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Fit for 55 Policy Update

No. 33 | 12 May 2022

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Dear reader,

Welcome back to this week’s edition of Dr2 Consultants’ Fit for 55 policy update. Dr2 Consultants is pleased to provide you with the latest insights on this package of climate and energy legislations, which was presented by the European Commission on 14 July, including updates on the decision-making process and the latest political developments in the EU institutions. Our Fit for 55 policy updates now also include the latest developments related to the adoption of EU sanctions on Russia and the impact of the overall energy crisis on the Fit for 55 initiatives.

EU ENERGY CRISIS

EU SANCTIONS ON RUSSIA AND THE IMPACT ON THE FIT FOR 55 POLICIES

EU GAS DEPENDENCY COULD COST €250 BILLION BY 2030: A report published on 11 May by environmental think-tanks found that, despite the measures planned in the Fit for 55 package, forecasted gas consumption in 2030 could cost the EU €250 billion more than anticipated by the European Commission in its impact assessments when drafting the package. This is because the high and volatile gas prices, caused by shortages coupled with the war in Ukraine, are expected to last for at least three years. The EU’s REPowerEU Communication, which proposes a path towards independency from Russian supplies, is expected to decrease this cost by only €47 billion. The report finds that the only way to considerably reduce this cost is to roll-out renewable energies more rapidly and on a larger scale than planned in the package, as well considerably increase energy efficiency.

RENEWABLE ENERGY GENERATION CAPACITY REACHED RECORD HIGH IN 2021: According to a press release published on 11 May by the International Energy Agency (IEA), global renewable energy generation capacity has known an unprecedented growth in 2021, with the addition of a record 295 gigawatts of new renewable power capacity, mainly from solar energy. The growth is notably driven by strong policy support in the EU, but also in China and Latin America. The IEA expects that this growth will continue in 2022 as governments increasingly seek to take advance of renewables’ energy security and climate benefits. Global capacity additions are expected to rise this year to 320 gigawatts – equivalent to an amount that would come close to matching the European Union’s total electricity generation from natural gas.  However, the IEA warns that, based on the current policy setting, renewable energy’s global growth is set to lose momentum in 2023. In the absence of stronger policies, the amount of renewable power capacity added worldwide is expected to plateau next year.

EU COMMISSION CONSIDERING FUNDING FOR EASTERN MEMBER STATES’ ENERGY INFRASTRUCTURE: Following Commission President Ursula von der Leyen’s trip to Hungary on 9 May, EU officials revealed that the Commission is considering offering certain eastern Member States (Hungary, Slovakia and Czech Republic) additional funding to improve their oil infrastructure and connections with other Member States, as a way to convince them to endorse a ban on Russian oil. The ban on Russian oil imports was proposed by the Commission as part of the sixth sanctions package proposed by the Commission last week. The three countries are landlocked and have therefore less options than other Member States for alternative supplies. The sanctions package, which must be approved unanimously by Member States, is currently being tweaked by the Commission to address their various concerns and gain approval. The Commission has already agreed to grant Hungary, Slovakia, Czech Republic longer transition periods for phasing out crude oil and refined oil imports, and a new revision of the text is expected to remove the ban on EU tankers from carrying Russian oil after pressure from Greece, Cyprus, Malta.

 

Would you like to know more about the impact of the energy crisis and sanctions on Russia on your organization? Dr2 Consultants’ European Green Deal & Fit for 55 Impact Scan offer targeted solutions to understand and anticipate the impact of the EU’s climate initiatives, as well as the EU’s countermeasures to mitigate the impact of the energy crisis and its sanctions on Russia. Don’t hesitate to contact us for more information.

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Highlights of the week

ECONOMIC COMMITTEE DEBATES AMENDMENTS TO ENERGY TAXATION DIRECTIVE: On 11 May, the Economic and Monetary Affairs Committee debated the 409 amendments submitted to Rapporteur Johan Van Overtveldt’s (ECR, Belgium) draft report on the Energy Taxation Directive. MEP Overtveldt underlined that there is still a disagreement within the Committee on the taxation approach to adopt in the legislation: he is in favour of a technology-neutral approach, whereas other political groups favour the Commission’s approach based on environmental impact. However, MEPs agree on the need for a global impact assessment of the Fit for 55 package to assess its impact on citizens and industry. MEPs also disagree on the inclusion or not of automatic indexation of taxation rates on inflation, as well as on the date of entry into force of the new legislation. However, they agree that double taxation must be avoided, especially with regards to energy used in installations covered by the EU ETS. The minimum and maximum taxation rates for various energy sources, notably electricity, transitional fuels and sustainable fuels, also still cause disagreement between MEPs.

ENVIRONMENT COMMITTEE ADOPTS CO2 STANDARDS FOR CARS AND VANS REPORT: On 11 May, the Environment Committee (ENVI) adopted the report by Rapporteur Jan Huitema (RE, Netherlands) on the CO2 emission performance standards for cars and vans.  The report was adopted with 46 votes in favor, 40 against and 2 abstentions. Proposed measures include the removal of the incentive mechanism for zero- and low-emission vehicles (‘ZLEV’) and a gradual reduction of the cap for eco-innovation, in line with the proposed stricter targets (the existing 7g CO2/km limit should remain until 2024, followed by 5g from 2025, 4g from 2027 and 2g until the end of 2034). MEPs agreed upon the establishment of a common EU methodology by the Commission, by 2023, for assessing the full life cycle of CO2 emissions of cars and vans placed on the EU market, as well as for the fuels and energy consumed by these vehicles. Furthermore, the report calls on the Commission to work on reports covering the impact on consumers and employment, the level of renewable energy use, information on the market for second-hand vehicles, and targeted funding to boost the green mobility transition. The ENVI report will be voted on during the June Plenary sitting.

ENVIRONMENT COMMITTEE REACHES MAJORITY AGREEMENT ON EU ETS: On 11 May, the Rapporteur on the EU Emissions Trading System (ETS), MEP Peter Liese (EPP, Germany) announced the Environment Committee reached an agreement on the proposal. This comes a day after MEP Michael Bloss (Greens/EFA, Germany), Shadow Rapporteur for the EU ETS, announced that the Committee had reached a majority agreement supported by the S&D, Greens/EFA, Renew Europe and The Left,  but not EPP. MEP Liese explained that the Shadow Rapporteurs accepted the inclusion of the ‘bonus-malus-system’, according to which companies that are emitting much less than others in their sector will get additional allowances, while those that are emitting much more and do not do efforts to decarbonize, will have to pay a much higher bill in the next years. In addition, companies that meet the emissions reduction benchmark will be rewarded with longer free allowances and be exempted from the correction factor. MEPs also agreed on increasing the Innovation Fund with additional 50 million more allowances and to direct 75% of the ETS’s revenues for shipping to an ‘Ocean Fund’ (support for the decarbonization of shipping industry). As regard the expansion of the scope of the EU ETS, MEP Liese explained that maritime transport will be included from 2024 while the ETS II for road transport and heating has some differentiation. Specifically, MEPs agreed that ETS II for commercial operators will be introduced as soon as possible, while for private sector it will start only from 2029 (subjected to an impact assessment by the Commission of energy and mobility poverty in the EU).

COMMISSION TO SHORTEN RENEWABLE ENERGY PERMIT PROCEDURE: According to a leak of the Commission’s REPowerEU plan, to be published on 18 May, the European Commission will propose to allow certain renewable energy projects to receive permits within a year. Member States would have to designate “go-to- areas” where renewable energy projects would have a low environmental impact. For new projects in such areas, permit granting process should not exceed one year. Normal permitting procedures for renewable energy usually take years, dependent on the Member States’ bureaucracy. The Commission’s proposal would accelerate the process as the overall “go-to area” would be subject to an environmental assessment, but individual projects would no longer need one. Also according to the REPowerEU leak, the EU renewable energy target should be increased compared to the Renewable Energy Directive proposal, but the number is not yet specified. Finally, the REPowerEU plan will include a strategy for solar power, to make it a significant part of the EU’s power and heating systems.

TRANSPORT COMMITTEE AGREES ON THE INCLUSION OF MARITIME IN THE EU ETS BUT NOT OF ROAD TRANSPORT AND BUILDINGS: On 10 May, the Committee on Transport and Tourism (TRAN) published its opinion on EU ETS, which was adopted on 28 April. The Rapporteur for opinion Andrey Novakov (EPP, Bulgaria) underlines his concerns over the lack of a synergistic economic impact assessment covering the entire Fit for 55 package. The opinion supports the inclusion of the maritime sector in the scope of the EU ETS, but calls for a coordinated approach with the International Maritime Organization (IMO) towards a global market-based instrument. The opinion also extends the phase-in period from 20% of verified emissions for 2026 to 100% for 2029, to mitigate the negative effects of COVID-19 pandemic and leave time for the sector to adapt. The TRAN opinion proposes the establishment of a Maritime Transition Fund funded by ETS revenues, which would finance decarbonization projects and boost the development of transitional fuels and new technologies. On the inclusion of building and road transport in the scope, the TRAN Committee rejected this option, highlighting that it is premature as it would have negative effect on end-consumer costs, citizens and business. A comprehensive impact assessment indicating the real burden to citizens and thoroughly analyzing the risk and scale of energy and transport poverty, is needed before a final decision on the new ETS can be made.

EUROPEAN PARLIAMENT PUBLISHES STUDY ON PRICING INSTRUMENTS ON TRANSPORT EMISSIONS: The study was published on 10 May on the request of the TRAN committee to support its work on key legislative proposals such as the Energy Taxation Directive (ETD) and the EU Emissions Trading System (EU ETS). The study explains that pricing instruments on CO2 emissions from road transport are used widely across the EU, but not in a coherent way. As a result, different tax levels and structures are in place across the EU. The Commission has attempted to harmonize these policies through the EU ETS and ETD. The report does however show that pricing instruments seem successful in reducing CO2 emissions, as well as in generating taxation income. It must be taken into account that distributional impacts also occur: households of low-income experience a larger impact than other groups. The report therefore recommends a balanced mix of pricing instruments and to integrate these into broader emission reduction policies. Carefully exploring social acceptance and openness to adjusting the instruments are also important.

What’s next?

On 16 and 17 May the TRAN Committee will vote on its opinions on the Renewable Energy Directive and the Energy Taxation Directive, and debate amendments to the FuelEU Maritime report.

On 16 and 17 May, the ENVI Committee will vote on its reports on the Carbon Border Adjustment Mechanism (CBAM), EU ETS, Land Use, Land Use Change and Forestry Regulation (LULUCF) and Effort Sharing Regulation, as well as its opinions on the Renewable Energy Directive.

On 7 June, the European Parliament Plenary will hold a joint debate on the Fit for 55, focusing on the CBAM, the EU ETS, the Effort Sharing Regulation, the LULUCF and the CO2 emissions performance standards for cars and vans.

All throughout June, the Council of the EU is due to adopt its positions on FuelEU Maritime, ReFuelEU Aviation, Energy Efficiency Directive, Renewable Energy Directive, CO2 emission standards for cars and vans, Effort Sharing Regulation and EU ETS.

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