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Fit for 55 package: carbon pricing in the transport sector

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

1. Eurovignette and CO2 emission standards to decarbonize road transport

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

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

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

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

2. Extending the EU ETS to the maritime sector

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

Fit for 55 services

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

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

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

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

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

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

Is your business Fit for 55?

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

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

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

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

Climate ambitions of Flanders and the European Green Deal

On 21 June, in an interview on Flemish news television VRT, First Executive Vice-President of the European Commission, Frans Timmermans, called on Flanders to be more ambitious in the fight against climate neutrality. However, he also said, he was optimistic that Flanders would do its part being a wealthy region, which already has industrial pioneers on board for the European objectives. But what exactly are the Flemish climate objectives, and how are they aligned with the EU plans?

Greenhouse gas emissions reduction by 35%

The Flemish climate policy plan sets out the guidelines for the climate policy for the period 2021-2030. In line with the objective imposed by the EU for Belgium, the plan puts forward the objective to reduce greenhouse gas emissions in Flanders by 35% by 2030 compared to 2005. However, the EU is setting this goal at a reduction level of 50-55% by 2030. The required effort is identified per sector and, where necessary, the greenhouse gas reduction target is converted into sub-targets. In addition, the plan also contains the main measures required to achieve this objective and puts Flanders on the path towards a low-carbon future.

Energy efficiency

Another priority for Flanders is to increase energy efficiency for all sectors. The three largest energy consumption sectors in Flanders are industry, residential and transport sectors. In addition to improving energy efficiency, simultaneous efforts must be made to achieve the strong development of renewable energy. Energy services and technologies will be digitally controlled and intelligently linked. However, this is a huge challenge for Flanders. In the period 2005-2018, emissions decreased by only 5%. The Flemish Government, therefore, intends to focus more on increasing innovation, the persistence of circular economy, parallel federal policies and additional EU instruments (legislative and financial).

Transforming buildings will also play an important role in increasing the energy efficiency in densely populated Flanders. The climate policy plan encourages the renovation of residential buildings, rebuilding after demolition and making the heating installation more sustainable. This is in line with the EU’s ‘Renovation Wave’ initiative, part of the European Green Deal, with the goal to double the annual renovation rate of the existing building stock. The European Commission will publish communication on this in September 2020.

How can Dr2 Consultants advise you

The EU’s ambition is to lead the way towards a more sustainable future. Contrary to the fear that the COVID-19 pandemic would jeopardize the green agenda for the coming years, the Commission has shown its commitment to accelerate the green transition during the recovery phase. This green transition will pose challenges but will also provide opportunities to businesses, like front runners who can introduce their new and innovative approaches in Flanders. With the Dr2 Consultants’ European Green Deal Impact Scan, we will provide you with a comprehensive analysis of how the European Green Deal will affect your business, identifying the opportunities and challenges and highlighting moments to positively influence the policies and legislation. In addition, we are able to provide you with high-end intelligence on the developments in Flanders that allows for a comprehensive overview of relevant files for your business.

From Green Deal to Green Recovery

While the COVID-19 crisis has seen unprecedented challenges for the European transport sector, it also demonstrated the crucial role transport plays to ensure an uninterrupted supply of goods and services across Europe. Although the recovery of the sector is of vital importance of Europe’s economy, the recovery from the crisis also provides a momentum for the industry to act on the ambition of decarbonization and reaching climate neutrality by 2050. As put forward in the Commission’s EU Recovery Plan, the COVID-19 recovery phase should be used to pave the way towards not only a resilient and reliable transport sector, but also a sustainable one that is at the heart of the European Green Deal.

Following the publication of the Commission’s plan for recovery – dubbed as ‘Next Generation EU’ – as well as its updated Work Program for 2020, we have a clearer picture how the greening of the sector will unfold in the coming years. Dr2 Consultants’ transport team presents four take-aways for sustainable transport that will dominate the EU’s policy agenda in the years to come.

1. Alternative fuels, sustainable vehicles

Alternative fuels are 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. In order to finance this, public investment should come with a commitment from the industry to invest in cleaner and more sustainable mobility.

The roadmaps for the further deployment of different fuel types are expected to be part of the highly-anticipated FuelEU proposals – to be published later this year – that will aim at increasing the use of alternative fuels in the maritime and aviation sector. Furthermore, in early 2021, the Commission will put forward the revision of the Alternative Fuels Infrastructure Directive, which will ensure the development of the necessary infrastructure across Member States to stimulate the uptake of sustainable fuels for all transport modes. 

2. The convergence of the energy and mobility systems

In order to decarbonize the transport sector, no stone is currently left unturned. Although electrification seems to be the most viable option on the short term, hydrogen is dubbed as the energy source for the future. The Commission’s flagship instrument for research and innovation, Horizon Europe, will be instrumental to kick-start the clean hydrogen revolution. The Commission has increased its budget in the new Multiannual Financial Framework (MFF) with €13.5 billion, bringing Horizon Europe’s new budget to a total of €94.4 billion.

Later this month, the Commission will launch the Clean Hydrogen Alliance to stimulate the upscaling of clean hydrogen production in Europe. Also, the work of the European Battery Alliance will be accelerated. On 24 June, the Hydrogen Strategy is expected to be published.

3. Cities at the heart of sustainable mobility

With over 70% of EU citizens currently living in urban areas, achieving sustainability in cities across Europe is one of the main challenges of the recovery period. As a direct result of the COVID-19 crisis, noise pollution and air quality figures have dropped to an unprecedented level. Moreover, cities reinvented the way citizens move around, e.g. by giving priorities to pedestrians, introducing speed limits for vehicles and implementing new cycling lanes. The shift towards smart and more livable cities, therefore, places a big responsibility on the transport sector.

The Commission aims to increase the support for zero and low-emission mobility in cities by investing significantly in clean urban mobility. Funding calls in the Connecting Europe Facility (CEF) and InvestEU programs will focus on clean fleet renewals by cities, the deployment of charging points and mobility-as-a-service solutions.

4. Taxation, anyone?

In the Next Generation EU, the Commission proposes to generate additional own resources by new taxes. Although the Commission still must draw up the specifics, it floated the option of extending the EU’s Emissions Trading System (ETS) to the maritime sector, thereby raising up to €10 billion annually that will feed into the EU’s budget. In addition, the so-called carbon border adjustment mechanism is likely to be introduced, putting a carbon levy on non-EU imports.

Raising these kinds of ‘European’ taxes is unprecedented. As Member States have diverging views on this matter, it remains to be seen whether we can expect a breakthrough on these new own resources any time soon.

Next steps

The Commission aims to have the new MFF and recovery fund operational by 1 January 2021. EU leaders are expected to start the negotiations on the budget proposal during the European Council Summit on 19 June and will have multiple rounds of very difficult talks until a compromise is made. This ultimately means that the budget as proposed now for transport-related funding instruments can still change. The budget negotiations are expected to accelerate when Germany takes over the rotating six-months Presidency of the Council of the EU on 1 July 2020.

New Commissioner for Transport strives for decarbonization and multimodality

With the confirmation of the Romanian Adina-Ioana Vălean as Commissioner-designate for Transport, the new College of Commissioners is now complete and awaits final confirmation of the European Parliament’s plenary on 27 November. The soon-to-be Commissioner for Transport reiterated during her parliamentary hearing that the transport sector needs to become more sustainable and cut back CO2 emissions. According to Vălean, the European Commission will have to strike a balance between applying the polluter pays principle while maintaining the competitiveness of the industry. What is the outlook for transport according to Vălean?

Reducing emissions in most polluting sectors

Both the maritime and aviation sectors will need to cut CO2 emissions significantly in the next decades to comply with the climate objectives as set out in the Paris Agreement. According to Vălean, there are good reasons to include the maritime sector in the EU Emission Trading System (EU ETS). Moreover, she mentioned plans to reduce the free allowances in the EU ETS for aviation and ensuring the sector’s compliance with the global system for offsetting emission CORSIA. The Single European Sky legislative file, which is currently blocked in the Council of the EU, was mentioned as important to move forward with as it can reduce congestion and emissions in aviation.

The Transport Commissioner will cooperate closely together with Frans Timmermans, Executive Vice President and coordinator of the EU Green Deal, to work out the details for various upcoming initiatives. Moreover, the European Commission will closely follow developments at global level, most notably the International Maritime Organization and the International Civil Aviation Organization, to pursue global solutions. However, Vălean stressed that the European Commission is not afraid to bypass international organizations in order to maintain leadership in climate change.

Focusing on sustainable transport modes

According to the Commissioner, multimodality is a key instrument for accelerating decarbonization of transport. She stated that railways are at the centre of multimodality and sustainable transport. She urged for more investments and the completion of the Trans-European Transport core Network by 2030. Moreover, she will use opportunities in the field of digitalization to further deploy the European Rail Traffic Management System, improve multimodal ticketing and exploit the potential of Mobility as a Service. On road transport, the Commissioner hopes to attain more investments in e-mobility and recharging points for electric vehicles.

What’s next

The proposed College of Commissioner is still subject to a plenary vote by the European Parliament in Strasbourg on 27 November. Moreover, the United Kingdom is also expected to nominate a Commissioner, but up until this moment they have refused to do so. Following a positive result, the European Council will formally appoint the Commission through Qualified Majority Voting in order to take office on 1 December 2019. New legislative initiatives are expected to be published early 2020 and are expected to have significant impact on stakeholders across the transport sector. Do you want to know more about how the policy agenda of the European Commission will impact your business and daily operations? Please get in touch with us to know more.

Click here to download the 5 key takeaways from Adina-Ioana Vălean’s hearing.

The push for decarbonization of transport

Now that the President-elect of the new European Commission, Ursula von der Leyen unveiled her team of candidate-Commissioners and the subsequent portfolio distribution, it is time to determine its priorities in the field of transport. The most notable feature in the plans of the Commission is the push for decarbonization in the transport sector in order to comply with the climate objectives as set out in the EU’s 2050 Climate Strategy. So, what is exactly expected in the coming five years?

New structure, new responsibilities

Within the new structure of the European Commission, Frans Timmermans has been proposed as one of the top candidates of the Commission, responsible for realizing the European Green Deal, according to which Europe should be climate-neutral by 2050.

In his new role as Executive Vice-President, Timmermans will coordinate the work of multiple Commissioners, such as Transport, Energy and Agriculture, and their respective contributions towards the Green Deal. Moreover, Timmermans will have direct access to the Directorate-General of Climate Action, which will give him more influence in initiating and implementing legislations. Timmermans is expected to present his first outline of the European Green Deal in early December, in which more details are expected on how transport should contribute to the climate objectives. Frans Timmermans will be heard by the Parliamentary Committees on 8 October.

Decarbonization and the legislative framework

Following the publication of the new Commission’s policy priorities, von der Leyen has set out the priorities for each Commissioner-designate in a dedicated mission letter. According to von der Leyen, transport is at the intersection of the climate and digital transition. The priorities for the next Transport Commissioner should be to ensure sustainable, safe and affordable transport, in which emissions are further reduced. The following policy measures can be expected from the next Transport Commissioner:

  • Strong focus on completing the missing infrastructure links in the Trans-European Transport Network (TEN-T). This should help to smoothen connections in logistic chains and stimulate cross-border transport, i.e. by high-speed train connections;
  • Comprehensive review of existing legislation to align it with the EU’s climate ambitions. In concrete terms, this means breaking up the Energy Taxation Directive and subsequent voting procedures (currently by unanimity), as well as extending the EU’s Emission Trading System (ETS) to the maritime sector and reducing free allowances for airlines;
  • The new Transport Commissioner is asked to also stimulate global solutions besides the European routers, within the International Civil Aviation Authority (ICAO) and the International Maritime Organization (IMO), to avoid hampering the competitiveness of the European transport sector;
  • For road transport policy proposals are expected on the alternative fuels- and EV-infrastructure, as well as new policy regarding road safety and autonomous vehicles.

Perspective of the Member States

The European Commission has ambitious objectives to decarbonize transport, but what about the commitment of the Member States? The EU’s 2050 climate strategy was the centerpiece of the Transport Council of 20 September. Despite an ambitious agenda of the new Commission, Member States seem to have diverging views on the proposed actions for the different transport sectors.

For the road, maritime and aviation sectors, decarbonization is a central theme for the European Commission as well as for the Ministers of Transport. However, there was no explicit majority support during the Transport Council meeting for an extension of the Emission Trading System to the maritime sector, even though the new Commission states this as one of their key ambitions. Secondly, although the new Commission aims to reduce ETS allowances for the aviation sector, the Transport Council meeting also highlighted the lack of support from the Member States for an extension of the current ETS regime for the aviation sector (ending the so-called “stop the clock” measure). Multiple Member States agreed that, for now, the International Civil Aviation Authority (ICAO) and the International Maritime Organization (IMO) are the first-choice platforms to reach decarbonization goals. Moreover, changing the voting rules within the Energy Taxation Directive to be able to pass taxation legislation without unanimity from the Member States, is not expected to get support in the Council since Member States prefer taxation measures to remain a national competence.

On rail transport, there is an overall consensus among Member States on the ‘switch to rail’ as a desirable modality shift. As of this moment, fragmentation of national systems and lack of cooperation on cross-border railway connections impede the rise of the train as a more convenient transport mode. The Member States expect investments needed for the development of rail infrastructure through the Connecting Europe Facility (CEF).

Balancing ambitions

When it comes down to politicized dossiers such as the Energy Taxation Directive and extending the EU’s Emissions Trading System, Member States are currently not on the same page as the European Commission. It remains to be seen how the Commission will pursue its agenda and get the necessary support in the Council. More details are expected during the hearings of the Commissioners-designate in the European Parliament.