regulations that are intended to reduce emissions of greenhouse gases in the EU to at least 55 percent of their 1990 levels by 2030. However, before the measures can be implemented in the individual member states, they must be approved by the European Parliament. 

Reform of emissions trading

The measures will affect every part of the economy. At the top of the list are plans to tighten up the rules and expand the scope of the existing EU emissions trading system. It currently applies to energy companies, energy-intensive industries and parts of the aviation sector. The idea behind it is that a limited number of certificates for CO2 emissions are issued every year and can be traded on the open market. The upper limits for the overall emissions of individual sectors of the economy are reduced on an annual basis, which means that the certificates continuously become more expensive and therefore the areas of industry that are affected are encouraged to introduce reduction measures. 

The amount of emissions rights will be reduced more sharply in the future. Instead of a 43 percent reduction by 2030 in comparison with 2005 levels, they will now gradually be lowered by 61 percent. In addition, the emissions trading system will be extended to road transport and buildings from 2026 onward to reduce the greenhouse gas emissions in these sectors even further. The existing ETS-1 will be accompanied by another emissions trading system known as ETS-2. As is the case with ETS-1, in ETS-2 CO2 certificates will be traded freely on the market, but at different prices. 

New EU Social Climate Fund

Part of the revenue from the CO2 certificates in ETS-2 will be used to finance a Social Climate Fund that will invest in more efficient buildings and low-emission mobility solutions. Support is also planned for vulnerable private households, micro-enterprises, and transport users. The fund will be available from 2027 and will gradually increase in size. According to the European Parliament, it could amount to 72 billion euros by 2032. 

In addition to the expansion of emissions trading to cover transport, the CO2 thresholds for cars and light commercial vehicles will be reduced by 55 percent by 2030. The current rules give an exemption to small-scale vehicle manufacturers with fewer than 10,000 new registrations per year. This exemption will be abolished. In addition, new cars registered from 2035 onward must produce zero emissions. The CO2 thresholds and the zero-emission requirement for cars from 2035 were adopted by the European Parliament in October 2022 as the first measures in the Fit for 55 program. 

At the same time, a Carbon Border Adjustment Mechanism will ensure that European industry is not put at a disadvantage, despite the rising costs of CO2. An import duty equivalent to the European CO2 price will gradually be introduced from 2026 onward and will apply to electricity and selected products in the cement, iron and steel, aluminum, and fertilizer sectors. The aim is to put European industry on an equal footing with competitors from countries where the CO2 regulations are less strict and to ensure that no greenhouse gas emissions are relocated from the EU to other countries. 

40 percent renewable energies by 2030

The majority of greenhouse gas emissions result from the production and consumption of energy. This is why a more environmentally friendly system is needed as soon as possible, with a higher proportion of renewable energies. The EU member states are therefore aiming to increase the current binding target for 2030 (32 percent renewable energies) to 40 or even 45 percent. Moreover, targeted support instruments will be introduced to improve the conditions for the roll-out of green hydrogen, in particular in industry and transport. 

The EU countries intend to use energy more efficiently in the future in order to reduce energy consumption and greenhouse gas emissions. In the Energy Efficiency Directive, the Commission has proposed a higher annual target for energy savings on an EU level. This will result in the existing EU-wide target being increased significantly. Compared with the expected increase in consumption by 2030, the primary and final energy consumption in the EU must fall by another nine percent. In total, the reduction target in comparison with 1990 levels is 36 percent for final energy consumption and 39 percent for primary energy consumption. 

The Effort Sharing Regulation will assign reduction targets to the member states for buildings, transport, agriculture, waste management, and small enterprises. The EU Commission has calculated these new targets on the basis of the per capita gross domestic product of each country and is also taking into account the individual starting points. For Germany, this means that the reduction target of 38 percent will be increased to 50 percent by 2030, but in the Czech Republic the same figure is only 28 percent. The Effort Sharing Regulation will come into effect in 2023. However, Germany has already announced an even more ambitious target. By 2030, it will reduce emissions of CO2 and other greenhouse gases by 65 percent, which is a higher figure than in the rest of the EU. 

Criticism from environmental organizations

Although the European Union has set itself a comparatively ambitious climate target in international terms with Fit for 55, the package of measures has been the subject of criticism from environmental organizations. The addition of the word “net” to the reduction targets in particular has aroused their anger. For example, Greenpeace explained that the actual reduction in climate gases amounted to only 52.8 percent. The reason for this is that the EU is including the positive effect of climate sinks in its calculations. According to Fit for 55, 310 million metric tons of CO2 will be stored in peat bogs, forests, and other natural areas. By 2030, at least three billion trees will be planted in Europe for this purpose, alongside other measures that will be taken. There are targets for each member state in this area as well. 

Greenpeace also highlighted another problem. The “renewable” energies listed by the EU include the burning of wood as biomass. “Cutting down mature trees in order to burn them is not renewable,” said Mark Breddy from Greenpeace. “Biomass can play a role, but only as long as it consists of genuine waste wood.” Sebastian Scholz from the German Nature and Biodiversity Conservation Union (NABU) is of the same opinion. In the light of the energy crisis and the move by many consumers to heating with wood, he highlights another important factor: “The years of drought led to many trees dying and therefore a plentiful supply of wood. Now the demand for wood has increased enormously. In a few years, we will probably have to start importing timber. This means that forests will be felled elsewhere to heat our woodburning stoves, which would be a disaster.” 

Many environmental activists believe that the EU has set its Fit for 55 target too low. In the run-up to the UN COP27 climate conference in Egypt in November 2022, Viviane Raddatz, Director of Climate and Energy Policy at WWF Germany, called for a higher reduction target as “a signal to poorer countries” that the EU takes climate action and the energy transition seriously: “To stay within the 1.5 degree threshold, the EU climate target needs to be increased to a 65 percent reduction in greenhouse gases compared with 1990 levels. This should be combined with climate financing and other support measures for the global south, in order to acknowledge Europe’s historical responsibility for the climate crisis.” 

Difficulties in implementation

The war in Ukraine, the resulting energy crisis, and the probable economic downturn are leading to unplanned spending in all the EU member states, which is putting the future political consensus over the Fit for 55 program under pressure. However, the European politicians are satisfied with the situation. “We have already seen a lot of progress on the Fit for 55 package,” said Commission Vice-President Frans Timmermans. In his view, the Russian invasion of Ukraine has not slowed down the implementation of the package as was initially feared. “Putin’s brutal war against Ukraine has made the energy transition even more important.” 

However, the first step toward implementing Fit for 55 in practice has already failed. In June 2022, the European Parliament voted against tightening up the rules on emissions trading and extending the system to transport. Now the Environment Committee of the European Parliament must try to find new positions that a majority of the members of the parliament can agree on. The votes on the Carbon Border Adjustment Mechanism and the Social Climate Fund were also cancelled because all of these proposals are linked. By contrast, the revised CO2 emissions standards for cars and light commercial vehicles and the zero-emission requirements for cars from 2035 were approved in October 2022.

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