Council of the EU adopts its position on key ‘Fit for 55’ legislation

The end of June has seen major breakthroughs in the negotiations among EU Member States on the legislation part of the ‘Fit for 55’ package. In the last days of its presidency over the Council of the EU, the French managed to reach agreement on various energy and environmental legislation that are part of the climate package, namely: Renewable Energy Directive (REDIII), Energy Efficiency Directive (EED), the EU Emissions Trading System (ETS), Effort Sharing Regulation (ESR) and the CO2 emissions performance standards for cars and vans. Following the adoption of the respective General Approaches, the Council of the EU is now ready to start the negotiations with the European Parliament and the European Commission.

With the ‘Fit for 55’ initiative, the Commission aims to make the EU the world’s first climate-neutral continent by 2050 and achieve 55% emissions reduction by 2030. Ever since its publication less than a year ago, on 14 July 2021, the legislative package has caused heated debates among the co-legislators and dominated the policy agenda. Given how much is at stake for the green transition, especially in the context of the ongoing energy crisis, Dr2 Consultants aims to shed some light on the Member States’ position and the impact it will have on the businesses across the EU.

Accelerate the clean energy transition

On 27 June, the energy ministers of the 27 EU Member States reached an agreement to decarbonize the EU energy system by supporting the deployment of renewables and improving the efforts in energy efficiency and energy savings. The proposed revisions of the REDIII and EED are closely linked with the EU’s purpose to become independent from Russian energy supply, reducing energy consumption and fast-tracking the uptake of renewable energy.

The General Approach on the revision of the REDIII sets a binding EU-level target of 40% of energy from renewable sources in the overall energy mix by 2030. This objective falls short of the 45% target that the European Commission proposed on 18 May as part of the REPowerEU plan, which is also supported by the European Parliament. In addition to the EU-wide target, the Council of the EU agreed on sector-specific sub-targets for transport, industry, buildings as well as heating and cooling. Despite the increased flexibility compared to the European Commission’s proposal, several Member States underlined the need to take national differences into account in order to achieve the sub-targets and to leave room for maneuver for Member States in order to choose the most cost-effective energy mix in their countries.

Fit for 55 services

With regards to the General Approach on the EED, Member States agreed to contribute to achieving the reduction targets of 36% for final energy consumption and 39% for primary energy consumption by 2030. They will therefore have to take into account these targets in their national energy and climate plans (NECPs) setting indicative national contributions and trajectories. Specifically, Member States will need to ensure savings of 1.1% of annual final energy consumption from 2024, 1.3% from 2026, and 1.5% from 2028 to 2030.

Although the Member States stay aligned with the Commission’s proposals, they are still far away from the renewable energy targets as outlined by the Commission in its recently published REPowerEU plan. Moreover, Member States have introduced additional flexibility in the text. The European Parliament, which is scheduled to vote on the REDIII and EED during its Plenary session in September, is expected to adopt a more ambitious position. As the positions of the co-legislators are expected to diverge significantly, this might delay the informal Trilogue negotiations and as such, cause uncertainty for businesses.

Reduce carbon emissions to become a climate-neutral continent

On 29 June, following almost 16 hours of negotiations, the Member States adopted their General Approach on emissions reduction related legislation.

Following intense, behind closed doors negotiations on the EU ETS proposal, Member States agreed to retain the 61% emissions reduction target by 2030, to include a one-off reduction of the overall emissions ceiling by 117 million allowances and to increase the annual reduction rate of the cap by 4.2% per year. Moreover, the Council supported the inclusion of maritime shipping emissions in the EU ETS as well as the creation of a separate ETS for buildings and road transport sectors from 2027. As regards aviation, free allowances will be phased out gradually by 2027, while the General Approach proposes that operators using sustainable aviation fuels could receive free emissions allowances as compensation for higher prices.

To address emissions from sectors not covered by the ETS (e.g. agriculture and waste), the Council of the EU’s position on Effort Sharing Regulation supports an EU-level greenhouse gas emissions reduction target of 40% compared to 2005. The General Approach includes also reference to the need to converge all together towards the objectives and the possibility to adjust linear emissions trajectories in 2025.

Finally, as regards the proposed revision of the CO2 emissions for new cars and vans, the Member States agreed to introduce a 100% CO2 emissions reduction target by 2035 for new cars and vans – effectively phasing out the production of new combustion engines – and to raise the targets to 55% for cars and to 50% for vans by 2030.

The climate ambition to reduce net emissions would require not only investments in decarbonization but also financial support for most vulnerable households and SMEs to cope with the impact of higher carbon pricing. In this regard, the Council agreed to establish a Social Climate Fund with a maximum budget of €59 billion over the period 2027-2032, and it will coincide with the entry into force of the EU ETS for road transport and buildings.

The above key legislations are expected to shake up business operations in various sectors, as new obligations will be introduced to tackle carbon emissions and new sectors such as road transport and buildings will be included in the EU’s carbon trading market. Moreover, the internal-combustion-engine (ICE) ban for cars and vans by 2035 is a historic decision that will present a big challenge for the automotive industry. The upcoming trialogue negotiations with the European Parliament on these files will most likely focus on how to mitigate the potential negative effects of these measures on low-income households, such as higher energy prices.

 What to expect next?

On 1 July, the Czech Republic took over the rotating Council of the EU Presidency from France. Hence, the Czech Presidency will be the leading negotiator during Trilogue negotiations with the European Parliament. Dr2 Consultants had the possibility to discuss the energy priorities of the Czech Presidency beforehand with Mr. Petr Binhack, Chairman of the Energy Working Group for the Czech Presidency of the Council of the EU during an insightful webinar. The Czech Presidency would aim to close several of these Fit for 55 files, prioritizing the ones focusing on the transition towards energy efficiency and renewable energy, and achieve the short-term goals set by the REPowerEU plan.

Dr2 Consultants advises businesses to pay particular attention to the interinstitutional negotiations as the European Parliament’s starting position on these files aims at raising the ambition of the Fit for 55 package compared to the European Commission’s proposal, and especially, to the Council of the EU’s mandate.

Are you interested in what impact the Fit for 55 files will have on your company? 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.

We also invite you to stay up to date via Dr2 Consultants’ weekly Fit for 55 policy updates (read the latest update here and subscribe here).