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EC announces raft of measures to reduce Europe’s carbon footprint

Published July 28, 2021

The European Commission has announced 13 laws aimed at cutting the EU’s carbon emissions by 55% by 2030, and net zero by 2050.

The package known as ‘Fit for 55’ consists of both new and revised laws and applies to all sectors of the European economy. It also applies to Europe’s trading partners, many of whose companies will have to pay additional tariffs on exports of products such steel and carbon.

In particular, ‘Fit for 55’ include proposals for an increase in the rate at which the EU Emissions Trading Scheme causes a participant sectors to decrease GHG emissions, and a proposed reduction of available free allowances under the scheme. In addition, a new, parallel version of the ETS will be set up to trade allowances for emissions caused by heat from buildings and the transport sector. 

Several EU directives are also up for amendment or revision, including the renewable energy directive; the energy efficiency directive; the alternative fuels infrastructure directive and the energy taxation directive.

“The legislative reach of this is going to be huge,” said Jeremy Nicholson, corporate affairs officer at Alfa Energy. “It’s going to touch all areas of economic life to some degree. It’s right across the board.  It shows the Commission’s serious about meeting the challenge of net zero.”

According to Carbon Watch, Fit for 55 includes proposals to increase the linear reduction factor used by the EU ETS to set the rate of decline of GHG emissions from 2.2% to 4.2%. If implemented, this would cut EU ETS emissions to 61% below 2005 levels by 2030.

The Commission also intends to restrict the number of free emissions allowances available to sectors at risk of ‘carbon leakage’ (losing business to less regulated companies from outside the EU). The proposals would also reduce 117m allowances available for auction, to prepare the ETS for the introduction of the higher LRF.

A parallel ETS would be set up to regulate emissions from buildings and road transport. From 2025, the parallel scheme would require energy suppliers to buy emissions allowances. The new ETS would not give away any allowances. The total number of allowances would be capped and would decline every year. The parallel scheme is intended to bring emissions from transport and buildings down to 43% below 2005 levels by 2030.

“There’s an awful lot that’s yet to be politically approved.  Part of the strategy is to move away from free allocation of allowances for energy intensive industries and have a border tax adjustment mechanism to deal with the carbon leakage issue,” added Nicholson. “Whether that will happen in practice is not clear, as it’s one of the more controversial aspects. Either way, the cap is tightening.”

Tags carbon emissions ETS European Commision Fit for 55 GHG Jeremy Nicholson Tax