'Fit for 55' - Europe's Man on the Moon Moment?
Article from: OGEL 1 (2022), in Editorial
The make-or-break decade has already started, according to the President of the European Commission (EC). The EU needs its policy toolbox to be 'Fit for 55' in place as soon as possible to meet its 2030 targets and set the block firmly on the pathway towards becoming the first climate-neutral continent by 2050.
The Commission's first batch of proposals under the 'Fit for 55' package, launched on 14 June 2021, proposes to revise seven interlinked pieces of legislation, which are central to moving the EU towards a climate-neutral energy system by 2050 and to introduce four new legislative measures. To reduce greenhouse gas emissions by the stated interim target 55% by 2030, compared to 1990 levels, the EU will need to invest an estimated €392 billion more each year in the energy system than it did in the period 2011-2020. The 'Fit for 55' package is an impressive 12,000-page legislative proposal effectively codifying the principles laid down in the EU Climate Law.
The 'Fit for 55' package is now further extended to include proposals on decarbonization of the EU's gas sector. The Commission officially presented this second batch of 'Fit for 55' policy files on 14 December 2021, and this batch now includes a gas and hydrogen package a recast gas Directive and a recast Gas Regulation) to repurpose the EU gas market and promote low-carbon and renewable energies instead of fossil gas; a Communication on Sustainable Carbon Cycle which plans to upscale carbon capture, recycling and removal solutions, especially for agriculture and industry; and a Regulation on methane emissions reduction on the energy sector.
When EU environment ministers debated the 'Fit for 55' package on 20 December 2021 Member States clashed on the level of ambition and the various targets of each file. Notably, there is disagreement on the revised CO2 emission standards for cars and vans, which would lead to the end of sales of internal combustion-powered vehicles by 2035. Countries with important automotive industries, such as the Czech Republic, Poland and Italy, worried that companies would not have time to develop alternative technologies by 2035, and that the ban would cost jobs. The Netherlands, Finland and Belgium however support a quicker phase out and more ambitious standards. So far, Member States converge on the importance of the Social Climate Fund but share a fear that will not be sufficient to protect most vulnerable citizens and industries from the impact of the transition.
The French Presidency is now expected to make it a priority to further the negotiations on the 'Fit for 55' package, with a special focus on the EU ETS and the LULUCF, as well as the Social Climate Fund and the CO2 emissions standards for cars and vans. It also aims at finalizing the Council negotiations on the Carbon Border Adjustment Mechanism. Expectations for the French Presidency are high, especially from environmental groups which have been disappointed by the (lack of) achievements of the Slovenian Presidency.
On 14 December 2021, the Commission proposed a policy guidance for a fair and inclusive transition towards climate neutrality, as complementary to the 'Fit for 55' package. This document sets out specific but non-binding guidance to help the Member States devise and implement policy packages that ensure a fair transition towards climate neutrality, by addressing the relevant employment and social aspects linked to the transition. It encourages Member States to take measures and actions to support citizens in the transition, including measures to support employment and education as well as social protection systems; measures to support affordable access to essential services (e.g. access to renewable energy, to mobility and circular economy solutions); measures to actively involve social partners and the civil society in the transition. Finally, it exhorts Member States to make use of public and private funding, available under the Social Climate Fund or the Just Transition Mechanism to implement the necessary measures.
Finally, on 21 December 2021, the Commission also adopted its new climate and energy state aid guidelines - the CEEAG. These guidelines will guide the Member State efforts to support the green transition.
What are the Prospects for Success? Some Initial Thoughts
The legislation is presented as a comprehensive package, but will that package remain intact? There are obviously major political as well as legal challenges ahead. The legal challenges are explored in depth in the contributions to this special issue.
First, there is a serious risk of loss of momentum and negotiations may grind to halt due to a lack of administrative capabilities. Overstretched EU and national administrative services are likely to struggle with the size and complexity of the package, especially as upcoming presidencies (apart from the current incumbent, France) may lack capacity to steer 'Fit for 55' through the Council. The Slovenian presidency has been criticized for its lack of progress on the July package following its introduction. There are many reasons for cautious optimism at best. The package is huge and the interests of the 27 Member States are diverse. There is no guarantee that the various legislative proposals will survive as a coherent and inter-related whole.
It can be expected that national capitals will become mired in discussions on legal bases and competences. The likely outcome could well be that only a handful of the current proposals will be adopted before the end of the current Commission's mandate.
Nor, second, can one exclude that negotiations on 'Fit for 55' are hijacked by developments that are not strictly speaking, central to the objectives of the package. Operationalizing the Social Climate Fund for example, will require amending the EU's multiyear budget, as well as an instrument (the Own Resources Decision) that will also have to jump through the hoops of ratification by national parliaments, giving less 'climate ambitious' Member States significant leverage in the negotiations to derail the entire package.
Third, it might be difficult to maintain the integrity of the overall package if Member States water down key proposals under the combined effects of intense resistance from incumbent industries, fear of social backlash on the left, and fear of loss of economic competitiveness on the right. Would the Commission - as the end of its term approaches - become more preoccupied by its legacy and would focus on getting the package adopted rather than on preserving its level of ambition? In all likelihood, we will witness the usual 'muddling through', with limited concessions to incumbent energy intensive industries while some member states will be encouraged to focus their efforts on maximizing additional funding and revenues to facilitate their transition rather than resisting change.
In conclusion, there is still a real risk that the 'Fit for 55' package if and when it is finally endorsed, will not deliver the target of at least 55% by 2030. This is not to say that the target might be achieved several years later but time is not on Europe's side and missing this target will weaken the overall ambition of achieving net zero by 2050. This in turn will raise interesting questions about the obligations on the EU institutions to realise their legally binding EU Climate Law targets in accordance with the stated timetable.
This special issue
The July edition of the 'Fit for 55' package includes instruments that target the following areas:
- greenhouse gas emissions from all economic sectors, including industry, transport, energy, agriculture and waste
- greenhouse gas removals by carbon sinks such as forests
- funding for a just transition
- renewable energy
- energy efficiency
- more alternative fuels and more charging stations for electric vehicles
- energy taxation
- a carbon border adjustment for certain imports
More specifically, it includes the following updates to existing EU laws :
- Renewable Energy Directive (RED)
- Effort Sharing Regulation (ESR)
- Energy Efficiency Directive (EED)
- Regulation on the inclusion of greenhouse gas emissions and removals from Land Use, Land Use Change and Forestry (LULUCF)
- Alternative Fuels Infrastructure Regulation (AFID)
- Regulation setting CO2 emission performance standards for new cars and vans
- Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)
It also introduces several new legislative proposals
- ReFuelEU Aviation - on sustainable aviation fuels
- FuelEU Maritime - on greening Europe's maritime space
- A Climate Action Social Facility
- New EU forest strategy
These various measures are positioned as inter-related and inter-dependent. They reflect a chosen policy mix of legal instruments that in turn represents a careful balance between pricing, targets, standards and support measures.
This Special Issue covers all four categories (pricing, targets, standards and support measures). The issue is restricted to the July package and does not include the gas and hydrogen package.
It starts with two introductory articles:
1. The 'Fit for 55'-package in the Context of EU Energy Law and Policy by Dr Kaisa Huhta
2. The Commission's Proposal of a 'Fit for 55' Legislative Package - What Impact Could It Have? by Christopher Jones and Andris Piebalgs
Additional contributions in this special edition review the following initiatives:
3. Fit For 55 - The RED II Proposal - Power Up by Silke Goldberg and Jannis Bille
4. Levelling up the EU ETS - The EU Fit-For-55 Package and its Implications for Emission Trading in Europe by Dr Christoph Riechmann, Dr Jens Perner, and Patrick Peichert
5. Energy Efficiency in the 'Fit for 55' Framework: Increasingly Ambitious Targets Coupled with Hardening Governance by Dr Sirja-Leena Penttinen, Eero Nippala and Kari Kallioharju
6. Implications of EU Fit for 55 Package for Biofuels Legislation by Cornelius Claeys
7. Towards Net Zero - The LULUCF Regulation and the Fit for 55 Package by Dr Seita Romppanen
8. Fit-for-55 but not Beyond? How to Make EU Transport Policy Really Fit for Climate Neutrality by Dr David Bothe, Dr Christoph Gatzen and Michael Zähringer
9. Social Climate Fund: Legal Aspects and Economic Challenges by Prof. Dr. Maria Meng-Papantoni and Dr. Theodoros Chatzivasileiadis
10. Enabling the EU 'Fit for 55' Transition: Canada as a Strategic Partner to Address Hydrogen and Raw Material Vulnerabilities by Professor Rudiger Tscherning
We hope you find this OGEL special issue on 'Fit for 55' useful. Enjoy the reading.
Professor Leigh Hancher (Florence School of Regulation, RSCAS/EUI/S; University of Bergen and Tilburg University; Baker Botts LLP) and Professor Kim Talus (Tulane Law School; UEF Law School; University of Helsinki).
 Descriptions of these updates and new proposals can be found at https://www.pwc.nl/en/services/tax/managing-tax-and-energy-transition/fit-for-55/other-green-taxes-revisions-and-measures.html#red
 A number of new studies on various elements of the 'Fit for 55' package are added to this Special issue at a later stage.