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, 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.
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 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 Fit for 55 policy updates here.