'Fit for 55': The EU Commission's plan to reach the EU's climate goals

The Commission's 'fit for 55' package consists of 12 measures, four new directives and regulations and eight proposals for amendments and revisions to existing directives and regulations. These are aimed at reaching the legally binding climate objectives set out in the European Climate Law adopted on 30 June.

To become EU law the proposals must be adopted by the EU parliament and the Council of the EU. Considering the highly controversial nature of at least some of the proposals and the expected social and economic impact, we can expect fierce negotiations stretching until 2023. So while the package gives an indication of the expected regulatory changes, it remains to be seen what the final legal framework will look like.

According to the EU Commission the proposed legislative package is aimed at delivering the "transformational change needed across our economy, society and industry" and provides for "the most comprehensive set of proposals the Commission has ever presented on climate and energy". The package includes 12 proposals:

• revision of the EU Emissions Trading System (ETS)
• Carbon Border Adjustment Mechanism (CABM)
• revision of the Energy Tax Directive
• Effort Sharing Regulation
• revision of the Regulation on the inclusion of greenhouse gas emissions and removals from land use, land use change and forestry (LULUCF)
• amendment to the Renewable Energy Directive (RED)
• amendment of the Energy Efficiency Directive (EED)
• ReFuelEU Aviation
• FuelEU Maritime
• revision of the Directive on the deployment of alternative fuels infrastructure
• amendment of the Regulation setting CO2 emission standards for cars and vans
• Climate Action Social Facility

Pricing

At the heart of the measures is the strengthening and expansion of the EU's emission trading system (EU ETS). The expansion is to be achieved by the inclusion of fuel suppliers in the road transport und building sectors into the EU ETS from 2026 onwards. So far, the EU ETS covers businesses from the energy sector, the steel and chemicals manufacturing industries and the aviation industry. EU businesses from these sectors have to pay for emissions above the amount of emission allowances allocated to them free of charge. In addition, the EU Commission proposes to progressively lower the annual emissions cap in the sectors covered by the EU ETS in order to make certificates scarcer in the market and thereby to increase emission certificate prices. Emissions trading should be gradually extended to shipping and the current contingent of free emission allowances for aviation shall also be gradually phased out.

To address the risk of carbon leakage, the proposed legislative package also includes a draft regulation introducing a Carbon Border Adjustment Mechanism: after a transition period, which will first see the introduction of a reporting system, importers from the sectors cement, iron and steel, aluminium, fertilisers and electricity will be subject to a carbon price levied from 2026 onwards on certain imported goods from countries outside the EU that are considered to have less robust carbon pricing arrangements. This is intended to promote global climate protection and ensure a level playing field between the EU and elsewhere. The new system would cover imported goods from all sectors that are subject to the EU ETS and is designed to be compliant with World Trade Organisation (WTO) rules and other international obligations of the EU - in particular by a phasing-out of free EU ETS allowances.

The proposed pricing measures also include an update to the Energy Taxation Directive setting out minimum taxes for certain energy products and electricity in order to ensure the proper functioning of the internal market and to prevent competitive distortions.

The EU Commission estimates that its pricing proposals will have far reaching social impacts and, thus, proposes that a certain part of the newly generated revenues is to be used to relieve socially vulnerable households and micro-enterprises.

Targets

In relation to climate targets, the EU Commission wants to amend the Effort Sharing Regulation. The Commission's proposal sets stricter emission reduction targets for member states in the buildings, transport, agriculture, waste management and small industry sectors. The principle for setting the respective efforts remains the same as in the current Effort Sharing Regulation as the proposed amendment bases the level of reduction targets on the gross domestic product of the individual member states.

The EU Commission also wants to amend the Renewable Energy Directive. The directive defines which energy sources are classified as renewable and sets targets for the EU energy mix. As part of the suggested amendments, the EU Commission proposes to increase the binding overall renewables target from 32% to 40% by 2030.

A revision of the Energy Efficiency Directive proposes to set binding annual target for reducing energy consumption at EU level. The proposal almost doubles the annual energy savings obligation of the member states which should result in a 9% reduction of energy consumption by 2030. The revision of the Energy Performance of Buildings Directive, planned for later this year, will identify specific measures to accelerate the rate of buildings renovations, contributing to energy efficiency, renewable goals and greenhouse gas emissions reductions in the building sector.

The updated Land Use, Land Use Change and Forestry Regulation proposes to set an EU target of net greenhouse gas removals of 310 million tons of CO2 equivalent by 2030, to avoid unsustainable forest harvesting and to protect areas of high-biodiversity value.

Rules

The 'fit for 55' package also includes additional rules for the transport sector. The EU Commission proposes amending the Regulation on emission standards for passenger cars and light commercial vehicles: the regulation limits the emissions of car manufacturers' new vehicle fleets and includes a mechanism to incentivise the uptake of zero- and low-emission vehicles. If the EU Commission's proposal is adopted, the average annual emissions of new vehicles must be 55% lower from 2030 onwards and 100% lower from 2035 compared to the targets in 2021 resulting in an indirect ban of combustion engines for new cars from 2035 onwards.

To facilitate the transition to electric and hydrogen vehicles, the EU Commission has also revised the directive on the deployment of alternative fuels infrastructure. The proposal obliges member states to develop their charging infrastructure for electric and hydrogen vehicles – in particular this would include that along major roads, e-charging stations would have to be provided every 60km and hydrogen refuelling stations every 150km.

The EU Commission also wants to reduce emissions in shipping and aviation with the ReFuelEUAviation and FuelEUMaritime initiatives, which are designed to ensure that aircraft and ships use more sustainable fuels.