EU’s “Fit for 55”

What is "Fit for 55"?

• At the end of June 2021, the European Union (EU) decided on the new European Climate Law that targets a 55% decrease in Greenhouse gas (GHG) emissions by 2030.
• With "Fit for 55", the European Commission presented its plan to achieve those reduction goals on 14 July 2021. The package was completed and implemented in October 2023.  
• The Fit for 55 packages are proposals that strengthen existing legislation and introduce new initiatives. It aims to ensure that EU policies align with the climate goals the European Council and the European Parliament agreed upon.
• The legislation package presents five new initiatives across various policy areas and economic sectors: climate, energy and fuels, transport, buildings, land use and forestry. The latest climate target and the Fit for 55 packages are critical components of the European Union's green growth strategy – the European Green Deal.

What are the initiatives under "Fit for 55"?

Expansion of Emission Trade System

• A vital element of the package is to build on the essential achievements of the EU Emission Trading System (ETS) by strengthening and applying it to new sectors.
• The ETS is a key EU instrument for reducing greenhouse gas emissions in the industrial and energy sectors. It currently covers around 40% of emissions in the EU.
• Currently, the sectors covered by the EU ETS are:
  • Energy-intensive industry sectors (e.g. Oil refineries, steel industry, cement, glass and paper production)
  • Power / Electricity and Heat Generation
  • Commercial aviation (flights within the European Economic Area)
• In April 2023, the EU Council adopted ETS reforms and new policies which expand the scope of the EU ETS to include:
  • Maritime transport emissions (obligations for shipping companies to surrender allowances will be introduced gradually: 40% for verified emissions from 2024, 70% from 2025 and 100% from 2026).
  • A separate new ETS for buildings, road transport and additional sectors (mainly small industry): The new system will apply to distributors that supply fuels to the buildings, road transport and additional sectors from 2027 onwards.
• These measures will include introducing taxes on shipping and aviation fuels, de facto phasing out gasoline and diesel cars by 2035, and new levies on building heating and insulation emissions.

Carbon Border Adjustment Mechanism (CBAM)

• Suppose international partners do not share a similar ambition to the EU. In that case, there is a risk of carbon leakage whereby production is transferred from the EU to other countries with lower ambitions for emission reduction.
• The European Commission proposed the Carbon Border Adjustment Mechanism (CBAM) to prevent this. The CBAM is an environmental policy designed to apply the exact carbon costs to imported products as would be incurred by installations operating in the EU.
• Under CBAM, companies must buy carbon credits at prices that mirror those paid by the European industry. As of 1 October 2023, CBAM is active and requires importers to take action for its first phase. This first reporting period for importers ends on 31 January 2024.

Social Climate Fund

• The Commission proposes a new Social Climate Fund to promote fairness and solidarity between and within the Member States while mitigating energy and mobility poverty risks.
• Between 2025 and 2032, the Social Climate Fund will contribute €72.2 billion in current prices to the EU budget from the new Emissions Trading System.
• It will enable the Member States to support vulnerable low—and middle-income households, transport users, and micro-enterprises affected by the impact of extending emission trading to buildings and transport.

What to expect next?

• The “Fit for 55” package was formally adopted in October 2023, and its implementation has begun in Member States.

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