What is “Fit for 55”?
- At the end of June 2021, the European Union decided on the new European Climate Law that targets a 55% decrease in Greenhouse Gas emissions by 2030.
- With “Fit for 55”, the European Commission presented its plan to achieve those reduction goals on 14 July 2021.
- The legislation package strengthens eight existing pieces of legislation. It presents five new initiatives across a range of policy areas and economic sectors: climate, energy and fuels, transport, buildings, land use and forestry.
- The new climate target and the Fit for 55 packages are critical components of the European Union’s green growth strategy – the European Green Deal.
What is most relevant for companies?
Expansion of Emission Trade System
- A vital element of the package is to build on the important 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 for the industrial and energy sectors. It currently covers around 40% of emissions in the EU.
- To strengthen the role of carbon pricing in the transport sector, the Commission proposes to gradually extend the current EU ETS to the maritime sector between 2023 and 2025.
- Greater efforts will also be required from aviation operators to reduce their emissions, which is why the Commission proposes to phase out the free emissions allowances this sector currently receives.
- Furthermore, the Commission proposes a separate emissions trade system for road transport and buildings from 2026. That is because fossil fuels used by road transport and buildings are substantial sources of emissions and pollution.
- All these measures will include introducing taxes on shipping and aviation fuels, a de-facto phasing out gasoline and diesel cars by 2035, and new levies on building heating and insulation emissions.
Carbon Border Adjustment Mechanism (CBAM)
- If international partners do not share a similar ambition to the EU, there is a risk of carbon leakage whereby production is transferred from the EU to other countries with lower ambitions for emission reduction.
- To prevent that, the European Commission proposes a Carbon Border Adjustment Mechanism that puts a price on imports of a limited number of high-polluting goods based on their carbon content.
- Under CBAM, companies will have to buy carbon credits that mirror the prices paid by the European industry.
Social Climate Fund
- The Commission proposes a new Social Climate Fund that shall promote fairness and solidarity between and within the Member States while mitigating the risk of energy and mobility poverty.
- The Social Climate Fund will provide €72.2 billion in current prices between 2025 and 2032 in 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 the extension of emission trading to building and transports.
What to expect next?
- None of the proposed measurements are set in stone yet. They face about two years of negotiations between the European Parliament and Commission member governments.
- Most measurements will only apply (if agreed upon within the EU) from 2025 to 2026.
The clock is ticking! Start reporting on climate risk and sustainability by understanding the EU "Fit for 55". Contact our policy experts to learn more about solutions adapted to your sustainability reporting needs.