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Fit for 55 – Take 5!

  • Ireland
  • ESG
  • Energy and infrastructure - Clean energy
  • ESG

06-09-2021

This Summer, the European Commission (the “Commission”) launched its “Fit for 55” package (“Fit for 55”), a series of legislative and policy initiatives designed to reduce EU greenhouse gas emissions by 55% by 2030, as compared to 1990 levels. Fit for 55 proposes amendments to existing legislation and introduces new initiatives in sectors such as transport, climate, energy and buildings as the EU aims to transition to a carbon neutral economy by 2050.

We look at five key aspects of the Fit for 55 package that you need to know about in the table below.

     

     1.     

 

Expansion and Strengthening of the EU Emissions Trading Scheme

Fit for 55 proposes an amending Directive to lower the EU Emissions Trading Scheme (ETS) caps across a range of sectors. The ETS is a “cap and trade” system that caps the amount of emissions released by companies and installations. The amending Directive proposes to reduce the overall ETS cap through a one-time decrease of 117 million allowances and thereafter by 4.2% per annum, nearly double the current rate of 2.2%.  

Further, Fit for 55 proposes to phase out free emissions allowances for the aviation industry over the coming years and extend CORSIA1. from flights within the EEA to international flights and also proposes to extend the ETS to emissions from maritime transport and create a new ETS between road transport and buildings and fuel suppliers.

     

     2.     

 

Carbon Border Adjustment Mechanism

 

Fit for 55 proposes to introduce a Carbon Border Adjustment Mechanism (“CBAM”), which will act as a levy on carbon intensive products and will initially apply to imports of cement, iron, steel, aluminium, fertilisers and electricity. CBAM will operate in a similar fashion to the ETS with importers being required to purchase carbon certificates to cover the emissions produced. The key objective of CBAM is to tackle the issue of ‘carbon leakage’, whereby industries move abroad and shift the production of emissions outside the EU. A full analysis of CBAM can be found here.

     

     3.     

 

Increase in Targets 

 

Fit for 55 proposes to amend the current Effort Sharing Regulation (2018/842) by increasing the EU wide target from a 29% reduction to a 40% reduction in emissions by 2030, compared to 2005 levels. Fit for 55 also proposes an amendment to the Renewable Energy Directive to increase the levels of energy consumed from renewables to 40% by 2030.

Other notable increases include an increase in the target to reduce energy consumption by 2030 to 39% and 36% for primary and final energy consumption (from an existing target of 32%), and a 15% increase in the current target under the Land Use, Land-Use Change and Forestry (LULUCF) Regulation to raise the net greenhouse gas removals in the LULUCF sector to 310 million tons of CO2 equivalent by 2030.

     

     4.    

 

Additional rules for Transport Sector

 

Fit for 55 proposes additional rules for the transport sector with a proposed amendment to the Regulation on emission standards for private and light commercial vehicles. If the proposed amendment is adopted, the average annual emissions of new vehicles will need to be 55% lower from 2030 onwards and 100% lower from 2035, as compared to 2021 levels. 

Further, Member States will be required to improve charging capacity on major highways for electric charging and hydrogen refuelling in order to reach these targets. The package also proposes to reduce emissions in shipping and aviation with the FuelEU Maritime Initiative and ReFuelEU Aviation Initiative.

     

     5.     

 

Social Climate Fund

 

To ensure a socially fair transition the EU has proposed a wide range of support measures to fund the changes necessary to reach the targets, including a “Social Climate Fund” to help fund EU citizens finance investments in energy efficiency, new heating and cooling systems, and cleaner mobility. The Fund is to be financed by the European budget and aims to provide €72.2 billion of funding to Member States, for the period 2025-2032.

Conclusion

While Fit for 55 consists of proposals and will be subject to European Council and Parliament negotiation, the Commission has sent a strong message to the European Union on its climate position. The size and scale of the plans are impressive and will alter many aspects of the economy in the years ahead. The Commission’s proposals follow on from the Irish Government’s enactment of the Climate Action and Low Carbon Development (Amendment) Act 2021, which will bind future governments to reduce emissions through carbon budgets, sectoral emissions ceilings and adaptation plans. A clear shift in public policy can now be seen at the highest levels.

For more information, please contact:

Mark Varian, Partner and Head of Energy - MarkVarian@eversheds-sutherland.ie

Jennifer Burke, Senior Associate, Energy - JenniferBurke@eversheds-sutherland.ie

Phelim McGeady, Associate, Energy - PhelimMcGeady@eversheds-sutherland.ie

The authors would like to thank Daire O’Herlihy for his contribution to this article.


1. The Carbon Offsetting and Reduction Scheme for International Aviation.