Fit for 55 Package Proposals

In December 2019, the European Union (EU) implemented the European Green Deal, which translates the targets of cutting emissions by at least 55%, compared with 1990 levels, by 2030 and achieving climate neutrality by 2050. The EU is working on revising its climate, energy and transport-related legislation to align current laws with the 2030 and 2050 ambitions. The proposed legislative changes are contained within the “Fit for 55” package – a set of 13 legislative proposals that have consequences for a broad range of legislation.

Committee reports on eight of the 13 proposals were recently presented to the entire European Parliament, and voting on these reports took place on 8 June 2022. The first proposed report voted on was in respect of the revision of the Emissions Trading System (ETS) prepared by the EU’s Committee on Environment, Public Health and Food Safety (ENVI). While the EU Commission’s proposals included phasing out free allowances by 2035 and creating a new ETS covering road transport and building, the ENVI report proposed accelerating the phasing out of free allowances to 2030 and including exemptions for private buildings and private transport until 2029 in the new ETS.

In a move that surprised carbon market analysts, the report on the revision of the ETS reform was rejected by a 53% majority vote. Paradoxically, those who favor the reform accelerated decarbonization measures argued that the Committees’ Report did not go far enough to strengthen the EU’s proposals, whilst those most opposed to any strengthening of the ETS - citing competitiveness, affordability and regression concerns - voted together.

In a show of commitment to decarbonization efforts, MEPs voted to refer the text back to the EU’s Committee on Environment, Public Health and Food Safety (ENVI) for revision rather than voting for an outright rejection of the reformed ETS. This decision triggered a domino effect, causing lawmakers to agree on sending the reports on the Social Climate Fund and Carbon Border Adjustment Mechanism proposals back to ENVI as well, as they considered the three files too interlinked to be voted upon separately.

Although approvals of crucial climate change measures have been delayed, ENVI has given themselves 15 days to reach a consensus on a compromised solution so that Parliamentary voting can take place during the 22 - 23 June 2022 plenary session. Assuming agreement can be reached, the European Parliament will be ready to start negotiations with Council representing member states and EU Commission. However, legislation could be delayed beyond the envisaged 1 January 2023 start date if a consensus cannot be reached.

The following five proposals with amendments that were placed before the EU Parliament were adopted and will now be taken to the EU Member States for further negotiation:

1. Revision of EU ETS for aviation: Increased ambition for emissions reduction in the international aviation sector through the following measures:
   • Enlarged scope to include all flights departing from European Economic Area (EEA) airports, and not just flights within the EEA
   • Phase-out of free allocations by 2025
   • Support of innovation in the aviation sector through the Climate Investment Fund
2. Notification under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA): EU member states should calculate and inform airlines of their offsetting in respect of 2021 emissions by 30 November 2022.
3. Binding annual greenhouse gas emission reductions by the Member States (Effort Sharing Regulation): Increased national reduction targets to achieve an EU-wide emissions reduction of 40% by 2030 in the Effort Sharing Regulation sectors.
4. Land use, land-use change and forestry (LULUCF): Expanded scope covering the entire land sector from 2031, with an EU target of achieving climate neutrality in the land sector by 2035.
5. Revised CO2 emission standards for new passenger cars and light commercial vehicles: Zero-emission road mobility by 2035.

It is crucial to bear in mind that the revised ETS has not been struck down – the European Parliament has requested amendments to the text, which will set out its position for negotiation with the EU Commission and member states. Hopefully, this will be agreed upon during the 22 – 23 June plenary session. While these negotiations are expected to be intense, they are no indication that decarbonization efforts will not continue. At the heart of the debate is the need to balance strengthening decarbonization measures to achieve net-zero by 2050 and supporting individuals and industry to ensure a just transition.

We continue to encourage companies to begin assessing the carbon footprint of their operations and value chains in preparation for the significant changes that we are seeing as global climate actions continue to intensify.