Overview

The European Commission has published the much-anticipated "Fit for 55" package, with a number of legislative and policy proposals to enable the EU to meet its new 2030 target - i.e. a package that is "fit for" delivering a 55% GHG reduction by 2030.

This a significant moment for the European Green Deal and the EU's efforts to lead on global climate diplomacy. What is being proposed will involve very significant changes for all sectors - in particular the energy, transport and buildings sectors.

Read our post for a quick guide on what the package includes.

Implications for clients

Now that the “Fit for 55” package has been released, what are the key implications for corporates and the financial sector – both those based in the EU and those wishing to do business in the EU? What the Commission is proposing is nothing short of transformational change on a scale not seen before for most sectors of the economy – with a particular emphasis on the energy, transport and buildings sectors.

In this post we take a look at those implications and how the package fits with the EU’s sustainable finance agenda.

Carbon Border Adjustment Mechanism (CBAM)

As part of the “Fit for 55” package, the European Commission have set out a proposal for a Carbon Border Adjustment Mechanism to protect the EU’s ambitious decarbonisation initiatives by preventing “carbon leakage” – the risk that companies based in the EU could move carbon-intensive production abroad to take advantage of less stringent climate standards or that EU products could be replaced by more carbon-intensive imports.

In this post, we take a detailed look at the proposal and what it means in practice.

EU Emissions Trading System (EU ETS)

The EU ETS was set up in 2005 and was the world's first international emissions trading system. The EU ETS is now into its fourth trading phase (2021-2030). It is essentially a market-based mechanism for putting a price on carbon. It has also served as inspiration for the launch of emissions trading schemes in other countries and regions – including most recently in the UK and China.

In this post, we take a look at the European Commission’s proposals for change of the EU ETS as part of the wider Fit for 55 package.

Scaling up ambitions in the Renewable Energy Directive (RED II)

The Commission submitted a proposal to further amend the Renewable Energy Directive (RED II) as part of its Fit for 55 package. The goal of a climate-neutral EU in 2050, as now codified in the EU climate law, can only be achieved if the expansion of renewable energies in the EU is further accelerated. Proposals for RED II cover renewables targets, targets for the industrial sector, the use of green hydrogen, transparency obligations, renewable PPAs, transportation and credit systems. 

For more information on the details in the proposal, read our post. 

Revision of the Energy Taxation Directive

A proposal to significantly revise the Energy Taxation Directive has been published as part of the Fit for 55 package. Taxation initiatives at both EU and Member State level are an integral part of the EU’s plan, as they can help encourage more environmentally friendly and sustainable choices. The Energy Taxation Directive, which is the common framework for energy taxation in the EU, will play a central role in guiding these initiatives. Proposals include establishing a clear link between the minimum tax rates for fuels and their energy content or environmental impact and broadening the taxable base by including energy products or uses that were previously out of scope.

Read our post to find out more about the Energy Taxation Directive proposal.

Energy Efficiency First

The Energy Efficiency Directive (EED II) was introduced as part of the Clean Energy Package in 2019. In order to pave the Union's way to climate neutrality by 2050, the Commission has proposed various changes to the EED II, mainly increasing certain targets and making their implementation more stringent. The EED II has undergone an ambitious amendment. It is clear that the Commission intends to lay down rules to implement energy efficiency as a priority across all sectors. This key principle is now also embedded in the proposal. In parallel, the EED sets an increased overall Union-wide target for energy efficiency savings in primary and final energy consumption, as well as increased energy savings targets for individual Member States and a target rate for building renovation in the public sector.

This blog post analyses the Commission’s proposal to further amend the Energy Efficiency Directive (EED II).

Overview

The EU Commission published the second suite of its “Fit for 55” package, with a number of legislative and policy proposals focusing on gas and hydrogen, methane emissions and buildings to enable the EU to meet its new 2030 target.

Read our post for a summary of the proposals released in December.

Proposal to reduce methane emissions in energy sector

The proposal builds on the EU Methane Strategy 2020 and the Global Methane Pledge, which is a joint EU / US initiative launched at COP26 in which over 100 countries committed to reduce their collective methane emissions by 30% by 2030 (compared to 2020 levels). The proposed Regulation will establish a new EU legal framework for the measurement, reporting, and verification (MRV) of methane emissions. The proposal would also ban venting and flaring practices, except in very limited circumstances. In addition, Member States would be required to establish mitigation plans for methane emissions from abandoned coal mines and inactive oil and fossil gas wells. 

Read more detail on the proposal in our post.

The Energy Performance of Buildings Directive

The Energy Performance of Buildings Directive proposal sets an ambitious target, namely, that, as of 2030, all new buildings must be zero-emission and, as of 2027, all new ‘public’ buildings (i.e. those built for use by the public sector) must also be zero-emission. The intention is that these new buildings will consume little energy, be powered by renewables as far as possible and emit no on-site carbon emissions from fossil fuels. The proposal also includes the renovations of buildings and the setting of new EU-level minimum energy performance standards. Finally, the proposal encourages the use of electronic communications and smart technologies to ensure that buildings are able to operate efficiently.

Read more detail about the proposal in our post.

Decarbonising Gas Markets

Today, fossil (mainly natural) gas accounts for about 95% of gaseous fuels in the energy mix. By 2050, the Commission wants renewable and low-carbon gases combined to cover two thirds of gaseous fuels in the energy mix and natural gas in combination with carbon capture, usage or storage (CCUS) technology to cover the remaining third.

The European Commission proposes to recast the Third Gas Directive and Regulation as part of its “Fit for 55” package, including measures to facilitate the integration of renewable and low-carbon gases, establish a framework for dedicated hydrogen infrastructure and improve security of supply.

Read our blog post here for more details on the proposal.