Blog

Fit for 55 package: carbon pricing in the transport sector

The European Green Deal aspires to reduce the transport sector’s dependence on fossil fuels. In that context, the Commission presented the ‘Fit for 55 Package’ on 14 July 2021. This legislative package aligns the EU’s legislation with the 55% emission reduction target to be achieved by 2030. In order for the transport industry to play its part, the EU is increasing its efforts to put a price on CO2 emissions. Dr2 Consultants will demystify the Commission’s greening efforts within the ‘Fit for 55 Package’ through three illustrative examples of increased carbon pricing across different transport modalities.

1. Eurovignette and CO2 emission standards to decarbonize road transport

The use of road infrastructure by heavy-duty vehicles is regulated through the Eurovignette Directive. The revision of this file, first tabled in 2017 by the Commission, has entered the final stages of the decision-making procedure, and is not part of the Fit for 55 Package. The co-legislators reached in June an agreement on the revision. According to the agreement, time-based road charges will be phased out for heavy-duty vehicles on the core TEN-T network (main routes where most international transit of commercial vehicles takes place). Additionally, the revision grants Member States the possibility to set up combined charging system for heavy-duty vehicles, based on both time-based and distanced-based elements, in order to allow full implementation of the user-pays and polluter-pays principles.

The decarbonization of heavy-duty road transport will also be further incentivized by the introduction of a new system of varying road charges based on CO2 emissions.

With regards to passenger cars and light-duty vehicles, which are responsible for 75% of EU road transport CO2 emissions, the EU tabled as part of the Fit for 55 package the revision of the Regulation setting CO2 emission performance standards for cars and vans. The CO2 reduction target for cars, currently set at 15% for 2025 and 37,5% for 2030 compared to 2021 levels, have been raised in order to ensure that all cars registered as of 2035 will be zero-emission. The new targets require average emissions of new cars to come down by 55% from 2030 and 100% from 2035, compared to 2021 levels. This implies that the European Commission sees no future for the internal combustion engine in the future of the European transport sector.

Considering both aforementioned proposals, Dr2 Consultants expects that the various Fit for 55 carbon pricing measures in the road transport sector will stimulate the market demand for zero- and low emission vehicles, both for passenger as well as freight transport.

2. Extending the EU ETS to the maritime sector

The EU Emissions Trading System (EU ETS), the EU’s instrument to measure and price carbon emissions per unit, is also being revised as part of the Fit for 55 Package. The revised proposal does not only increase its ambition to reduce the number of EU-wide annual allowances at a quicker pace (which will significantly drive up the price for CO2 per ton by cutting supply of emissions permits), but it also extends its scope towards other sectors, including emissions from maritime transport. As a reasoning behind the inclusion of maritime transport in the EU ETS, the European Commission states that maritime transport emissions are currently higher than in 1990 and these are expected to grow further in a business-as-usual scenario. 

Fit for 55 services

The extension of the EU ETS to maritime transport applies in respect of emissions from incoming voyages (i.e. emissions from ships arriving at an EU port from a port outside the EU, as well as intra-EU voyages) and emissions occurring at berth in an EU port. The revision plans for the obligation to surrender allowances is to be gradually phased-in over the period between 2023 to 2025.

Investments to support the decarbonization of the maritime transport sector will be supported by the Innovation Fund.

The inclusion of maritime emissions in the scope of the EU ETS, and especially the determination of which emissions are covered (intra-EU voyages, emissions at berth in EU ports, as well as ships arriving at an EU port with their last port of call being outside the EU) risk impacting the competitiveness of the EU maritime transport at global level.

3. Revising energy taxation: end fossil fuel subsidies and incentivize green alternatives

The Energy Taxation Directive (ETD) sets the rules for the taxation of energy products such as motor fuels or electricity. The Commission also proposed a revision as part of the Fit for 55 Package in order to align the taxation of energy products with EU energy and climate policies and end outdated tax exemptions and incentives for the use of fossil fuels, for example the exemption for fuels in the aviation and maritime transport sectors.

Ending tax exemptions for aviation kerosene would result in higher tax burdens, thereby incentivizing the transition towards a higher uptake of sustainable aviation fuels. The revision of the ETD is welcomed by the railway sector, as ending tax exemptions for polluting fuels would accelerate the modal shift, level the playing field between the different modes of transport, and encourage consumers to choose clean alternatives such as rail transport.

Is your business Fit for 55?

The Fit for 55 Package will shape the legislative landscape for the upcoming decade, trigger the public debate and impact businesses across the different transport modalities. The revised and updated CO2 emission standards might radically impact your day-to-day business operations. More than ever, making your voice heard is crucial.

Over the last years, Dr2 Consultants has built up a track record in advising a broad range of transport clients in navigating the EU ecosystem. Would you like to know more about what the ‘Fit for 55 Package’ means for your organization? Feel free to reach out to us or visit our Fit for 55 webpage.

You can also sign up for our weekly Fit for 55 policy updates here.

You might also be interested in:

The future of the EU transport sector (2021-2024) – four trends

Slovenian Presidency of the EU 2021 logo

Slovenian Presidency’s transport priorities

Starting on 1 July, Slovenia will take over the rotating Presidency of the Council of the EU for the next six months. The slogan of the Slovenian Presidency, “Together. Resilient. Europe.”, refers to the recovery of the European economy following the COVID-19 pandemic. With the transport industry being one of the hardest hit sectors by the COVID-19 pandemic, the Slovenian Presidency will play an important role in shaping a resilient and future-proof transport sector. In this blog post, Dr2 Consultants has identified three key transport priorities of the Slovenian Presidency for the coming semester.

Moreover, in the coming months, the Slovenian Presidency will lead crucial files through the institutional negotiations and will be closely involved in the discussions of the Commission’s legislative proposals that are part of theFit for 55’ package.

In the run up to Slovenia’s six-month Presidency, Dr2 Consultants’ transport practice organized a webinar together with Ms. Petra Zaletel, Transport Counsellor at the Permanent Representation of the Republic of Slovenia to the EU, to hear more about the Presidency’s transport priorities in the coming semester. You can watch the recording of the event here.

Coordinating legislative files stemming from the ‘Fit for 55’ package

On 14 July, the European Commission will publish the Fit for 55’ legislative package, which  will aim at aligning the EU’s climate and energy legislative framework with the European Green Deal’s target of at least 55% emissions reduction by 2030. This landmark package, covering 11 legislative proposals, is expected to set the prerequisites for the transition towards a 55% emissions reduction by 2030.

The ‘Fit for 55’ package will have both direct and indirect impact on the transport industry, for example:

  • The revision of the Energy Taxation Directive will put a higher tax rate on fossil fuels to accelerate the production and use of low-carbon and clean alternatives.
  • The revision of the Alternative Fuels Infrastructure Directive will set binding targets for the deployment of re-charging and re-fueling infrastructure across the EU.
  • The upgrade of the Renewable Energy Directive will increase the sub-target for the renewable energy share in the transport sector.

As part of its transport priorities, the Slovenian Presidency will be tasked to lead the discussions on these legislative files through the different Council configurations. A milestone event will be a joint informal ministerial meeting of transport and energy ministers on 21-23 September dedicated to common challenges of e-mobility. In a separate meeting, the transport ministers will look into issues related to alternative fuels infrastructure.

The Slovenian Presidency will have to find a balance between diverging interests among EU Member States. During the last European Council meeting on 24-25 May, Eastern EU Member States already voiced their concerns about Europe’s poorest inhabitants having to carry the burden of the EU’s climate ambitions. We expect these discussions to continue in the various Council configurations. The results of these discussions and any adopted conclusions under the leadership of the Slovenian Presidency will also be relevant in the run up to the UN Climate Change Conference (COP26) in November.

Fit for 55 services

Dr2 Consultants supportS organizations in the transition towards climate neutrality by offering tailor-made solutions to navigate the evolving policy environment at EU level and anticipate the impact of the ‘Fit for 55’ package on your organization. Make sure to check out our ‘Fit for 55’ services.

Putting rail transport in the limelight

The European Commission declared 2021 the European Year of Rail. Although the Portuguese Presidency has officially launched the Year of Rail during the informal Transport Council meeting in late March, the promotional activities have seen a slow start due to the extended travel restrictions. But now that the COVID-19 situation is rapidly improving and travelling across Europe will be possible again in the coming months, the Slovenians will have more opportunities to promote rail as a sustainable mode of transport and further build upon the recently adopted Council conclusions on “Putting rail at the forefront of smart and sustainable mobility”.

As of September, the Connecting Europe Express will visit almost all Member States across Europe, with festivities and stakeholder events on several locations, including Brussels, Ljubljana and Berlin. In addition, in November this year, the European Commission is expected to table a package of legislative and non-legislative initiatives (e.g. revision of the TEN-T Regulation, revision of the Intelligent Transport Systems Directive, Action Plan to boost rail passenger transport) that will impact several components of the railway industry, including infrastructure, ticketing tools, and cross-border passenger services.

These legislative files are expected to dominate the policy discussions in the coming years. Would you like to better understand how these files will impact your business operations? Do not hesitate to get in touch with our Transport Team.

Concluding negotiations on inherited files

In addition to dealing with new legislative proposals, the Slovenian Presidency will also inherent files from the Portuguese Presidency. Although the Portuguese Presidency has been successful in concluding various pieces of legislation relevant for the transport sector, including the controversial new EU-wide road charging rules for light and heavy-duty vehicles (Eurovignette) and the Brexit Adjustment Reserve, several issues still require further discussions.

Regarding transport priorities of the Slovenian Presidency, we expect the Slovenians to start Trilogue negotiations on the Hired Vehicles Directive as well as the Single European Sky (SES2+) initiative with the aim to achieve a breakthrough on both files by December 2021 at the latest.

How can Dr2 Consultants’ transport practice support you?

Do you need support in understanding and anticipating upcoming transport files? Do not hesitate to get in touch with us. Dr2 Consultants has built up a track record in advising a broad range of transport clients in navigating the EU ecosystem.

“Business Taxation for the 21st Century” communication and its impact on businesses

On 18 May, the European Commission published a new communication titled “Business Taxation for the 21st Century”. With this, the Commission presented its EU tax agenda for the short and long term, following the ambitious roadmap set out in the Tax Action Plan of the Fair and Simple Taxation Package, presented last summer.

This agenda builds on the current discussions on tax policy at the Organization for Economic Cooperation and Development (OECD) level, but also goes a lot further. The Commission announced no less than seven new legislative proposals that will have a big impact on companies that are active in the EU, especially with regards to compliance requirements. Most of these proposals are expected to be published in the second half of 2021. In this blog post, Dr2 Consultants will provide you with an overview of the most relevant initiatives of the communication and will highlight how they will impact your business.

EU Digital Levy

On 14 July 2021, the Commission will publish its proposal for a European Digital Levy. There are indications that the Commission will propose a 0.3 to 0.5% tax on turnover from digital services that are provided by companies with a turnover of €250 million. The EU Digital Levy could therefore impact a lot more businesses than only the U.S. big tech companies. It is therefore likely that the proposal will affect tax compliance costs, tax revenues and the competitiveness of EU digital companies, and ultimately consumers. Read more on this topic here.

Directives following the OECD discussions on business taxation

Since 2019, the OECD has been discussing how to address the tax challenges of the digitalization of the economy (Pillar 1) and how to combat tax avoidance through a global minimum tax (Pillar 2). The G7 finance ministers agreed on 5 June 2021 that market jurisdictions should get a bigger share of the corporate income tax revenue and that there should be a global minimum tax rate of 15%. This deal in the G7 brings the agreement in the G20/OECD discussions on tax reform much closer. It is expected that a high-level political agreement in the G20/OECD could already be achieved in the beginning of July 2021, thus clarifying the details of the agreement during the Indonesia Presidency of the G20 in 2022.

Directly following this agreement in June 2021, the Commission will publish (consultations on) proposals for two new directives to ensure uniform implementation of the OECD proposals in the EU. Even though there might be push back from some Member States with regards to a minimum tax rate of 15%, it is likely that these proposed directives will be adopted quickly. These proposals will lead to higher compliance costs as the impacted companies will have to calculate if and which portion of their profits should be taxable where their customers are located.

Fighting tax avoidance (ATAD 3)

To further support its work on business taxation, in Q4 of 2021 the Commission will present a proposal to prevent the misuse of companies with very little substance and without real economic activity (so-called shell companies). By means of this proposal, EU companies will be subject to new compliance requirements, as this will lead to more reporting to the tax administration on the presence of real economic activity in companies in the corporate structure. Particularly with regards to intermediary holdings this proposal could mean much higher reporting requirements to safeguard access to the benefits of tax treaties.

The Commission will also present a proposal in Q4 that will limit the deduction of royalty and interest payments to companies that are located outside of the EU. The aim is to prevent that these types of payments are used to avoid paying tax in the EU. The consequence of these proposals, however, is that much more information will have to be provided to the tax authorities with regards to these payments to safeguard deduction where there are valid business reasons.

Dr2 Academy Trainings - 22 September and 18 November 2021

Increasing transparency in business taxation

In the first half of 2022, the Commission will publish a proposal for a directive that requires big companies to publish the effective tax rate they pay over their profits. It is likely that these effective tax rates will need to be published on a country-by-country basis. In addition, it is still unclear if this requirement will only apply to companies with a worldwide turnover of more than €750 million (following from the G20/OECD discussions) or that the EU would put the revenue threshold on €250 million, as they plan to do with the Digital Levy.

Encouraging equity over debt financing

In Q1 of 2022, a proposal for a directive is expected that will make it more attractive to finance investments with equity in order to discourage that companies take on too much debt. The proposal most likely will involve an allowance for equity (ACE). However, the possibility to deduct a percentage of (the mutation of) a company’s equity also comes with new reporting requirements. For instance, it would make it necessary to perform all sorts of corrections to the fiscal equity as it shows on the balance sheet to ensure that the equity cannot be artificially inflated to increase the deduction.

A new framework for business taxation

Finally, the Commission announced a new framework for business taxation in the EU to be published in 2023. The “Business in Europe: Framework for Income Taxation” (BEFIT) will build on the existing proposal for Common Consolidated Corporate Tax Base (CCCTB) that has been pending since 2011. If adopted, BEFIT will make it possible for companies to file their tax assessment for all their EU activities in one Member State. This one-stop-shop approach should mean a reduction in the administrative burden that companies now have to deal with when filing separate tax assessments in all the Member States where they are active. The experience with the CCCTB so far, however, shows that it is not easy for all the Member States to quickly align on this proposal.

What can Dr2 Consultants do for you?

Dr2 Consultants continuously monitors the developments of the discussion on the new global, EU and national tax regimes, so we can help you keep well-apprised of the relevant developments in the coming months. Should you be interested in further information on any of the EU Commission’s business taxation proposals and how these could specifically impact your business, you can reach out to Dr2 Consultants at info@dr2consultants.eu or find more information on our website. Also, find out how our monitoring services can help your business here.

Transport sector and national recovery plans: investment priorities for a green recovery

On 30 April, most EU Member States handed in their national recovery and resilience plan in the framework of the Recovery and Resilience Facility (RRF), the EU recovery fund of €750 billion aimed to finance the (green) recovery from the COVID-19 pandemic. The European Commission has currently received 18 national plans. Whereas larger Member States like Germany, France, Spain and Italy already handed in their plans, it remains to be seen what Member States such as the Netherlands, Sweden and Finland will prioritize during the recovery phase. Dr2 Consultants’ Transport Team assessed the different national recovery plans focusing on the transport sector to identify Member States’ investment priorities for the coming years and identified three investment trends: charging infrastructure, railways and hydrogen solutions. These trends will provide ample opportunity for the transport industry to secure funding for their projects, and are therefore relevant to monitor closely.

Below, Dr2 consultants provides a more detailed explanation of the three identified trends.

Trend 1: Charging infrastructure to stimulate the greening of transport as part of national recovery plans

Multiple Member States aim to use RRF resources to invest in the roll-out of recharging and refueling infrastructure for alternative fuels such as electricity, hydrogen and bio-CNG/LNG. Where Austria, Belgium and Spain invest in the deployment of recharging infrastructure, Germany is leading the pack, as it will invest approximately €2.5 billion in the infrastructure for electric vehicles. This recharging infrastructure will take the form of an increase in the number of charging points for electric vehicles, both rolling out public charging points as well as stimulating public and private investments in infrastructure rollout by private companies. These investments in alternative fuels infrastructure will go hand in hand with stimulating fleet renewal throughout the EU, focusing on vehicle fleet for company cars and trucking businesses.

European Green Deal Impact Scan

Not only are these investments directly stimulating the greening of the transport sector, but they are also desirable in the context of the upcoming revisions of the Alternative Fuels Infrastructure Directive (AFID) and the TEN-T Regulation. In line with the anticipated objectives set out in these upcoming legislative files, Member States will be required to invest more in the deployment of recharging infrastructure to boost e-mobility across the EU.

Trend 2: Expanding railway connections finds resonance in the national recovery plans for transport

The European ‘Year of Rail’ appears to find resonance in the national recovery plans. A swift modal shift from road to rail could become reality as Member States are consistently aiming to invest significant amounts from the RRF into the expansion of the railway network in the EU. Italy aims to invest an approximate €25 billion in railway infrastructure, which is partly used for high-speed lines in its northern parts, focusing on cross-border connections with the rest of Europe. Belgium will also be ambitious in the coming years, focusing both on a more efficient rail network to further stimulate a modal shift, as well as embracing new mobility concepts such as Mobility as a Service (MaaS) and building accessible multimodal stations.

Trend 3: Hydrogen solutions for transport

With Member States embracing hydrogen as a key enabler of the energy transition, it is no surprise that Member States aim to invest massively in hydrogen solutions. First of all, Member States are scaling up the production, storage and transmission of (green) hydrogen. Several Member States state they want to start Important Projects of Common European Interest (IPCEI) in the field of hydrogen. This means that Member States are not individually scaling up in the field of hydrogen, but that the hydrogen transition is considered a collective effort between all Member States. This way of thinking is in line with the EU’s Hydrogen Strategy from July 2020, and is a trend that will further materialize after revisions of essential pieces of EU legislation in the Fit for 55 Package.

Dr2 Consultants observes that an important element in national hydrogen strategies are the transport applications of hydrogen. Portugal, for example, aims for a 1-5% share of green hydrogen in road transport and a share of 3-5% in inland waterway transport by 2030. Germany and France are both set to invest approximately €2 billion in the scale-up of their hydrogen economy.

What does this mean for European businesses?

The existing plans can serve as a good blueprint for lobbying activities towards Member States that are still in the process of writing and finalizing national recovery and resilience plans. The projects and investments as laid out in the existing plans can be an important driver for the Member States to invest in similar projects in order to boost their competitive position.

However, Dr2 Consultants sees that some plans are more detailed than others, and that some Member States have fewer concrete ideas yet on how to reach some of the goals they pose in their plans (e.g. sticking to general notions such as ‘stimulating the modal shift’). Since the recovery plans will be scrutinized by the European Commission, it will remain to be seen if the national plans will have to be further specified before they can be approved by the EU.

Dr2 Consultants advises businesses to consult closely with national authorities how they can contribute to the execution of projects. Although RRF resources will have to be allocated to projects that can stimulate the (green) recovery over the short-term, co-financing from the RRF can cover unprofitable margins and ensure investment clarity.

You might also be interested in:

Next Generation EU and National Recovery Plans

Belgian National Recovery Plan: an analysis

Digital Services Act

Digital Services Act proposal: the start of a new era in digital regulation

On 15 December, the European Commission published proposals for Regulations on the Digital Services Act (DSA) and the Digital Markets Act (DMA), with the goal to reform the digital space, creating a comprehensive set of new rules for all digital services, including social media, online market places, and other online platforms that operate in the European Union.

The proposed Regulation on a Digital Services Act aims to update the eCommerce Directive (ECD) from the year 2000 as well as introduce new binding, harmonized, EU-wide obligations which will have a significant impact on a wide range of digital services that connect consumers to goods, services and content. This blog post sheds some light on some of the main provisions of the Digital Services Act and their subsequent impact on businesses.

Which companies will be affected by the new Digital Services Act proposal?

The Digital Services Act proposal includes rules for online intermediary services. The obligations of different online players match their role, size and impact in the online ecosystem. Among the regulated groups are intermediary services offering network infrastructure (Internet access providers, domain name registrars), hosting services such as cloud and webhosting services, online platforms bringing together sellers and consumers such as online marketplaces, app stores, collaborative economy platforms and social media platforms, and very large online platforms. All online intermediaries offering their services in the EU Single Market, whether they are established in the EU or outside, will have to comply with the new rules. Micro and small companies will have obligations proportionate to their ability and size while ensuring they remain accountable.

An asymmetric approach: different obligations for different players

The Digital Services Act will introduce a series of new, harmonized EU-wide obligations for digital services, carefully graduated on the basis of those services’ size and impact. All intermediaries falling under the scope of the DSA will have obligations in terms of transparency and fundamental rights protection and would have to cooperate with national authorities. Additionally, all intermediaries not established in the EU but offering services in the Union will have to designate a legal representative in one of the Member States where the provider offers its services. The absence of general monitoring obligations, already enshrined in the ECD, will remain in place in the Digital Services Act. Additionally, the Commission has introduced a “good Samaritan” principle, under which providers of intermediary services are not excluded from liability exemptions because they carry out voluntary activities to detect and remove illegal content.

Dr2 Academy Trainings - 22 September and 18 November 2021

For online platforms and hosting services, the proposal includes requirements for more detailed notice & action provisions. The proposal also introduces the concept of trusted flaggers, appointed by Member States authorities, whose notices should be processed with priority. Furthermore, the proposal introduces a “Know your business customer” principle, under which platforms will be required to obtain and verify identification information from the traders prior to allowing them to use their services. Finally, transparency obligations for online advertising will require online platforms to provide their users information on the sources of the ads they see online, including on why an individual has been targeted with a specific advertisement.

Platforms that reach more than 10% of the EU’s population (45 million users) monthly in average will be considered systemic in nature and will be subject to specific obligations to control their own risks. Very large online platforms will have to conduct yearly risk analyses, they will be subject at their own expenses to annual audits, adhere to transparency obligations for recommender systems as well as comply with additional measures for online advertising transparency. Finally, very large online platforms will have to appoint one or more compliance officers responsible for monitoring their compliance with the Digital Services Act Regulation. Member States will have to lay down the rules on penalties applicable to infringements of these rules by providers of intermediary services under their jurisdiction with the maximum not exceeding 6 percent of the annual income or turnover of the intermediary service.

Strengthened enforcement & cross-border cooperation

EU countries will be required to appoint a so-called “Digital Services Coordinator” to oversee enforcement of the regulation, which will have powers in terms of investigation, enforcement (including fines) and the imposition of access restrictions. Additionally, the coordinator would have the possibility of cooperating cross-border by requesting another digital service coordinator in a country of establishment to carry out an investigation. An independent advisory group of Digital Services Coordinators named the “European Board for Digital Services” will be established, which will contribute to the guidance and consistent application of the regulation and assist the digital service coordinators. For the case of very large platforms, the Commission will have direct supervision powers and, in the most serious cases, will be able to impose fines of up to 6 percent of the global turnover of a service provider.

What implications could the Digital Services Act proposal have for businesses?

Industry stakeholders’ responses to the proposal are mixed, with overall positive reactions to the extra harmonization measures, and the preservation of the ECD’s core principles. However, many raise concerns about the Act’s compatibility with other existing legislation, such as the Platform-to-Business Regulation and the Omnibus Directive, as well as the way the trusted flaggers’ concept would work in terms of transparency, an issue raised also by consumer protection groups. The inclusion of the requirement for non-EU companies to have a legal representative in the EU, while burdensome for such companies, has so far been accepted positively by European players as it would ensure a level playing field within the Single Market. Relating to the fines, the issue has been raised that the threat of significant fines for non-compliance might lead to preventive removal of content which might otherwise be considered legal, putting companies in the uncomfortable position of risking fines under the Digital Services Act or being criticized for violating freedom of expression by censorship.

Another example of businesses that would be impacted by the new rules are information society services offering a wide range of services such as search engines, cloud services and other platforms. Those businesses generally welcome the fact that the core foundations of the e-Commerce Directive are maintained, i.e. limited liability, no general monitoring obligations and the maintenance of the country of origin principle. However, there will be extra obligations for ‘very large online platforms’, having more than 45 million users across the Union. These platforms will have to provide regulators and outside groups with greater access to internal data, and appoint independent auditors who will determine if these firms are compliant with the new rules. The biggest tech companies will also be forced to provide greater transparency on online advertisements. These extra obligations will require additional resources and also raise a question about the legislative coherence between the Digital Services Act on the one hand, and provisions in for instance the recently published European Democracy Action Plan on the other.

Finally, there have been concerns among Big Tech companies that the criteria for identifying very large platforms need to be clearer and more inclusive, with several accusing the Commission of selection bias. Furthermore, the Digital Services Act is likely to have significant consequences for gig economy companies, such as well-known travel accommodation websites, as the extra requirements against illegal content and the provision of information on users would allow local authorities to require the removal of unregistered properties and receive information on hosts with outstanding tax obligations. City authorities in big European cities such as Amsterdam, Berlin and Paris, had adopted rules against said platforms and the Digital Services Act would allow them to enforce them.

What to expect next in the legislative process?

Following the publication of the Digital Services Act in December, the DSA will likely be the subject of long and arduous discussions in the Council of the EU and in the European Parliament. 

European Parliament

Within the European Parliament, on 29 April, the Conference of Presidents, which gathers the leaders of all political groups, reached an agreement on which committee can take the leadership on the Digital Services Act (DSA), Initially, IMCO was assigned the exclusive competence on the legislative file in view of its impact on the Single Market legislation, but LIBE, JURI and ITRE also argued that they should have competence.

After a long-lasting debate, the President of the Conference of Committee Chairs, Mr. Antonio Tajani, proposed a solution. In order to reach a compromise, Tajani proposed to appoint all committees that challenged the leadership to be “associated” with IMCO under rule 57 of the European Parliament. Collaboration will take place through regular meetings between IMCO, ITRE, LIBE and JURI for the DSA proposal, and the rapporteurs of each committee will participate in all shadow meetings, the drafting of the IMCO reports, trilogue sittings and compromise amendments negotiations. All amendments of the associated committees will be voted in IMCO, while the mandate to enter trialogues will be voted in plenary, instead of committee sitting, to allow all associated committees to jointly vote and re-table amendments.

A parliamentary discussion on IMCO Rapporteur MEP Christel Schaldemose’s (Denmark, S&D) draft DSA report is set for 21 June. Within the LIBE Committee, MEP Patrick Breyer (Germany, Greens/EFA) has been appointed rapporteur. Within the JURI Committee, MEP Geoffroy Didier (France, EPP) has been selected as rapporteur. 

Council of the EU

As confirmed by the Portuguese Presidency of the Council of the EU, the Digital Services Act is discussed in the Internal Market Working Party, falling within the remit of the Competition Council formation. According to insights into a draft progress report on the DSA from the Portuguese Council Presidency, dated 27 April, there is overall support among the Member States for the ambition of the DSA proposal and the need to swiftly adopt it. A few issues have however been identified as sensitive political and legal issues, such as the need for effective implementation and better coordination between countries, their authorities and the Commission, in particular in terms of cross-border enforcement and the impact on the country-of-origin principle. Questions were also raised on enforcement vis-à-vis service providers established outside of the EU.  Further discussion will be needed on the scope, Article 6, Trusted Flaggers, the protection of trade secrets, out-of-court dispute settlements and the application date. The progress report will be presented to COREPER, after which it can be submitted to the Competitiveness Council on 27 May.

In terms of the time frame for adopting the DSA, France has announced a highly ambitious plan to conclude the negotiations for the proposal during its Presidency of the Council of the EU in the first half of 2022. The Commission shares this objective for the co-decision process to be finalized in a year and a half, however, it is useful to remember that other recent and major files, such as the General Data Protection Regulation and the Copyright Reform, took respectively 5 and 2.5 years to be adopted.

Dr2 Consultants closely monitors the developments on this file for its clients. If you would like to know more about the proposal, and how it might impact your business, please contact Dr2 Consultants.

Visit our Digital & Tech webpage to learn more about our services.

You might also be interested in:

Data Governance Act: main elements and business implications

Tax initiatives on the digitalisation of the economy and their implications for businesses

Belgian National Recovery Plan: an analysis

Respecting the deadline of 30 April, Belgium shared its National Plan for Recovery and Resilience with the European Commission. This Belgian national recovery plan fits into the EU’s COVID-19 Recovery and Resilience Facility, which makes €672.5 billion in loans and grants available to support reforms and investments undertaken by Member States. Belgium is entitled to claim around €6 billion in support if the European Commission approves the list of proposed Belgian projects. The Commission expects, for example, that the national recovery plans are in line with the EU’s objectives, i.e. 37% of the investments will be spent on sustainability and 20% on digital transition. However, the Belgian plan is even more ambitious as 57% (€3.4 billion) will be allocated to sustainable projects and 31% to digital transition (€1.85 billion).

The document of almost 700 pages includes 87 investment projects and 34 reform projects, broadly revolving around six axes: sustainability, digital transition, mobility, inclusivity, productivity and public finances. This blog post provides a closer look at the first three axes.

Three axes of the Belgian national recovery plan: sustainability, digital transition, mobility

The green transition

The sustainability axis is divided in three separate components: renovation of buildings, emerging energy technologies and climate and environment. This division already gives an idea of the Belgian priorities relating to sustainability.

Belgium wants to invest more than €1 billion in the renovation and sustainability of public buildings and social housing, which is almost one third of the total investment in sustainability. This is necessary as much of the Belgian building stock is old and among the least efficient in Europe. More than 80% of the building stock is energy inefficient (EPC class C and below), and 50% of the building stock is the worst performing (EPC class E and below). To tackle this challenge the plan indicates that all government levels want to invest in the renovation of public buildings, such as government buildings and schools. This includes investments in insulation measures, joinery and glazing and Green Heat (generation, storage and distribution). Next to that the plan stresses that more efforts must be made concerning the energy renovation of social rental properties. In that context, the Flemish government decided, for example, that by 2050 at the latest existing social rental properties must achieve an equivalent or comparable energy performance level as newly-built homes.

Investments in emerging energy technologies must support the energy transition and system integration to further reduce CO2 emissions. Next to a reform of the fossil fuels tax and investments in the industrial value chain for the hydrogen economy, this includes €450 million for an offshore energy island in the North Sea that should be ready by 2025. The advantages of the energy island are threefold according to the plan. Firstly, it will enable power consumers to make use of a greener energy mix. Secondly, the hub will generate economic activity in both the short and long term. Finally, the hub will position Belgium at the center of the debate on energy hubs in the North Sea. This is interesting for private investment and can result in further interconnectivity, which is important as Belgium has limited space at sea.

Belgian Public Affairs Training by Dr2 Academy - 3 June
Join Dr2 Consultants’ half-day online training on 3 June where we will also reflect on the priorities of the Belgian national recovery plan after the COVID-19 crisis.

The last component of the sustainability axis of the Belgian national recovery plan is climate and environment, which aims to clarify the ambition to conservate and redevelop biodiversity though the sustainable use and restoration of forests, wetlands meandering rivers and grasslands. Wallonia for example wants to establish two new national parks by 2026. This would not only protect the biodiversity but also increases the quality of life and regional economic development, in particular through jobs generated in tourism. With the Blue Deal, Flanders on the other hand wants to anticipate on their structurally low water availability. Therefore, they will invest in large-scale restoration and construction of wetland nature, robust green-blue interconnection in the built environment and in more open space. In addition, €6 million is earmarked for research projects aimed at sustainable water use in the agricultural sector

The digital transition

The digital transition of Belgium will mainly focus on investments in cybersecurity (€80 million), new technologies, including 5G (€100 million), and about €580 million will go to the digitization of the public services.

Based on structural investments and reform projects, the objective of the cybersecurity component is to fight against cyberthreats through projects that strengthen Belgian resilience and capacity to face new cybercrime phenomena. These investments will mainly be carried out by the federal government and include a new national strategy targeting all actors: the general population, private organizations and vital organizations like the Belgian defense. This plan must ensure that Belgium is one of the least vulnerable countries in Europe in terms of cybersecurity by 2025.

Furthermore, 75% of the digital budget will go to investments in digital technologies to make the actions of the public administration more efficient, both in its internal processes and in its interaction with citizens and businesses. For example, €85 million will be earmarked for the digitization of the Justice Department. Next to these investments, this component also aims to increase the simplification of administrative procedures for both citizens and businesses by adapting existing e-government applications to existing standards and developing new applications where necessary.

Lastly, the plan indicates the Belgian ambitions to improve the connectivity of the national territory through the development of fiber-optic networks at very high speed, as well as developing 5G corridors that enable universal and affordable access to connectivity in all urban and rural areas. This component also aims to capitalize on the development of new technologies, such as artificial intelligence (AI), by ensuring that these technologies have a positive societal impact.

Greening mobility

Further to the ‘mandatory’ investments in sustainability and digital transition, the Belgian governments decided to also make mobility one of the spearheads of the Belgian national recovery plan. About €1.3 billion will be used for the (re)construction of new pedestrian and cycle paths, the modal shift of transport and greening of vehicles.

All regional governments will try to improve the quality of the bicycle infrastructure. For example, the Schuman square in the European district in Brussels will undergo a significant transformation and will be finalized by 2025. In combination with public transport and car-sharing solutions, investments in bicycle infrastructure are expected to further reduce car ownership and use.

To achieve the desired modal shift in transport, the Belgian governments want to improve public transport services by investing in new or more efficient bus, tram and metro infrastructure and by improving their services. This includes the expansion of the metro and tram network in Charleroi and Liège. At the same time, tax reforms and digital tools, like applications to further develop the Mobility-as-a-Service (MaaS) ecosystem in Brussels will increase the demand for sustainable transport. As far as freight transport is concerned, major works will be funded to support the modal shift from road to water and rail. For example, by raising the bridges over the Albert Canal in Liège it would be possible to allow ships with four layers of containers to sail between Antwerp and Liège.

Finally, greening of vehicles will play an important role in the future of Belgian mobility. To achieve this ambition, the different governments will accelerate the electrification of road transport by increasing the use of electric buses for public transport, accelerating the development of charging infrastructure and establishing a new framework for commercial vehicles. The plan indicates that 80,000 public and private charging points for electric vehicles will be installed by 2026.

Conclusions from the Belgian National Recovery Plan

The National Plan for Recovery and Resilience is a combination of very diverse projects proposed by all government levels. The 87 investment and 34 reform projects are ambitious and they all will play an important role in the economic reconstruction of Belgium in the coming five years. With the financial injection of €5.9 billion from the European Recovery and Resilience Facility, if the European Commission approves the proposed projects, Belgium also wants to outpace the investment backlog compared to other Member States that has emerged since 2000. Therefore, the different governments will also use their own resources to achieve the objectives mentioned in the plan. In addition, as Belgium has one of the most open economies in the world, we can expect that it will also profit from the recovery plans of other Member States.

Dr2 Consultants is at your disposal to assess the National Plan for Recovery and Resilience and identify the impact and opportunities for your business and support you in the outreach towards Belgian stakeholders. Learn more about our Belgian Public Affairs services here.

List of Annexes

  • Annex 1: Timeline of proposed sustainability projects
  • Annex 2: Timeline of proposed digital projects
  • Annex 3: Timeline of proposed mobility projects

DOWNLOAD ALL ANNEXES HERE

You might also be interested in:

Next Generation EU and National Recovery Plans

Updated EU climate plans: opportunities for businesses at national level

Ambitious, achievable and beneficial for Europe” is how European Commission President, Ursula von der Leyen, characterized her updated EU climate plans. She unveiled her proposal to cut CO2 emissions by 55% by 2030 during her first State of the Union Speech on 16 September 2020. New measures to reach the objective will affect all sectors of the economy from transport, construction to energy. It accelerates the transition to a climate-neutral Europe by 2050, as laid down in the overarching European Green Deal. Therefore, the European Commission is also calling on Member States to step up their efforts. The updated climate targets on a European level provide a unique framework and opportunity for businesses to shape and be part of the green transition at national level.

Stepping up our climate efforts: “We can do it!”

The Commission based the increased 55% target on an assessment of the National Energy and Climate Plans for 2021-2030 (NECPs). The NECPs are ten-year plans, in which EU Member States outline how they will address climate-related issues such as energy efficiency, taking up renewables, reducing greenhouse gas emissions, interconnections and research & innovation. The evaluation of these national climate plans on EU-level showed that the EU is to surpass the current 40% reduction target, enabling the increase of the target to 55% by 2030. Or in Von der Leyen’s words: “we can do it!” As this demands a further increase of energy efficiency and the share of renewable energy, the Commission will present new proposals by June 2021:

  • The Renovation Wave: the renovation of public and private buildings to improve their energy efficiency;
  • Revision of the Energy Efficiency Directive: the alignment of the binding measures that limit energy consumption with the new climate targets;
  • Guidance for the Energy Efficiency First Principle: ensuring energy saving is a priority in policy-making and investment.

In addition to the EU-level evaluation of the National Energy and Climate Plans, the Commission will carry out an assessment of Member States’ individual plans in October 2020, as part of the State of the Energy Union Report, expected by the end of the year. The assessment will evaluate if Member States are on track to achieve the current 40% and proposed 55% emission reduction targets, looking at areas such as energy efficiency and the share of renewables in the national energy mix as mentioned above.

Opportunities to shape the national green recovery

Member States will have to bring their National Energy and Climate Plans in line with the new emission reduction target. Although the new objective may look challenging, combined with the Recovery and Resilience Facility, it offers a unique opportunity for businesses to become part of the green recovery in their countries. The Recovery and Resilience Facility is at the core of the Next Generation EU plan and offers an unprecedented €672.5 billion of loans and grants to Member States to emerge from the COVID-19 crisis. The budget is to be spent in line with the (increased) European climate ambitions. In order to benefit from the budget, Member States draft their national recovery plans outlining how these will contribute to criteria including environmental sustainability.

European Green Deal Impact Scan

As a result, a momentum arises for businesses to help national governments shape a sustainable recovery. Additionally, companies can benefit from European investment in the green ‘flagship areas’ that are to be included in the national plans. These focus areas include the development of renewables, energy efficiency of buildings and sustainable charging and refueling technologies for transport. With the Member States’ national recovery plans being submitted to the European Commission, now is the moment to roll up the sleeves and profit from the business opportunities stemming from the application of the plans.

Next steps

The Climate Law Regulation was proposed by the European Commission in March 2020. In a timely manner with the submission of the national recovery plans of the Member States, on 21 April 2021, the European Parliament and the Council reached a provisional agreement that increases the overall EU climate ambition and endorses a collective net greenhouse gas emissions reduction target of at least 55% by 2030 compared to 1990 – a substantial increase from the previous target of 40% reduction. The agreement prioritizes the emissions reductions over carbon removals for the 2030 target and calls on the Commission to set an intermediate climate target for 2040.

The agreement has yet to be officially approved by the Council and Parliament, before final adoption. The Commission will also follow up with a package of proposals aiming to revise and update all pieces of EU legislation related to climate and energy in order to ensure consistency and compliance with the new target. Next to that, the Commission will assess the 27 national recovery plans within the next two months, making sure that the Member States will earmark 37% of their funding to sustainable policies, setting the scene for achieving the Climate Law’s targets. Therefore, it is important to identify which business opportunities are embedded in the national plans and the overall EU climate strategy for companies. If you would like more information on the EU climate plans, or other files that could impact your business, contact Dr2 Consultants. Also, visit our Sustainability webpage for more information.

 

 

Next Generation EU and National Recovery Plans

On 27 May 2020, the European Commission proposed a temporary recovery instrument called Next Generation EU (NGEU), meant to address the unprecedented crisis caused by COVID-19. Currently, Member States are submitting their National Recovery and Resilience Plans on the basis of the European Commission’s recommendations. As of 30 April 2021, 14 national plans have been tabled, and the remaining 13 are expected to come within the next days and weeks.

Next Generation EU: The basics

The Next Generation EU is an envelope of €750 billion representing the largest stimulus package ever financed by the EU and is designed to boost the recovery of EU economy on the basis of two clear targets:

  • 37% for green investments and reforms. Each Member State will have to include a minimum of 37% of expenditure related to climate and other environmental objectives.
  • 20% for digital investments and reforms. Each Member State will have to include a minimum of 20% of expenditure to foster the digital transition.

To achieve the targets outlined above, the Member States had until 30 April 2021 to advance a National Recovery and Resilience Plan. Almost all Member States have worked hard to to set up their national recovery and resilience plans, with a constant activity following the guidance provided by the European Commission (I and II). The Member States also integrated their recovery and resilience plans with the annual national reform programs in line with the European Semester objectives.

Two concrete case examples in Belgium and Italy, which have already formulated their plans, provide a vivid example of current and future opportunities for businesses to profit in the sustainability sector.

European Green Deal Impact Scan

Dr2 Consultants is expertly placed to assist your company in identifying the opportunities in the National Recovery and Resilience Plans. Our expertise in sustainability and digital topics neatly overlaps with proposed activities at national and European level. Get in touch with us for more information.

National Recovery and Resilience Plans

Belgium

Regarding Next Generation EU in Belgium, the different governments have on 11 January 2021 found an agreement on the distribution of the allocated €5.9 billion from the Recovery and Resilience Facility between the federal and federated entities.

National Recovery Plan: Distribution of the allocated €5.9 billion from the Recovery and Resilience Facility between the federal and federated entities in Belgium

Distribution of the allocated €5.9 billion from the Recovery and Resilience Facility between the federal and federated entities in Belgium

Belgium officially submitted its National Recovery and Resilience Plan (‘Relance plan’) before the deadline of 30 April, which had to be agreed between the six different governments. However, it is clear that the plan will centre around six key themes:

  1. Climate, sustainability and innovation;
  2. Digital transformation;
  3. Mobility;
  4. Social issues and society;
  5. Economy of the future and productivity;
  6. Government finances.

Within the sustainability pillar, the plan will have a major focus on energy renovation of buildings, renewable energy sources, biodiversity and circular economy activities. A shortlist of potential projects can be found here. It is clear that within the first pillar, the focus lies very much on the renovation of existing buildings, the development of an economy based on hydrogen and other green gases, and the restoration of biodiversity. Belgian companies which are active in the above mentioned sectors are thus highly encouraged to seek close contact with the cabinet of Minister for Recovery, Thomas Dermine.

Italy

On 1 May 2021, the Italian Government has presented to the European Commission its Piano Nazionale di Ripresa e Resilienza (PNRR) which has a budget of €191.5 billion and outlines the trajectory that the country will follow to achieve the goals of Next Generation EU.

Based on 6 missions spanning from digitalization to green transition and mobility, the PNRR covers various projects to make Italy a more modern, more digital, more sustainable and more inclusive country. Mission 2 called “Green Revolution and Ecological Transition” is at the core of the plan, envisaging to earmark €59.3 billion to four components:

  1. Circular economy and sustainable agriculture;
  2. Renewable energy and sustainable mobility;
  3. Energy efficiency and building requalification;
  4. Protection of territory and water resources.

Mission 2 is predominantly oriented towards the pursuit of environmental sustainability, but it also has considerable digitization content. The investment actions will be accompanied by specific reforms aimed at promoting the energy transition and the use of renewable sources, providing the necessary infrastructure for their integration into the national electricity system. The largest amount of investments is dedicated to heading 2, with allocations for rapid mass transport and a new generation of vehicles for local public transport. The ultimate aim is to achieve the overall EU decarbonization targets, which envisage a fleet of 6 million electrical vehicles by 2030. Local authorities and businesses will be a key player in implementing this line of action.

The interventions will be consistent with the European Circular Economy Action Plan, with the aim of reducing the net production of waste and the landfill of all processed waste, and will ultimately contribute to the achievement of the EU climate objectives, made even more challenging by the provisional agreement reached by the European Parliament and the Council on the Climate Law proposal on 21 April 2021, which targets a collective net greenhouse emission reduction of at least 55% by 2030 in comparison to 1990.

The Government will also publish a governance model that identifies responsibilities for its implementation, ensures coordination with relevant ministers and monitors progress on spending.

You might also be interested in:

Updated EU climate plans: opportunities for businesses at national level

 

 

Lobbying in Brussels: why and how?

Brussels is not only the capital of Belgium, but also the heart of European democracy and lobbying. In fact, in an area of a few square kilometers, the Belgian city gathers the headquarters of the main EU institutions and dozens of other EU entities.

In recent years, the inherently global dimension of challenges such as climate change, digitalization or global health pandemics, requires an approach that goes beyond national borders. Consequently, political powers and competences are shifting from Member States towards the EU institutions. With legislation ranging from artificial intelligence to trade policy and energy taxation being proposed, discussed and approved in the EU institutions, the business operations and day-to-day activities of millions of European citizens and companies are increasingly turning around Brussels.

The EU powers have a strong impact on the laws and policies that determine business operations in a wide variety of sectors. That is why having a presence in Brussels is of growing importance in order to make sure your voice is heard when drafting future legislation. In this blog post, Dr2 Consultants outlines three key recommendations for effectively developing a successful lobby in Brussels.

How to lobby in Brussels: key recommendations

1. Matching your message with the EU narrative

Lobbying is the indispensable bridge linking a sector of the economy (industry, trade and many others) with EU stakeholders in Brussels. A good lobbyist provides technical expertise to EU legislators and regulators to demonstrate the impact of an anticipated legislative proposal, or provide arguments, facts & figures that can better match the legislative act with the specific industry interests. One of the best ways to achieve this goal is to submit positions to public consultations or set up meetings with EU stakeholders, but finding the loopholes in the EU procedures is essential to make sure you get your message across at the right time. In addition, a carefully crafted storyline and set of policy messages that match the EU narrative will make a difference.

Dr2 Academy Trainings - 22 September and 18 November 2021

Dr2 Consultants has built up an extensive experience in designing storylines, crafting policy messages, that align with the EU public policy discourse, and helping its clients assert their position in the EU legislative process. Our international team constantly monitors political changes and advises a broad range of clients, from transport to sustainability and digital, in order to identify threats and opportunities in the draft EU legislation.

2. Building a network to access policymakers

Once the storyline and messages are developed, a point of access to EU policymakers has to be found in order to pass the message through. First of all, an effective lobby starts from a strong network in Brussels, both with policymakers, legislators and industry partners. Dr2 Consultants is expertly placed to set up the right connections and pave your way in the ‘EU bubble’.

Conveying your messages to EU stakeholders requires constant attention. For example, the inter-institutional trialogue negotiations are designed to speed-up the decision-making procedure and reconcile the positions of the European Parliament and Council of the EU. Although these informal negotiations are considered to be effective, they lack transparency as the negotiations take place behind closed doors. In these situations, it is of great value to have a strong network that can provide you with the latest intelligence or that will enable you to convey your message during crunch time.

Dr2 Consultants excels an outstanding network of policymakers and their offices, corporations and trade associations who acknowledge our expertise and are willing to provide us with behind-the-scenes intelligence. The mutual trust within our established network allows us to draw knowledge from different sources, enabling us to access the key players during the different phases of EU procedures.

3. Building coalitions

Another key element for a successful lobbying strategy in Brussels is having effective collaboration frameworks in place. Today, the Belgian capital crawls with associations, industry representatives and institutions that voice different needs and put forward various interests. A way to capitalize on this maze is to build coalitions and cooperate with other stakeholders on issues of common interest. Issue-driven policy actions often exert a higher leverage on policymakers and regulators due to the wide support they have on their back. Over the last years, Dr2 Consultants has built up a track record in surfing through the plethora of interest representatives and establishing the right coalitions.

EU institutions are keen on engaging with sector representatives and joint consortia that voice a single position stemming from different sector segments. If you want to successfully lobby on a legislative text in Brussels, you must be aware of which association/representative you can reach out to and what collaboration you can set up. Moreover, a constant contact with the constellation of networks will keep your organization be visible and up to speed with potential coalitions forming in Brussels.How to lobby in Brussels: key recommendations

Lobbying in Brussels made easy with the help of Dr2 Academy

Being proactive, timely and aware of what is needed to effectively influence policymaking is the key output of Dr2 Consultants’ training modules, which are embedded in the Dr2 Academy and aimed at empowering participants, spanning from local authorities to in-house and institutional representatives, with the right tools to carry out successful lobbying activities and advocacy strategies at EU and national level. Get in touch if you would like to know what we can do for your organization.

Would you like to influence EU legislation, attract EU funding, establish a network of key policymakers, or simply stay informed about the latest developments in your industry? Feel free to reach out and discuss opportunities over a (virtual) coffee.

Visit Dr2 Academy webpage

EU Artificial Intelligence Regulation: how will it affect the tech sector?

The European Commission presented on 21 April its Proposal for a Regulation on a European Approach for Artificial Intelligence. This EU Artificial Intelligence Regulation, a key element of the 2020 Strategy on Europe’s Digital Future, aims at creating the first-ever legal framework for artificial intelligence, fostering innovation, and maximizing the societal benefits of AI while ensuring the safety of EU citizens by guaranteeing the trustworthiness of AI systems. This article briefly presents measures included in the proposal and provides Dr2 Consultants’ analysis of the potential impact on the tech sector.

Ensuring the safety and trustworthiness of artificial intelligence systems

To ensure the safety and trustworthiness of artificial intelligence systems and applications put on the European market, the European Commission adopted a risk-based approach in its proposal. Depending on the risk posed by a system or its application, different conditions will apply.

Unacceptable risk

The proposal for an EU Artificial Intelligence Regulation lists a number of AI systems or applications that pose an unacceptable risk to the safety, livelihood and rights of people, and that are banned altogether from being commercialized in the EU. Those notably include AI systems or applications manipulating human behavior to circumvent users’ free will, but the wording used by the Commission seems vague and it is unclear how systems will be assessed to determine whether they fall into the banned category.

It also concerns AI systems or applications allowing social scoring by governments (directly targeting systems already introduced in China), and real-time biometric recognition systems used by law enforcement, unless their use is necessary in certain specific cases (such kidnapping, terrorist attack or criminal search).

EU Artificial Intelligence Regulation - Unacceptable Risk

High-Risk

One step down on the risk scale, the proposal lists artificial intelligence systems with “high-risk” use, which are systems with a variety of sensitive applications, from transport (such as self-driving vehicles), to essential private and public services (such as credit scoring) to education (e.g. exam scoring). The proposal also targets public applications of AI, especially in the fields of law enforcement, migration and border control management, and administration of justice.

High-risk systems will be allowed to be commercialized and used in the EU only after complying with conformity assessment procedures, to ensure that the systems or their application respect the EU standards. Although the proposal plans for national authorities to conduct checks to ensure that systems are compliant, the text still intends for many applications to be evaluated through self-assessment, meaning that the AI providers will assess themselves if they meet the conformity criteria set by the EU. Those criteria notably include: having in place adequate risk assessment and mitigation systems, using high quality datasets to avoid algorithmic bias, and ensuring appropriate human oversight. This flexibility is likely to be positively welcomed by the tech industry, but MEPs have already warned that they would support stricter compliance rules.

EU-Artificial-Intelligence-Regulation-High-Risk

Limited and minimal risk

Systems that do not fall under the “unacceptable” or “high-risk” categories are considered of limited or minimal risk, which covers the majority of artificial intelligence systems widely used in the EU at the moment. AI systems of limited risk will need to respect transparency obligations, meaning that users must be informed that they are interacting with an AI system. Systems posing minimal risks, such as spam filters or AI-enabled video games, can be commercialized and used freely.

The application of the EU Artificial Intelligence Regulation will be overseen by a newly-created body, the European Artificial Intelligence Board.

Download AI Regulation Infographic

Fostering European excellence in artificial intelligence

Next to measures to secure AI systems, the proposal also includes a few measures to promote innovation in AI in the EU. The Artificial Intelligence Regulation notably includes an update of the 2018 Coordinated Plan on AI, which sets out a series of actions to be taken by EU Member States and provides funding instruments, financed by the Digital Europe, Horizon Europe and Cohesion programmes, to accelerate investments in AI.

The proposal also targets SMEs to facilitate their access to testing and experimentation facilities as well as digital innovation hubs.

Next steps for the EU Artificial Intelligence Regulation and potential impact on the tech sector

The European Parliament and the Council of the EU, representing Member States, will now both study the proposal and adopt their respective positions, before entering into negotiations. The negotiations are likely to be stormy, considering their diverging positions. Indeed, MEPs support even stricter rules, notably promoting additional applications to fall under the banned category. On the other hand, it can be expected that Member States will adopt a position demanding more leeway on security and law enforcement applications, especially considering that national security remains a national prerogative of Member States.

As the proposal is likely to be reworded and amended during the negotiation process, the impact it will have on the tech sector is not easy to evaluate. However, if the proposal were to be accepted as is, the first impact for the tech sector would be that companies commercializing banned AI systems, or putting on the market high-risk systems that have not gone through the conformity assessment procedure, could be subject to financial penalties of 6% of the company’s total annual turnover. Considering the vague wording used by the Commission, it is difficult to understand how this law will be practically enforced.

There is also a worry from the industry side that this regulation will overburden a sector composed mainly of SMEs and start-ups, without a sufficient support framework to create balance, considering that measures included in the proposal to support innovation remain limited.

There is a strong interest of big tech companies in AI technologies and systems developed by small startups. In the past five years, big tech companies have purchased over 60 AI startups creating systems that can improve products created by the tech giants.

It remains to be seen how this new Artificial Intelligence Regulation introduced by the EU will affect the AI landscape. Will the measures to foster innovation and support SMEs lead to a multiplication of actors or will the additional regulatory burdens created by the regulation burden startups too much, leaving room only for bigger companies?

Moreover, a risk exists that, as it happened with the General Data Protection Regulation (2016), the implementation and enforcement of the European Artificial Intelligence Regulation at national level will be fragmented, leaving the industry to deal with disparities between Member States and an uncertain legal framework that would hamper the EU Single Market and the economy.

Dr2 Consultants continuously monitors the developments in the discussion on artificial intelligence and supports its clients on these matters. Should you be interested in further information on the AI Regulation and how it could impact your business, you can reach out to Dr2 Consultants at info@dr2consultants.eu or find more information on our website.