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Fit for 55: first reactions from the CEE region

The European Commission has adopted a long-awaited set of proposals to make the European Union’s climate, energy, transport and taxation policies fit for reducing net greenhouse gas (GHG) emissions by at least 55 per cent by 2030, compared to 1990 levels.

Achieving these emission reductions in the next decade is crucial to Europe becoming the world’s first climate-neutral continent by 2050 and making the European Green Deal a reality.

fit for 55
Ursula von der Leyen and Paolo Gentiloni. Source: European Commission

“The fossil fuel economy has reached its limits,” said President of the European Commission, Ursula von der Leyen. “We want to leave the next generation a healthy planet as well as good jobs and growth that does not hurt our nature. The European Green Deal is our growth strategy that is moving towards a decarbonised economy. Europe was the first continent to declare to be climate neutral in 2050 and now we are the very first ones to put a concrete roadmap on the table. Europe walks the talk on climate policies through innovation, investment and social compensation.”

These proposals combine the application of emissions trading to new sectors and a tightening of the existing EU Emissions Trading System; increased use of renewable energy; greater energy efficiency; a faster roll-out of low emission transport modes and the infrastructure and fuels to support them; an alignment of taxation policies with the European Green Deal objectives; measures to prevent carbon leakage; and tools to preserve and grow our natural carbon sinks.

“The new Fit for 55 package of the European Commission is a game-changing proposal both for European and international climate and energy policy and it shows that the European Union is committed to walk the talk on its commitments,” says Tibor Schaffhauser, co-founder of the Green Policy Center, a Central-European climate and sustainability think tank. “Several aspects of it will have influence also outside of the EU borders, such as the Carbon Border Adjustment Mechanism, but it will severely impact the daily lives of European citizens as well.”

The new ETS and its complementary tools: ETD and CBAM

The EU Emissions Trading System (ETS) has so far successfully brought down emissions from power generation and energy-intensive industries by 42.8 per cent. Now, the Commission is proposing a reduction of 61 per cent by 2030.

As many experts and industry players were hoping for, while the emissions from the maritime transport will be included in the existing EU ETS, emissions from fuels used in road transport and buildings will be covered by a new, separate emissions trading system.

This separate upstream system will regulate fuel suppliers (rather than households and car drivers) which will be responsible for monitoring and reporting the quantity of fuels they place on the market and for surrendering emission allowances each calendar year depending on the carbon intensity of the fuels.

This will be complementary to the proposed revision of the Energy Taxation Directive (ETD). Emissions trading will tackle CO2 emissions while ETD will ensure that fuel taxation incentivises an efficient use of energy and the consumption of more sustainable energy products, while not including a CO2 specific tax component. The ETD entered into force in 2003 thus it is clearly outdated and does not reflect the EU’s current climate and energy policy frameworks. Indeed, there was no link in the ETD between the minimum tax rates of fuels and their energy content or environmental impact. The rules have also failed to keep pace with the development of alternative fuels such as cleaner and sustainable biofuels and hydrogen.

Its revision centres on two main areas of reform. First, the proposal introduces a new structure of tax rates based on the energy content and environmental performance of the fuels and electricity. Second, it broadens the taxable base by including more products in the scope and by removing some of the current exemptions and reductions.

Finally, a new Carbon Border Adjustment Mechanism (CBAM) will put a carbon price on imports of a targeted selection of products (iron and steel, cement, fertiliser, aluminium and electricity) to ensure that ambitious climate action in Europe does not lead to carbon leakage. This will also ensure that European emission reductions contribute to a global emissions decline, instead of pushing carbon-intensive production outside Europe.

The reaction from CEE

Several associations and institutions from Central and Eastern Europe are welcoming the package as they are all already actively contributing to the growth of zero- and low-emission economies. At the same time, several concerns were raised regarding a lack of ambitions and fundings which could put the region at risk of being led behind.

“In the coming months when negotiating the detailed rules of the different legislations, for the CEE region, it will be crucial that the new rules lead to a green but also socially just and manageable transition,” Tibor Schaffhauser tells CEENERGYNEWS. “Proposals on the EU ETS or MSR will influence for example energy and fuel prices; CBAM the electricity imports and thus energy security; the phase-out of internal combustion engines by 2035 the future mobility, just to name a few.”

“The pathway to achieve the 2030 and 2050 climate goals proposed by the Commission is ambitious,” agrees the Brussels-based association Central Europe Energy Partners (CEEP). “Energy sector and energy-intensive sector in Central Europe are ready for a high level of ambition, however only when adequate support is provided.”

For CEEP, costs of transition should not be passed on to end-users, therefore it is of necessity to further increase budgets of funds linked to the EU ETS such as the Innovation Fund and Modernisation Fund.

“This will make money spent by the energy sector on CO2 emissions allowances return to these companies that invest in energy transition,” continues the statement.

The Polish Electricity Association (PKEE) agrees that the revision of the EU ETS Directive represents an excellent opportunity to seek a more accurate allocation key to ensure that low-income countries have sufficient revenues in their national budgets to cope with energy transition-related challenges and to finance the energy sector transformation.

“However, the Commission proposal misses that opportunity and instead of levelling imbalances in terms of allocation of EU ETS allowances will increase these disproportions until 2030,” reads PKEE’s statement.

The energy transformation in Poland is essential, however, it will require significant investment expenditures, which according to the PKEE’s estimations will reach 136 billion euros in the 2030 perspective.

“This amount exceeds four-fold the total amount of currently available national and EU funds for the decarbonisation of the Polish economy and thus additional financial support will be needed to achieve the ambitious reduction targets,” continues the statement.

Apart from the lack of significant increase in the Modernisation Fund, the PKEE is concerned about the Commission’s intention to limit the scope of the Modernisation Fund and eliminate the possibility to carry out investments in natural gas-fired high-efficiency cogeneration plants in district heating systems as of 2024, which remain the only solution to progressively withdraw coal-fuelled units and switch to less emitting gas as an intermediate fuel on the way to carbon neutrality, improve air quality and prevent an increase in energy poverty in coal-dependent countries, such as Poland.

Not leaving anyone behind

Through the Fit for 55 package, the European Commission has recognised that climate policies risk putting extra pressure on vulnerable households, micro-enterprises and transport users in the short run.

A new Social Climate Fund is proposed to provide dedicated funding to Member States to help citizens finance investments in energy efficiency, new heating and cooling systems, and cleaner mobility. The Social Climate Fund would be financed by the EU budget, using an amount equivalent to 25 per cent of the expected revenues of emissions trading for building and road transport fuels. It will provide 72.2 billion euros of funding to Member States, for the period 2025-2032, based on a targeted amendment to the multiannual financial framework. With a proposal to draw on matching Member State funding, the Fund would mobilise 144.4 billion euros for a socially fair transition.

“The proposed new Social Climate Fund should mitigate the social costs of these changes, however, it’s up to policymakers to also make it manageable and just for European citizens and the economy,” points out Mr Schaffhauser.

The benefits of acting now to protect people and the planet are clear: cleaner air, cooler and greener towns and cities, healthier citizens, lower energy use and bills, European jobs, technologies and industrial opportunities, more space for nature and a healthier planet to hand over to future generations. The challenge at the heart of Europe’s green transition is to make sure the benefits and opportunities that come with it are available to all, as quickly and as fairly as possible.

And CEE players and institutions are ready to engage in fruitful dialogues.

“The Green Policy Center is looking forward to engaging with policymakers, think tanks and relevant stakeholders on how to make the detailed rules of the Fit for 55 package reach its targets while also delivering a Socially Fair Transition,” concludes Mr Schaffhauser.

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