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 COemissions. 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, was officially adopted on 24 February 2022, and is not part of the Fit for 55 Package. Member States now have two years to transpose the Directive in national legislation. The revision will phase out the time-based vignette-system for heavy goods vehicles across the core trans-European transport network (TEN-T) from 2030. This will be replaced by distance-based charges resulting in a user-pays and polluter-pays system across the core TEN-T network, where most international transit of commercial vehicles takes place. Road haulers using clean trucks would benefit from the revised legislation, which is expected to half their road tolls by May 2023.

With regards to passenger cars and light-duty vehicles, which are responsible for 75% of EU road transport CO2 emissions, the European Commission 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, will be 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 be reduced by 55% from 2030 and 100% from 2035, compared to 2021 levels. 

In his draft report, the Rapporteur in the Environment Committee, MEP Jan Huitema (the Netherlands, Renew), called for even stricter CO2 targets for cars (-75% by 2030) and vans (-70% by 2030) towards 2035. However, these higher targets have not been supported by all other political groups in the European Parliament. Jens Gieseke (Germany, EPP) and Kateřina Konečná (Czech Republic, The Left) considered the draft report too ambitious and believed that the targets could not be achieved by the car manufacturers and some of the Member States. Furthermore, it remains to be seen if MEP Huitema’s proposal will be supported by his own political group.

The Council of the EU has not yet adopted a position on the revised targets, as negotiations are ongoing on some key issues. For instance, a group of Member States supports the increased ambition of the new targets, while others express concerns about the price of electric vehicles and the availability of affordable cars in the future. The Environment Ministers are expected to discuss the file during their upcoming meeting on 28 June.

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 and freight transport. Later this year, the European Commission is expected to table a legislative proposal with updated CO2 emission performance standards for heavy-duty vehicles and trucks.

2. Extending the EU ETS to the maritime sector and road transport

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. 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. 

Fit for 55 services

The revision’s 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.

Rapporteur MEP Peter Liese (Germany, EPP), in his draft report of the Committee on Environment, Public Health and Food Safety (ENVI) (the lead committee on the topic) welcomed the Commission’s proposal and said that the revenues can be used to support new technologies. He is of the view that the commercial operator of a ship should be responsible for the payments of the EU ETS price, which requires authorities to trace down these commercial operators. There is much support in ENVI for the inclusion of maritime sector to the EU ETS and the additions proposed in the draft report. In the draft opinion of the Committee on Transport and Tourism (TRAN), Rapporteur Andrey Novakov (Bulgaria, EPP) is also in favor of the inclusion of the maritime sector, but emphasizes that the EU needs to ensure the EU maritime sector will remain competitive throughout the implementation. Therefore, he states that equal treatment of intra-EU and extra-EU maritime routes is crucial.

The European Commission has proposed to apply emissions trading also to road transport. However, this system will be separate from the existing EU ETS, as road transport will influence a large sum of small users. Therefore, this revised EU ETS will regulate fuel suppliers rather than car drivers in order to prevent a system that is too complex. Fuel suppliers will be responsible to incorporate the carbon cost into the price for their consumers. This separate EU ETS is planned to be operational in 2025, with the cap on emissions set from 2026. Most of the Member States have not yet adopted a position on the introduction of this new EU ETS, but the Council of the EU is expected to be divided on the proposal. Rapporteur for the TRAN opinion, Andrey Novakov, expresses concerns about the negative effect the new EU ETS would have on end-consumers and notes that the European Social Climate Fund will not have enough financial resources to help the households that are most affected by the higher prices of transport.

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

The third example of increased carbon pricing in the context of the Fit for 55 package is the Energy Taxation Directive (ETD) which 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. The aim is 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. The revision of the ETD will tax fuels based on their energy content and environmental performance rather than their volume. Also, the exemption for fuels in the aviation and maritime transport sectors will end. The aim of the revision is to incentivize the transition towards a higher uptake of sustainable fuels and to level the playing field between the different modes of transport.

On 28 February, the Rapporteur John van Overtveldt (Belgium, ECR) in the Committee on Economic and Monetary Affairs published his draft report on ETD. He warns about the potential negative impact for businesses working on a global scale, which would cause carbon- and business leakage. In September 2022, the European Parliament is expected to adopt its formal position during its Plenary session, which serves as a non-binding opinion to the Council of the EU, as it relates to tax matters, which is a core competency of the Member States. The Council of the EU is currently discussing the technical aspects of the Directive. As Member States will have to agree unanimously, a common position is still out of sight.

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 COemission 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 Fit for 55 policy updates here.

You might also be interested in:

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

European Data Act: a harmonized framework for accessing and sharing data

On 23 February, the European Commission published the long-awaited “European Data Act”, which is a proposal for regulation to establish a harmonized framework for data sharing in the European Union.

The Data Act will make more data available for use and will set up rules on who can use and access what data for which purposes across all economic sectors in the EU. According to the Commission, the new rules are expected to create €270 billion of additional GDP by 2028.

Given how much is at stake for the green digital transition, we at Dr2 Consultants are excited to share our insights into the new proposal. In concrete terms, the Commission includes:

  1. Improved access to private sector data for the public sector (B2G);
  2. Fairness of data access and use in business relationships (B2B);
  3. New rules allowing customers to effectively switch between different cloud data-processing service providers.

What does the European Data Act mean for you?

This blogpost provides an overview of the main implications and opportunities for European businesses, focusing on:

  • Objectives for data sharing and access requirements;
  • Targets, ranging from service providers and gatekeepers to device manufacturers, companies and public authorities;
  • Implications of data sharing, interoperability standards and cloud switching.

Keep in mind, however, that the European Parliament and the Council of the EU will both provide amendments to the text.

What’s the objective of the European Data Act?

Complementing the Data Governance Act, which aimed to increase trust and facilitate data sharing across the EU and between sectors, the Data Act’s core objective is to put users and providers – large and small – on more equal footing in terms of access to data. Concretely, Dr2 Consultants expects every actor that contributes to the generation of data should be able to access said data. This means that users will get standard access to the generated data on any of their integrated tools. These could be virtual assistants, connected home appliances and so forth. The data should be easily and freely accessible and shareable with third parties.

The proposal is based on the results of an open public consultation carried out by the European Commission in 2021, which showed that an EU action is needed on business-to-government (B2G) data sharing for the public interest, especially for emergencies and crisis management, prevention and resilience. For the past three months, the Commission has been working to address certain concerns regarding the necessary legal clarity to B2G data sharing. In the proposal, the Commission appears to have tried to limit mandatory B2G data sharing to cases in which an ‘exceptional need’ exists.

What implications will the European Data Act have for your business?

A piece of horizontal legislation, the Data Act will apply to device manufacturers, providers of digital services and connected products (such as ‘the Internet of Things or IoT) as well as public authorities in the EU. Dr2 Consultants advises businesses to pay close attention to the developments in the coming months.

The proposed legislation mandates data sharing requirements to allow data sharing among businesses, public authorities and users. SMEs are exempted from these obligations, but overall the requirements imply that the European Commission has opted for a one-size-fits-all solution that compels all businesses to adapt.

EU Data Policy Services

Certain limits will be put in place to guarantee that third party access to shared data remains safe and harmless to the parties involved. This entails agreed upon measures to protect confidentiality, privacy and trade secrets as well as restrictions of the use of the data by market competitors of the data holder.

Neither data holders nor third parties will be allowed to influence or prevent the user’s data sharing behaviour in any coercive, manipulative or technical way. Only micro and small companies will be excluded from these strict guidelines if they’re independent from other companies.

In particular, providers with a significant position in the market will be labelled as gatekeepers within the market. Such actors will be subject to more specific restrictions, as third parties are not allowed to share data with these gatekeepers, nor are gatekeepers allowed to request access to these data.

Specific attention goes out to the risk of non-EU countries gaining access to data. The European Data Act goes beyond current restrictions regarding the transfer of personal data outside the EU by extending such restrictions to non-personal data. Only when an international agreement is in place will court orders from third countries be adhered to. This is relevant keeping in mind the ongoing efforts of the US and the EU to reach such an agreement.

Furthermore, the draft sets out provisions to ensure interoperability and cloud switching and safeguards for international data transfers. The previous SWIPO initiative for cloud-switching was deemed insufficient for this purpose as the Commission now opts for binding measures. The goal will be functional equivalence when moving software to another cloud platform. This means required compatibility of interfaces and platforms with all other services. Proper interoperability is essential for fair competition to function in the digital data market. To realistically strive for interoperability, a degree of harmonized standards among cloud services will be necessary. European standardisation organisations will be approached for this purpose, possibly accompanied with a mandatory implementing act if necessary.

Next steps

In the coming weeks, the co-legislators, the Council of the EU and the European Parliament will assess the proposal and kick off the discussions. Because this is a regulation, the legislative act will be immediately applicable in all Member States once the European Parliament and the Council of the EU have concluded their negotiations with the European Commission.

Within the European Parliament, MEP Pilar del Castillo (ES) is likely to lead the EPP in the Industry (ITRE) Committee, while for the Greens MEP Alexandra Geese (DE) announced she would take the lead on this file in the Internal Market and Consumer Protection (IMCO) Committee, sided by MEP Damian Boeselager (DE) in the ITRE Committee.

The Parliament now needs to determine which committee will take the lead. We can expect that the same committees that handle the Data Governance Act will be working on this file: ITRE in the lead, with the Civil Liberties (LIBE), Legal Affairs (JURI) and IMCO Committees giving their respective opinions.

Ahead of the start of the legislative debate among Parliament and Council, the European Commission published on 14 March a call for feedback on the proposed Data Act. Open for a period of 8 weeks, the open call will collect feedback from private and public stakeholders in order to feed the EU decision-making process. Dr2 Consultants stands ready to support organizations in the contribution of their views to the legislative debate.

Dr2 Consultants will follow the legislative developments very closely, and thanks to its expertise and wide range of clients in the digital sector, Dr2 Consultants is expertly placed to assist your company in identifying the impact of and leveraging the opportunities offered by the European Data Act.

Would you like to know more about how your organization can make the most out of the data regulation? Visit our EU Data Policy Services webpage and subscribe to Dr2 Consultants’ EU Data Policy Updates, or get in touch with our Managing Partner Jasper Nagtegaal.

European energy crisis: the security, affordability and sustainability dilemma

The EU is currently in the middle of a historical energy crisis, mostly driven by high gas prices. Already before the Russian invasion of Ukraine, the rise of energy prices and market turmoil drastically increased power bills on the continent and caused severed repercussion for people and companies. The Russian invasion of Ukraine has aggravated this situation, underlining the EU’s dependence on imports for 90% of its gas, 40% of which arrives from Russia. The transition towards a low-carbon economy, the post-COVID recovery curve combined with geopolitical conflicts created the perfect storm. With this blog post, Dr2 Consultants aims to shed light on how the EU is addressing the energy crisis.

In response to the energy crisis, on 8 March, the European Commission published REPowerEU: Joint European Action for more affordable, secure and sustainable energy. The Communication presents actions that would make the EU more resilient by accelerating the deployment of renewable energy as well as ensuring the security of energy supply. Following the Russian invasion of Ukraine, the Communication has a strong focus on decreasing Europe’s energy dependency on gas imported from Russia. The Commission thus proposes measures to diversify supplies away from Russian pipeline gas towards liquified natural gas (LNG) and other natural gas suppliers.

Moreover, to avoid low gas storage in the future, the Commission will propose by April an EU-level gas storage policy that would put forward legal requirements for Member States to ensure a minimum level of gas storage of at least 90% by 1 October each year. To reduce the EU dependency on fossil fuels, the Commission sets out measures to unlock the solar, wind energy and heat pumps potential. Notably, the Commission invites also the European Parliament and the Council of the EU to boost the Fit for 55 legislative proposals with higher or earlier targets for renewable energy and energy efficiency. One of the other goals of REPowerEU is to decarbonize the industry by accelerating the deployment of innovative hydrogen-based solutions and cost-competitive renewable electricity in industrial sectors. In addition, the Commission announces a recommendation on fast permitting for renewable energy projects. The Communication aims to promote the rollout of renewable and low carbon gas production with a focus on hydrogen and biomethane. In this regard, the draft suggests an ambition to produce 35 billion cubic meters of biogas by 2030 and to import 10 million tons of renewable hydrogen by 2030.  Other actions set out measures to support Member States in regulating energy prices in the electricity market and provide short-term relief to heavily exposed companies (e.g., in the form of state aid).

Sustainable goals will help address the European energy crisis

The EU’s ambitious climate agenda to phase out coal and the stricter rules of the EU ETS was one of the elements that led to an increase in carbon prices reaching a record peak of €88/ton on 8 December 2021. At the same time, the low gas storage in Europe and the increasing demand for gas worldwide drove both gas and coal prices further up and exert strong inflation pressures on the cost of electricity. In addition, the low wind power generation in the past year, the higher demand of energy due to weather conditions and the closure of nuclear plants in countries like Spain, France, Germany and Belgium exacerbated the tightness in the energy market in Europe.

Nevertheless, the European Commission underlines that the way out of the energy crisis is the acceleration of the implementation of the European Green Deal, including a faster deployment of renewable energy and the rollout of low-carbon gases. Indeed, during his speech at the European Parliament, European Commission Executive Vice-President Frans Timmermans pointed at the transition to renewable energy resources as a solution to the energy crisis. As part of the climate ambition, in the Taxonomy Complementary Climate Delegated Act, the European Commission indicated that gas and nuclear energy would play a pivotal role in accelerating the shift from coal towards a climate-neutral economy.

How does the EU respond to the crisis?

On 1 March, the European Parliament held an extraordinary Plenary session to discuss the EU’s response to Russian invasion of Ukraine. In the adopted resolution, MEPs call for a significant reduction of energy dependence on Russian gas, oil and coal. The resolution stresses the importance of diversifying energy sources, increasing energy efficiency and speeding up the clean energy transition.

Fit for 55 services

In parallel, MEPs responsible for the negotiations on Fit for 55 legislative package on energy, proposed solutions to address the current crisis. On the one hand, Rapporteur on EU ETS, MEP Peter Liese, suggested to lower the threshold to issue more permits at times of rapid price rises. The proposal entails the use of Article 29a of EU ETS according to which the European Commission should release 100 million CO2 allowances into the market from its market stability reserve over a period of six months if, for more than six months, the average permit price is more than two times the average price in the two preceding years. On the other hand, MEP Markus Pieper, who is the Rapporteur on the revised Renewable Energy Directive (RED III), aims to increase the renewable energy targets to 45% by 2030 to reduce the EU’s dependency on Russian gas. He said, “The Russian war against Ukraine is now forcing us to focus even more on our strategic autonomy, apart from climate change”.  Dr2 Consultants is constantly following the developments in the European Parliament and the Council of the EU on the proposed reform of EU ETS and RED III in light of the vote on the initial positions expected in June 2022.

Moreover, on 7 February, during the 9th EU-US Energy Council, the EU and US representatives addressed the issue of energy security within the EU and its neighborhood countries. In this light, the EU and the United States reaffirmed their cooperation to focus on avoiding energy and resources supply disruptions and improving diversification of energy suppliers (e.g., via global LNG markets).

The importance of diversification of energy sources

The EU measures to address the crisis and ensure the security of supply have one common denominator: the diversification of energy sources. Following the conflict on the Russia-Ukraine border, Russia, who is the largest supplier of gas in the EU (40%), decided to cut back on gas shipments across Ukraine, which counts for a third of gas flow. This had a significant impact on the import of gas to the EU. Notably, in 2021, the EU imported an average of over 380 million cubic metres (mcm) per day of gas by pipeline from Russia, or around 140 billion cubic metres (bcm) for the year as a whole. In addition, around 15 bcm was delivered in the form of liquefied natural gas (LNG). The total 155 bcm imported from Russia accounted for around 45% of the EU’s gas imports in 2021 and almost 40% of its total gas consumption. With reduced deliveries, the gas reserves in EU countries have been much lower than usual. Moreover, Europe suffered from the competition with Asia for supplies of LNG, where many countries boosted their consumption in the post-COVID-19 recovery, thus diverting LNG cargo away from European markets. Notably, China became the largest LNG importer at the beginning of 2021.

Dr2 Consultants continuously monitors the developments of the discussion on the new EU rules for the energy sector and supports its clients on these matters accordingly. If you would like to know more about this regulation or the overall legislation that the Commission will publish on the energy policies, please contact Dr2 Consultants to learn more about our services.

Sustainable Products Initiative: more than just Ecodesign

As announced in its Circular Economy Action Plan (CEAP) almost two years ago (in March 2020), the European Commission aims to make products fit for a climate-neutral, resource-efficient and circular economy through a Sustainable Products Initiative (SPI). The SPI will serve as the main instrument in a renewed European approach towards product policy. Due to its broad scope and huge impact on many sectors, Dr2 Consultants guides you through the main issues companies will have to contend with when the SPI is published, its relationship to other policies as well as further opportunities to engage with policymakers.

The European Parliament, in its Non-Legislative Own-Initiative Report on the Circular Economy Action Plan from February 2021, emphasizes the need to turn the linear “take-make-dispose” economy to a truly circular economy. It also underlines the frontrunner role it expects European companies to play in a global market. The SPI thus also presents plenty of opportunities for innovative players in the circular economy.

Sustainable Products Initiative: a broad review of the Ecodesign Directive

The Sustainable Products Initiative will revise the Ecodesign Directive (2009) and make products placed on the EU market more sustainable. The SPI is expected to move beyond the narrow scope of the Ecodesign Directive – exclusively aimed at products, such as household appliances, information and communication technologies or engineering – and to set sustainability criteria based on harmonized indicators and life-cycle assessments, such as environmental footprints, to the broadest range of products such as:

  • Electronics & ICT equipment;
  • Textiles;
  • Furniture;
  • Steel, cement & chemicals.

Taking into account the broadening of the scope, the European Parliament in its Non-Legislative Own-Initiative Report on the Circular Economy Action Plan similarly actively calls for the establishment of common life cycle assessment methodologies and improved data collection. Such methodologies need to take into account the full life cycle of a product, from-cradle-to grave, and the impact of sourcing semi-finished products, spare parts and by-products throughout the value chain. The close involvement of stakeholders in defining these methodologies in an open, transparent, and science-based process is crucial. Here the European Parliament explicitly opens the door for input by relevant stakeholders.

The broad review of the Ecodesign Directive also means that the Sustainable Products Initiative will be developed in close coordination with other initiatives announced in the CEAP, in particular the initiative on empowering consumers for the green transition and the initiative on the substantiation of environmental claims, both of which are expected to be announced in the second quarter of 2021.

Widened scope brings opportunities and threats

On a general level, the Sustainable Products Initiative is expected to set sustainability principles and specific requirements linked to environmental aspects of products. However, producers of priority product groups such as electronics, ICT and textiles as well as furniture and high impact intermediate products such as steel, cement and chemicals will be made responsible for providing more circular products and intervening before products can become waste (for example providing products as a service, providing repair service or ensuring spare parts availability). The impact of such far-reaching principles on producers cannot be underestimated and Dr2 Consultants can support your organization in identifying the specific aspects within the Sustainable Products Initiative which are expected to affect your business. You can learn more about our sustainability sector here.

On another note, the Commission is determined to set EU rules for mandatory sustainability labelling and/or disclosure of information to market actors along value chains in the form of a digital product passport. Such passports will foster the availability of data related to product’s content and carbon footprint and recyclability. The exact scope of such a digital passport will of course have to be determined in close cooperation with the industry, which is why Dr2 Consultants highly advises companies to actively engage with policymakers.

When it comes to a ‘right to repair’, the European Commission will most likely take heed of the encouraging language of the European Parliament in its Non-Legislative Own-Initiative Report on the Circular Economy Action Plan. Producers, not only of electronic products, will need to be able to provide free-of-charge access to necessary repair and maintenance information, including information on spare parts and software updates, to all market participants.

Finally, the Sustainable Products Initiative is most definitely expected to set more elaborate rules on the inclusion of recycled content in products, for example in packaging. In doing so, the Commission also wants to ensure that hazardous substances in production processes are tracked more thoroughly. The impact of more stringent rules can of course not be underestimated, with a potential impact on the whole packaging and recycling sector.

Legislative proposal to be published shortly

Having run a public consultation from 17 March to 9 June 2021, the Commission is expected to publish a proposal on the Sustainable Products Initiative on 30 March 2022.

Dr2 Consultants’ expertise in this area means that our international team can support you not only in engaging with policymakers during, but also after, this public consultation process. Companies should also already keep an eye out on the position of the European Parliament and Council of the EU on this topic, as evidenced by their own reports on the Circular Economy Action Plan.

Feel free to get in touch with us for more information.

EU Taxonomy: are fossil gas and nuclear investments “green”?

Aimed at steering investments towards economic activities that can help achieve climate neutrality by 2050, the EU adopted the Taxonomy Regulation on 18 June 2020, providing a framework to identify environmentally sustainable economic activities. The EU recognizes the energy sector’s crucial role in reducing greenhouse gas (GHG) emissions, as it is responsible for 75% of direct emissions. As such, the EU Taxonomy identifies economic sectors and activities related to the energy supply chain that can enable Member States to move towards climate neutrality.

On 2 February 2022, the European Commission presented its proposal for a Complementary Climate Delegated Act identifying criteria to determine, which gas and nuclear related activities can be used to accelerate the phase-out of harmful energy sources, such as coal, and support Member States’ move towards a more low-carbon energy mix.

EU Taxonomy – How does it work?

The Taxonomy Regulation aims at steering private investments in economic activities that are needed to achieve climate neutrality in the next 30 years. The Taxonomy, through a series of Delegated Acts, classifies climate-friendly activities in a wide range of sectors. With this system, the Commission’s objective is to attract investments in the most sustainable activities related to nuclear and gas, and limit “greenwashing”, meaning companies or investors falsely declaring themselves sustainable.

The first EU Taxonomy Climate Delegated Act was adopted on 4 June 2021, setting out the criteria to identify economic activities having the potential to substantially contribute to climate change mitigation or adaptation and not causing significant harm to any of the other relevant environmental objectives. The Delegated Act left out – among others – both nuclear energy and fossil gas. At the time, nuclear energy and fossil gas were excluded since the assessment of the potential significantly harmful impacts were still ongoing.

How does the proposed Complementary Delegated Act fit in the EU Taxonomy framework?

The objective of the proposed Complementary Delegated Act is to complement the first Delegated Act of June 2021 by setting out the technical screening criteria for economic activities related to nuclear energy and fossil gas. With this new Delegated Act, the European Commission recognizes that both the fossil gas and nuclear energy sectors can contribute to the transition towards a decarbonized EU energy sector, labelling certain gas and nuclear activities “green”. Nonetheless, the Commission sets strict criteria that nuclear and gas activities must respect. Notably, the Delegated Act details certain conditions for the construction of new gas projects or new nuclear plants, both in terms of technologies to use and authorization from Member States. The Delegated Act plans for the sustainability criteria for both gas and nuclear activities to be updated regularly as technology evolves.

What to expect next?

Once translated into all official EU languages, the Delegated Act will be formally transmitted to the co-legislators for their scrutiny. Both the European Parliament and the Council of the EU will have four months to analyze the document, and should they find it necessary, to make objections. Both institutions may request an additional two months of scrutiny time. If neither of the co-legislators submit objections and the scrutiny period has passed, the Delegated Act would enter into force and apply as of 1 January 2023.

Fit for 55 services

Since EU Member States and Members of the European Parliament (MEPs) are divided on the topic of the inclusion of gas and nuclear energy in the EU Taxonomy, the discussions will likely be lengthy and heated. France, most notably, and other countries including Bulgaria, Croatia, Czech Republic, Finland, Hungary, the Netherlands, Poland, Romania, Slovakia and Slovenia are strong supporters of the inclusion of nuclear energy in the EU Taxonomy. According to these countries, nuclear power plants are part of the solution to the climate crisis and should therefore be included. In contrast, other countries such as Germany, Luxembourg, Austria and Spain oppose the inclusion to the point of considering launching legal proceedings against the Delegated Act to stop its implementation.

Gas proves to be similarly divisive, with Member States split between those that say it is needed to help transition from coal, and those that argue labeling a fossil fuel as a green investment is not credible. Furthermore, the issue leaves MEPs clashing with their home countries, for instance between the Finish and French Green MEPs opposing the inclusion of nuclear and gas in the Taxonomy, while both Finland and France are actively calling for their inclusion. Within the European Parliament itself, the division is also strong. In contrast to the European People’s Party (EPP), which welcomed the Commission’s proposal, the Greens/EFA and Socialists & Democrats argue against the inclusion of gas and nuclear activities in the EU Taxonomy as they consider money invested in these energy sectors is urgently needed for the development of renewable energies.

 

Digital Services Act

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

On 20 January, the European Parliament has approved by a large majority its mandate for inter-institutional negotiations on the Digital Services Act (DSA), with the goal to create a comprehensive set of new rules for all digital services, including social media, online marketplaces, and other online platforms that operate in the European Union.

Proposed in December 2020, the draft Regulation on Digital Services aims to update the 2000 e-Commerce Directive (ECD) and 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.

With this blog post, Dr2 Consultants aims to shed light on some of the main provisions of the Digital Services Act and their subsequent impact on businesses.

What implications could the Digital Services Act proposal have for your organization?

The rules proposed by the DSA are designed asymmetrically. On the one hand, SMEs will have obligations proportionate to their ability and their role, size, impact in the online ecosystem while ensuring they remain accountable. On the other hand, very large online platforms that reach more than 10% of the EU’s population (45 million users) monthly in average will be considered systemic in nature and with a significant societal impact; hence, they will be subject to specific and stricter obligations.

The DSA will target the intermediary services offering network infrastructure (such as Internet access providers and domain name registrars), hosting services (like cloud and webhosting services), and online platforms (such as online marketplaces, app stores, collaborative economy platforms and social media platforms).

Numerous businesses affected by the new rules

Dr2 Consultants identifies some of the main issues that could impact businesses. 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 and they will have obligations in terms of transparency, fundamental rights protection, and cooperation with national authorities.

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. Furthermore, there have been concerns among media stakeholders that the DSA could harm media freedom and pluralism, and therefore called for an obligation of non-interference preventing platforms from jeopardizing the freedom of the press.

Public Affairs Trainings by Dr2 Academy - Request a proposal

Information society services which offer a wide range of services such as search engines, cloud services and other platforms would be likewise impacted by the new rules. Specifically, search engines have been included in the scope by the Council General Approach and in the ITRE and JURI Opinion.

Stricter rules for very large online platforms

The biggest platforms will be forced to provide greater transparency on online advertisements. Dr2 Consultants expects these extra obligations will require additional resources. Additionally, they 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, gig economy companies, such as well-known travel accommodation websites, would experience significant changes 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, adopted rules against said platforms and the Digital Services Act would allow them to enforce them.

Mixed response from stakeholders

Dr2 Consultants acknowledges that industry stakeholders’ responses to the proposal are rather mixed. On the one hand, several representatives from the industry stressed the risk that the DSA could lead to overregulation as some of the issues introduced by the proposed amendments could be already addressed taking into account the existing EU legislation (e.g., ePrivacy Directive and General Data Protection Regulation). Moreover, they highlighted the need for workable provisions and a balanced legal framework. On the other hand, consumer protection groups called for further and stricter obligations for platforms, namely on the liability regime and the use of personal data for direct marketing (targeted advertising).

What to expect from the interinstitutional negotiations on the Digital Services Act?

Dr2 Consultants advises businesses to pay close attention to the developments in the coming months. Following the adoption of the Council and Parliament’ positions, the DSA will enter into trialogue negotiations under the French Presidency of the Council of the EU. French President Emmanuel Macron identified the DSA as one of the priorities of the Presidency, which “will move as far forward as possible with talks with the European Parliament”. The European Commission aims for the Regulation to enter into force by 2023.

Notably, the EU institutions want to reach a deal on these new rules as soon as possible. Nevertheless, the trialogue negotiations will likely have to address many political differences between the Council of the EU and the European Parliament. For instance, targeted advertising is expected to be one of the key issues of the negotiations as the European Parliament’s position bans targeted advertising for minors and ads based on sensitive data including religious beliefs, sexual orientation and racial or ethnic origin, while the Council General Approach did not tackle online advertising in the DSA.

Dr2 Consultants continuously monitors the developments of the discussion on the new rules for digital services and supports its clients on these matters accordingly. If you would like to know more about this regulation or the overall legislation that the Commission will publish on the digital policy, please contact Dr2 Consultants, or 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

Fit for 55 developments in 2021 – the launch year in review

As 2021 is coming to an end, Dr2 Consultants is providing a retrospective of the key Fit for 55 developments and highlights in 2021, and a preview of what to expect in 2022. For a more detailed analysis, please read our policy updates, published regularly since the publication of the package.

With the presentation of the Fit for 55 package on 14 July 2021, the EU took on a role as a frontrunner in the field of climate change with impactful policies, paving the way to become the world’s first climate-neutral continent by 2050. With this move, the EU has encouraged other states to adopt similar plans, including China and the US. As such, the EU’s commitment to both the Paris Agreement and European Green Deal are translated into concrete legislative proposals, revising the entire EU climate and energy framework to reach the EU’s 2030 objective of reducing emissions by 55%.

Understandably, Fit for 55 dominates the policy agenda as its proposals address a wide range of policy areas, including transport, energy and international trade. Ultimately, the package will impact the life of all EU citizens and businesses, but will also have a global impact, notably through the Carbon Border Adjustment Mechanism.

14 July: publication of the Fit for 55 package

On 14 July, the Commission presented the Fit for 55 package, containing a set of legislative proposals to make the EU’s climate, energy, land use, transport and taxation policies fit for reaching the European Green Deal’s objective of reducing net greenhouse gas emissions by at least 55% by 2030. The package encompasses revisions of key legislation, including a proposal to extend the scope of the EU Emissions Trading System, increased national emissions targets under the Effort Sharing Directive, a review of renewable energy and energy efficiency targets, a new Energy Taxation Directive and more stringent CO2 emission standards for new cars and vans. Furthermore, new legislation was proposed especially to combat carbon leakage by a Carbon Border Adjustment, as well as to stimulate the fuel transition in the maritime and aviation sectors.

Mixed reviews

The presentation of the Fit for 55 package received mixed reviews from industry stakeholders and politicians, with many welcoming the ambition of the Commission but at the same time worrying about the implementation and the too high costs put on consumers. Industry stakeholders also raised the question of the availability of sufficient low-carbon energy to meet EU needs. On the other hand, actors of the energy transition, such as the electric vehicle charging industry or the wind energy industry welcomed the package.

On the European Parliamentary groups’ side, reactions also varied. The Europeans People’s Party (EPP) underlined the need for a credible social instrument in order to make sure “low-income families, middle class homeowners or car owners in rural areas without public transport” do not have to pay the highest bill. Meanwhile, the Socialists & Democrats (S&D) group welcomed the “ambitious and bold” commitments of the Commission and Renew Europe called the package “the most important legislative initiative of the decade”. The Greens, however, regretted the lack of ambition of some of the measures.

Climate organizations such as Greenpeace responded with disappointment. Greenpeace considers the 55% emissions reduction target too low, and the measures proposed not sufficient to prevent the destruction of the planet’s life-support systems. The European Environmental Bureau, the EU’s largest network of environmental organizations, called the package unfit and unfair. Friends of the Earth Europe criticized the extension of EU’s emissions trading scheme (ETS) to building and transport, fearing it will push millions of European households into energy poverty.

Fit for 55 developments in the Council and the EU Parliament in 2021

Following the publication of the package, the files were sent to the Council of the EU and the European Parliament for discussion.

Social concerns among Member States

Within the Council of the EU, Member States mostly worried about social impact of the transition, and the political unrest it could lead to, with higher transport and energy prices fuelling social movements similar to the ‘Yellow Jackets’ in France. Despite the package being accompanied by a proposal for a Social Climate Fund, especially Eastern Member States worried that it would not be sufficient to mitigate the impact of the transition for vulnerable households and businesses.

All throughout autumn, Council working parties, in charge of the technical work on legislative proposals, examined the Fit for 55 files, which were distributed among the different Council configurations, notably the Transport Council, the Environment Council and the Economic and Social Affairs (ECOFIN) Council. According to the Slovenian Council Presidency, which published a progress report on 6 December, EU Member States have been seeking clarifications from the Commission on the proposals and their impact, both at the EU and national level.

Delegations have also requested more information on the role and contribution of the individual proposals to the overall economy-wide ambition of achieving net emissions reductions of at least 55% by 2030, as well as on how the proposals interact. Discussions on certain files, especially the transport-related proposals (such as the CO2 standards for cars and vans or the ReFuelEU Aviation and FuelEU Maritime) have advanced well, some are more contentious and little progress has been made, notably on the EU Emissions Trading System or on the Effort Sharing Directive.

Challenging appointment of the key MEPs

One of the Fit for 55 developments in the European Parliament in 2021 was the appointment of the responsible Committees and MEPs that would act as rapporteurs, leading the negotiations on each file. The process of dividing the proposals between Committees went relatively smoothly, while the rapporteur appointment process was rather lengthy and difficult, with all political groups making their claims to the files with the most political weight. The process was only finalized in mid-November. The proposals were distributed among the Environment (ENVI), Transport (TRAN) and Industry, Research and Energy (ITRE) Committees. Both the European People’s Party (EPP) and Socialists & Democrats (S&D) got hold of most positions as rapporteurs, meaning they will be in the driving seat of determining the Parliaments’ position on the files.

Wrapping up 2021

To wrap up its mandate as President of the Council of the EU, which finishes on 31 December, Slovenia presented a series of progress reports, providing a state of play on the Council’s ongoing Fit for 55 work. Although discussions have advanced significantly, the Council of the EU has not been able to adopt its position on any file yet. The Environment Council will also hold a final meeting on 20 December 2021 to take stock of the progress made, the Transport and ECOFIN Councils having held their last sessions on 7 and 9 December. As of January, France will preside the Council of the EU with ambitious plans to achieve a common position on most of the files.

Another Fit for 55 development in 2021 was that, on 15 December, the European Commission presented additional Fit for 55 proposals, including an “energy, climate and nature protection” package, and the revision of the Energy Performance of Buildings Directive. The energy, climate and nature protection package will include a revision of the “third gas package”, comprised of a new Gas Regulation and a new Gas Directive, with the aim to completely overhaul the EU gas market to promote low-carbon and renewable energies instead of fossil gas. It also includes a proposal on Sustainable Carbon Cycles to upscale carbon recycling and removal solutions, especially focusing on carbon farming and industrial carbon capture, and legislation to reduce methane emissions from oil and gas exploration and production sector.

What to expect in 2022

As of 1 January 2022, France will assume the Council of the EU Presidency until July 2022. On 9 December, Emmanuel Macron presented the Presidency’s priorities, which include advancing negotiations on Fit for 55 files and moving ahead as quickly as possible. The Presidency will work to ensure both the availability of sufficient investments and innovations for the transition as well as sufficient support for industries and households in the transition. The Presidency will focus specifically on the conclusion of Council negotiations on the Carbon Border Adjustment Mechanism.

The European Parliament gathered in Strasbourg from 13 to 16 December for the last Plenary session of the year, after which the institution went into recess for the Christmas break, returning to work on 3 January 2022. In 2022, now that all Committees and rapporteurs have been appointed, proposals will be discussed in Committees and rapporteurs will start drafting their reports. Difficult discussions are already foreseen, with an opposition between Greens MEPs wanting more environmental ambition and EPP or Renew Europe MEPs worrying about the social aspects of certain proposals. Less contentious files, such as the Alternative Fuels Infrastructure Regulation or FuelEU Maritime, are nonetheless expected to be voted on between spring and summer 2022. More controversial files such as the EU ETS, ETD and CBAM will likely take longer.

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 COemission standards might radically impact your day-to-day business operations. More than ever, making your voice heard is crucial.

Fit for 55 services

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.

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

For the EU’s transport sector, the last year and a half was exceptionally challenging with passenger and freight transport being severely disrupted due to the COVID-19 pandemic. Although the recovery of the sector is of vital importance for Europe’s economy, it also provides a momentum for the industry to act on the ambition of decarbonization and reaching climate neutrality by 2050. The EU Strategy for Sustainable and Smart Mobility (“EUSSSM”), published by the European Commission on 9 December 2020, provided a blueprint on how the EU’s executive foresees to reduce transport emissions in broad terms. The recently published Fit for 55 package puts forward concrete legislative proposals to cut back carbon emissions across the different modes of transport. Published on 14 July 2021, the Fit for 55 package proposes concrete tools on how to reduce the carbon emissions of the European transport sector via new and revised legislation. Based on our latest intelligence and the positioning of our clients on the publications of these files, Dr2 Consultants’ transport practice presents four emerging trends that will shape the future of the EU transport sector in the years to come.

1. Prioritizing alternative fuels across all modes of transport

The uptake of alternative fuels will be a key priority for the Commission to cut emissions and create jobs. The EU’s executive arm aims to accelerate the production of low-emission fuels and the deployment of sustainable vehicles and vessels. Following the publication of the Hydrogen Strategy in the summer of 2019 and the EUSSSM further outlining the broader uptake of green hydrogen in the transport sector, several legislative proposals in the Fit for 55 package formulate ambitious targets for new types of alternative fuels.

The details of the fuel mix for the future of the EU transport sector are worked out in both FuelEU proposals (FuelEU Maritime and ReFuelEU Aviation) that set out a pathway for sustainable fuels to be used in the maritime and aviation sectors. The revision of the Renewable Energy Directive, the REDIII, provides targets for the EU energy mix as a whole, aiming to increase the share of renewables, electricity and hydrogen. In parallel, the Commission published a revision of the Directive on the infrastructure for alternative fuels, the new Alternative Fuels Infrastructure Regulation (AFIR). The proposed Regulation will accelerate the development of the necessary infrastructure across Member States to stimulate the uptake of sustainable fuels for all transport modes. The European Commission proposal upgrades the current AFID (a Directive) to a Regulation, which means the Member States will be obliged to meet the set targets. Transport ministers responded to the proposal by calling for clear objectives and the deployment of wide public network of recharging and refueling infrastructure for alternative fuels in transport. The ministers held that the new regulation should ensure the required deployment of interoperable and user-friendly refueling infrastructure for clean vehicles across the EU, and at the same time, stimulate the growth of the market and open new opportunities for the EU industry.

2. Safeguarding competition in the aviation sector

The second trend in the future of EU transport sector concerns European airlines, which have been intensively exploring potential pathways towards reducing their carbon footprints (by offsetting or market-based measures). To limit the climate impact of air travel, it is essential that a basket of measures is applied simultaneously to allow European aviation to fully contribute to the climate effort while long-term solutions are implemented to reduce emissions. These measures include, i.e. greener aircraft technologies, more efficient operations and infrastructure, the development of and appropriate support for sustainable aviation fuels (SAFs) and smart economic instruments.

The sustainable growth of aviation, which produces socio-economic benefits and contributes to achieving European environmental targets remains one of the industry’s most important objectives. There is an urgency to make bold political decisions that will help European aviation meet these objectives for the benefit of passengers and businesses that rely on sustainable air connectivity. The EU should however refrain from imposing unilateral measures at EU level that would hamper European airlines’ ability to compete at global level. The proposed EU ETS, ReFuelEU Aviation and Energy Taxation Directives are central in decarbonizing the sector but will require substantial investment from the aviation industry and thereby will challenge the competitiveness of the European aviation industry if not applied equally to non-EU carriers flying in and out of the EU.

3. A modal-neutral approach, facilitating sustainable transport 

With the upcoming legislative initiatives, one sector seems to be the winner: the railway sector. While the EU ETS, ReFuelEU Aviation and Energy Taxation Directives put more pressure on the aviation sector, and Member States such as Austria and France announced that they are considering cutting short-haul flights significantly, there will be a gradual modal shift to railway. Moreover, 2021 marks the European Year of the Rail, an initiative proposed by the European Commission. This initiative highlights the benefits of rail as a sustainable, smart and safe mode of transport. Altogether, railway undertakings are already experiencing an increasing market demand for international rail passenger transport. According to the Dutch Railways (Nederlandse Spoorwegen – NS), the principal Dutch rail passenger operator, in shaping the future of the EU transport sector, EU legislation should stimulate the modal shift and the uptake of climate-friendly alternatives such as rail. In order to promote the development of an international passenger service market, the NS is of the opinion that the EU should strive towards the creation of a European high-speed network that is interoperable, linking European capitals and major cities and connecting urban nodes and airports. A level playing field between the different transport modes will be crucial to ensure the swift decarbonization of the European transport sector as a whole.

While both the EUSSSM as well as the Fit for 55 package have a modal-neutral approach, both focus on facilitating the market demands and stimulate sustainable modes of transport. Through the proposed legislation and revisions, the European Commission addresses issues related to establishing a level playing field between the modes of transport (i.e. fuel taxation, infrastructure charges), improving intermodal ticketing services and increasing the customer experience through digital solutions such as the Mobility as a Service (MaaS) concept.

4. Green funding to enhance the resilience of the EU transport industry

In order to stimulate the resilience of the European transport industry and to realize the ambitions that are set out in the EUSSSM and Fit for 55 package, investments are needed. With a combined firepower of more than €1,800 trillion in the EU budget and Next Generation EU recovery fund, EU Member States will have various funding instruments at their disposal to finance the recovery of the EU transport sector.

Member States have been drawing up national recovery plans in order to receive funds from the Recovery Fund. Most Member States, with the exception of Bulgaria and the Netherlands, have submitted these plans, 12 of which were approved this summer by the Council of the EU. The Commission has requested the Member States to focus their recovery plans on the EU ambitions in the fields of digitization and sustainability. In the plans that have already been submitted by most Member States we can see a focus on green hydrogen, charging infrastructure and e-mobility. The submission and approval of these recovery plans means that the money from the recovery fund, approved almost a year earlier, can finally start being paid out. Projects that have a cross-border impact, a clear link to sustainability objectives and which can be executed in the next five years will get priority. According to the Commission, 30% of all funding through the Recovery Fund and in the new EU budget will be spent on sustainable projects. CINEA will open its first CEF Transport calls on 16 September, meaning that the distribution of funds is expected to start very soon.

Next steps

Following the official publication of the package of proposals by the European Commission on 14 July, the legislative processes in the European Parliament and the Council of the EU have officially started. Once the institutions defined their own positions, most proposals are expected to go into Trilogue negotiations next year, but for some more controversial files (such as the Energy Taxation Directive and the new proposed EU ETS system) these timelines are likely to be extended.

Additionally, several important proposals for the transport sector are still expected on 14 December 2021: The revision of the TEN-T Regulation (focused on transport infrastructure along a core network of corridors), the revision of the Intelligent Transport Systems (ITS) Directive, and the EU Rail Corridor Initiative. Consequently, legislative processes will run far into 2022, maybe even 2023 for some files, meaning that there is a significant window of opportunity for EU stakeholders to get involved in the process.

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 COemission standards might radically impact your day-to-day business operations. More than ever, making your voice heard is crucial.

Fit for 55 services

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.

How national elections might shift power relations in the European Council?

The European Council plays a central role in defining the common political orientations of the EU. With the EU-27’s political leaders represented in the European Council, national inclinations and politics are concerted, as the Member States defend domestic agendas through coalition-building with like-minded countries. Dr2 Consultants’ international team shares some insights on how several upcoming national elections will possibly impact the power dynamics in the European Council.

Changes in the national political arena

The European approach to COVID-19 showed the resiliency of the European Union and its Member States, but it also showed how difficult it is to concert a common approach, and how fragile it is. With domestic change looming, the power dynamics and coalition-building in the European Council is likely changing in the upcoming years. Where the relationship between Merkel and Macron ever more shows the strength of the Franco-German axis in the EU during the recovery phase of the COVID-19 pandemic, German elections and French elections this year could mean a blow to this ‘motor of European integration’.

What to expect?

The months ahead will witness major changes in domestic politics of the EU Member States that have been at the forefront of the discussions around the Recovery Fund allocations: namely France, Germany, Italy and the Netherlands. The European Council dynamics will likely change according to the new political setting that will rise in the upcoming months.

Potential power shift on Franco-German axis

The main uncertainties lay on French-German elections, which, depending on the outcome, might lead to a shift in power relations among the EU Member States. German elections showed a rather fragmented political landscape where, for the first time, there is no clear winner. A coalition is to be formed, but the involved parties are not necessarily aligned to one another in terms of domestic and international policy. Macron’s French influence projection is slowly filling the gaps provided by German political uncertainty, while at the same time keeping a close eye on collaboration with its partner. If France were to take a more influential role within the EU, it could steer the European Council in a new direction. However, this rise in the level of influence could be completely nipped in the bud if Macron were not to be reelected in 2022, and even more so if he were to lose to euro-skeptic Marine Le Pen.

Potential friction on economic solidarity

The new Italian PM Draghi is also likely to trigger new dynamics in the European Council, due to its experience in EU affairs and fiscal rules observation, which inevitably denote recognition of its political stature. Mario Draghi’s expertise in financial matters could boost Italy’s capacity to make the best use of the EU Recovery Fund allocations, avoiding misuse or bureaucratic loops ending up in unspent resources. Finally, the Netherlands, which are so far seen as the guarantor of fiscal respect, risks being further isolated within the European Council due to the difficulties in shaping a coalition government, which could hamper its ability to optimally represent its interests. These political changes could lead to the creation of new relations within the European Council, with the Northern countries losing leverage and the Southern countries gaining ground for a solidarity approach combined with due financial observance.

Country-specific analyses

Dr2 Consultants’ international team constantly monitors political changes throughout Europe, and the subsequent change of political dynamics at the EU level in order to identify threats and opportunities for its clients. After all, the political consensus in the European Council will impact the policymaking direction that the European Commission will take in the long run.

For the interested reader, a short analysis per country follows below.

Germany – a great legacy for a fragmented political landscape

On 26 September 2021, Federal Elections took place in Germany to name the successor of Angela Merkel. A turning point in the history of unified Germany, as the current Chancellor has been in office for more than 15 years. The result is rather uncertain as a rather fragmented political landscape was revealed. For the first time since 1950s, Germany is to be governed by a three-party coalition which is significantly divided on the political spectrum. It is unclear at this point whether the coalition will tilt left or right. The two dominant political camps — the center-left Social Democrats (SPD) and the conservative alliance of the Christian Democratic Union (CDU) finished only 10 seats apart, while the Greens scored their best result of all times finishing third. Most likely, there will be an alliance of the Greens and the liberals (FDP) with either the social democrat SPD or the conservative CDU/CSU. So, the hottest question at the moment is: who will replace Angela Merkel?

As his rivals kept on making missteps during the election campaign, SPD’s Olaf Scholz candidacy to represent a safe pair of hands to succeed Merkel became increasingly plausible. Scholz ran against Armin Laschet – Merkel’s likely successor in CDU – and Markus Söder, the CSU leader of Bavaria. Yet, whoever the next chancellor will be, one thing is clear: either of the candidates will face stronger pressure to provide the European Union with robust leadership.

For sure, the new coalition will have a strong impact on the German-French partnership. The French seem to have strong reservations regarding FDP’s participation in the new government. The liberals oppose France’s key projects at the EU level, such as EU-wide common debt or a European deposit guarantee. In contrast, SPD’s lead candidate Olaf Scholz is better seen by the French, on top of his close relationship with his French counterpart. In addition, Scholz’s openness towards the common EU debt could represent a departure from Germany’s traditional stance of fiscal rigour.

France – a window of opportunity for a plethora of candidates

With the French elections slowly approaching, more and more candidates are taking their run for the presidential elections of April 2022: Paris’ Mayor Anne Hidalgo, who will represent the left-wing Parti Socialiste; Yannick Jadot from the Greens; the far-left Jean-Luc Melenchon, leader of La France Insoumise; Fabien Roussel, leader of the French Communist Party; and Marine Le Pen, the far-right president of the Rassemblement National. This being said, the current president Emanuel Macron remains a strong candidate, although he has not yet officially declared his candidacy.

Polls taken out in early September show that Macron and Le Pen are the strongest candidates, and in a duel in the second round, Macron would outcompete Le Pen with a rather small margin. But one thing is clear, neither Macron nor Le Pen achieved their objectives in the June 2021 regional elections, which, in an unexpected turn of events, favored the Greens and traditional right-wing party Les Republicains.

In this plethora of parties and candidates, the balance tip will advantage those who will master the political speech on wage increases, green transition, and the country’s dependence on foreign supplies. But the main question remains unsolved: how will the French-German partnership look like after the elections, and how will Macron withhold the projection of a strong France in this dual relationship? Unclear is also what stance the other French candidates will take when it comes to EU Affairs. What is clear is that, should Le Pen win, the French pro-EU approach will change dramatically, with the balance of power in the European Council being reshuffled, and consequently the European concerted approach in the European Council on Green Pass and vaccination being at risk.

Netherlands Mark Rutte to be confirmed as Prime Minister?

The Dutch parliamentary elections took place some time ago, on 17 March. The elections favored the liberal VVD, setting incumbent Prime Minister, Mark Rutte, on course for a 4th term, which could make him the Netherlands’ longest-serving Head of Government. The big surprise of the elections was the surge in support for the socially liberal Democrats 66 (D66) party. The pro-EU party claimed 24 seats, 5 more than during the last election in 2017.

However, as of today, a new government coalition is yet to be formed. On 5 October, it was announced that VVD, D66, CDA and ChristenUnie (CU) will explore a new government coalition, but at least 75 of the total 150 seats in the Lower House are needed to form a coalition. Therefore, several parties need to come together. Due to the fragmented political landscape and recent political scandals such as the Dutch childcare benefits scandal, this process might still take some time.

How will this likely impact the EU’s political landscape? VVD, as well as CDA and CU, hold a more Euro-pragmatic approach, while D66 is positioned as pro-EU. It is likely that D66 will steer the coalition into a more EU direction. And without any plans for the Recovery and Resilience Facility (RRF), there remains more room for negotiation among the parties than previous years. Even if the new coalition will remain on its liberal course, it cannot deny the urgent cross-cutting problems such as climate change and migration that will require an EU approach. Finally, with regards to incumbent Prime Minister, Mark Rutte, if his stay is confirmed, the Netherlands’ reputation of having a critical but accommodating stance in the European Union will remain.

Italy – a European candidate held back by its majority

Following an internal crisis for allocation of power, the former Prime Minister, Giuseppe Conte, resigned and the Head of State, because of lack of agreement among parties, handed the government to the former ECB President, Mario Draghi, in February 2020, instead of launching anticipated elections – after less than 2.5 years since the last political elections. Supported by a strong coalition encompassing all parties but the far-right Fratelli d’Italia, PM Draghi pledged his mandate to four priorities: health, work, EU Recovery Fund and sustainability, to be delivered by a governing team composed of ministries revived from previous governments.

In a time of needed European concertation for both the COVID-19 vaccination efforts and the effective use of the country-allocated EU Recovery Funds, Draghi is determined to reaffirm Italy’s contribution to the European project by fostering sustainable policies, digitalization, integration and, last but not least, a firm approach to introducing a mandatory Green Pass. His active involvement in the European Council’s discussions on integration and immigration, paired with his stance on stricter observance of the rules for a vaccination certificate to combat the COVID-19 diffusion, may propose a balance shift in the European Council, filling the power vacuum left by the German political fragmentation and the uncertain outcome of the French elections.

However, the strength of Draghi’s Cabinet might also mark its end. Indeed, the only obstacle to his power projection comes from the inside, as the right-wing Forza Italia and Lega Nord are slowly gaining confidence and questioning the integrity of the government on two key files: immigration and Green Pass. Should Draghi be able to hold the coalition tight, he’ll probably take Italy out of the COVID-19 economic setback and lead the way to pre-crisis levels for Italy and for Europe.

“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.

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.