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EU outlines ‘make or break’ package of climate measures

Author: ICAEW Insights

Published: 15 Jul 2021

The European Commission has adopted a sweeping set of legislative proposals to deliver climate neutrality by 2050. The package paves the way for a transformation of the EU’s climate, energy, land use, transport and taxation policies over the next decade.

The comprehensive package on Delivering the European Green Deal presented by the European Commission includes a dozen draft laws, ensuring that the EU is ‘fit for 55’ - able to deliver a 55% reduction of net greenhouse gas emissions by 2030, compared to 1990 levels. Accompanying measures aim to ensure that the green transition is socially fair. As underlined by Frans Timmermans, the Commission’s Executive Vice-President for the Green Deal, the next decade will be ‘make-or-break in the fight against the climate and biodiversity crises: it will require considerable effort in every sector and every member state.’ 

The key measures foreseen include:

Extending carbon pricing to more sectors – and imports

Central to the package is the proposed application of the EU Emissions Trading System (ETS) to new economic sectors, while lowering the overall emission cap further and increasing the annual rate of reduction. Free emission allowances for aviation should be phased out, in alignment with the global Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).

As widely anticipated, the Commission is also proposing carbon pricing for the maritime sectors. A separate emissions trading scheme is proposed to address the lack of carbon pricing for road transport and buildings. The Commission wants member states to spend the entirety of ETS revenues on climate and energy-related projects – with part of the revenues from the new system for road transport and buildings to be reserved for measures to address the social impact on vulnerable households, micro-enterprises and transport users.

Also expected, are proposals for a new carbon border adjustment mechanism to prevent ‘carbon-leakage’. The mechanism seeks to put a carbon price on imports of targeted products, including steel, cement, aluminium and fertiliser, to limit the relocation of carbon-intensive production outside of the EU.

Taxing energy sources in line with climate goals

A key plank of the Commission’s package is the transformation of the EU tax system for energy products. The Commission wants to see minimum tax rates for heating and transport aligned with climate objectives, while ensuring actions to mitigate the social impact. Existing exemptions and reduced rates that encourage fossil fuel use – particularly in the aviation and maritime sectors – should be eliminated. 

Cleaner new cars and cleaner transport fuels

In addition to the extension of carbon pricing to the transport sector, the Commission is proposing to cut 90% of emissions from transport by 2050. To do this, CO2 emissions from cars should be reduced by 55% by 2030 and all new cars should be zero-emission by 2035. Similar targets are proposed for vans. Targets are also tabled for alternative fuels infrastructure, including electric recharging and hydrogen refuelling.

Sustainable aviation fuels will be promoted, including a proposed obligation for planes to take on sustainable blended fuels for all departures from EU airports. Major airports will also be obliged to provide electricity supply to planes at all gates, under the Commission’s plans.

Targets are also proposed for shipping to encourage the use of sustainable fuels for all ships arriving or departing from EU ports – with accompanying deterrent financial penalties. Major ports will be given targets to serve vessels with onshore power to reduce the use of polluting fuels and limit damage to local air quality.

Greater focus on renewable energy and energy savings

With energy production and use accounting for 75% of EU emissions, the Commission proposes to increase the binding target of renewable energy in the EU’s energy mix to 40% by the end of the decade. Indicative national contributions are set, showing how each member state should contribute to achieving the target. Energy efficiency targets are increased to 36% by 2030. 

Key to achieving these targets, will also be action to renovate the EU’s housing and building stock to reduce energy consumption. The Commission wants all member states to renovate a minimum of 3% of the total floor area of all public buildings each year, while setting a benchmark of 49 %of renewables in buildings by 2030. Member states would also be required to increase the use of renewable energy in heating and cooling by 1.1% each year until 2030.

Support for vulnerable citizens during the transition

A new Social Climate Fund is proposed to support those EU citizens most affected or at risk of energy or mobility poverty, to ensure a fair transition. The Fund should provide €72.2bn over a seven-year period to finance renovation of buildings, access to low emission mobility and, potentially, income support.

Restoring nature and enabling biodiversity

Measures to restore the EU’s forests, soils, wetlands and peatlands are set out to help increase the continent’s natural carbon sink while helping to mitigate the impact of climate change. An overall EU target for carbon removals by natural sinks is proposed, equivalent to 310m tons of CO2 emissions by 2030. By 2035, climate neutrality should be achieved in the land use, forestry and agricultural sectors. As previously set out in the EU’s biodiversity strategy, the EU wants to see 3bn trees planted by the end of the decade, alongside sustainable use of bioenergy which ensures the protection of areas of high biodiversity value. 

ICAEW’s response

Responding to the package, Michael Izza, ICAEW CEO, said “The measures set out by the European Commission are the latest in a series of important announcements, including the UK’s Transport Decarbonisation Plan, the G7 commitment to mandatory climate change reporting and the G20 recognition of the importance of carbon pricing. Taken together, these show that we are now moving on from talking about ambitions to mapping out the pathway to comprehensive change. Implementation needs to follow swiftly if we are to meet the goals of the Paris Agreement.”

Richard Spencer, ICAEW Director for Technical Thought Leadership, also noted “The Commission is showing real leadership with the adoption of this potentially transformative package. This is what we need to see – and we need similar momentum across the globe. Carbon pricing is central to delivering carbon neutrality and we welcome both the proposed changes to the EU ETS and the growing international recognition, as also expressed recently by the G20, that such mechanisms will play a key role in promoting decarbonisation.”

Susanna Di Feliciantonio, ICAEW Head of European Affairs, added “The publication of the package now kicks off a charged scrutiny and lobbying period. Finding consensus will not be easy but it is important that the ambitious spirit of the Commission’s proposed measures make it onto the statute books quickly if real change is to be implemented in the next ten, critical years.” 

Find out more: 

Follow this link to the package on Delivering the European Green Deal presented by the European Commission.

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