15.07.2021 | European Green Deal: Fit-for-55 package published on 14 July 2021

EU on the road to climate neutrality

On Wednesday, 14 July 2021 the European Commission published a series of legislative proposals – the so-called Fit for 55 package. Although it sounds like an exercise program for the middle-aged, the package is supposed to implement the EU’s recently adopted 55% greenhouse gas reduction target by 2030. It is part of the European Green Deal. Find out here what this brings for the electricity industry and what the package means from Axpo's point of view.

The publication kick-starts the EU’s legislative procedure involving the Council (=EU Member States) and in most cases the European Parliament and will last 1 – 2 years; as a general rule, the Regulations will likely apply as of early 2023, the Directives will likely be phased in as of 2024.

What’s the relevance for the power sector

More renewables: The Fit-for-55 package will boost renewables by increasing the EU’s renewable target for 2030 from today’s 32% to 40%. It should facilitate permitting, one of the main obstacles for wind and PV projects. Buildings shall both become greener and more efficient. The Fit-for-55 package brings about a sustainable aviation fuel (SAF) blending mandate of 2% as of 2025, rising to 63% as of 2050. The Fit-for-55 package will also deal with the issue of “additionality”.

Polluter pays: The Fit-for-55 package will further reduce the number of emission rights, limit free permits and expand its scope to maritime shipping and introduce tougher rules for aviation. For emissions from road transport and building the Fit-for-55 package proposes separate solutions with the possibility of integrating them into the EU ETS at a later stage. The Fit-for-55 package shall also create a level playing field between renewable and fossil fuels in transport and heating & cooling.

Carbon protectionism: In order to prevent carbon leakage, the Fit-for-55 package includes a protectionist “carbon border adjustment mechanism” (CBAM), putting a price on imports of steel, aluminium, cement, fertilizer and electricity. CBAM will be phased in as of 2023 and the price would mirror the price in the EU’s carbon market. In order to avoid a trade war, CBAM will also have to bring free allocation of emission rights to the industry to an end. Imported goods from Switzerland are out of scope – thanks to the Swiss emission trading scheme being coupled with the EU’s emission trading scheme. Whether this also applies to electricity from Switzerland remains to be seen. 

Green mobility: Fit-for-55 package will tighten the EU's existing CO2 emission performance standards for cars and light commercial vehicles. The GHG reduction target of 37.5% for 2030 (as compared to 2021) might raise to 60% and have to achieve zero emissions by 2035; this implies the end of the internal combustion engine. In order to reach these targets a huge growth in recharging stations and massive electrification is needed.

What’s missing?

Decarbonisation of the EU Internal Gas Market & Hydrogen: This will be dealt with later this year through a separate legislative initiative – the decarbonisation package.

What’s Axpo’s preliminary view on the Ff55-package

The single elements of the Ff55 are heavily interwoven (“package”) in order to make it more difficult for the European Parliament and the EU Member States - and lobbyists - to pick single elements apart and in order to spread the costs of decarbonisation as wide as possible – to prevent a European yellow jacket movement. The introduction of an EU Social Climate Fund is also supposed to defuse that risk.

The European Green Deal will be a main driver for electrification, carbon prices, the EU Internal Gas Market (or rather the EU Internal “Molecule” Market) and investors’ behaviour. It remains silent about the market – one of the three goals of the EU energy policy triangle: liberalisation may have lost its appeal with policy makers, who are more focused on Sustainability and – to a lower extent – on Security of Supply.

With view to the relation between policy makers and the energy industry the later will have to get ready for the blame game: if the EU’s 2030 targets will not be reached, policy makers will not hesitate to turn around and finger point the industry and demand more top-down and command-and-control measures. It is therefore crucial to clearly state what framework the energy industry needs, in order to be able to contribute to the EU’s 2030 and 2050 goals.

Finally, with view to Swiss-EU energy relations, prioritising the fight against climate change within the framework of the Paris Agreement also bears some opportunities: Switzerland shares the EU’s climate goals in principle and could become part of a pan-European of even global “Climate Club”, where climate neutrality is more relevant than creating a level playing field based on the Energy Only Market. The Swiss electricity industry could largely contribute to the goals of such a Climate Club based on its assets both in Switzerland and abroad. And the Paris Agreement would replace the failed Institutional Agreement between Switzerland and the EU.

That's in it

Ff55 includes the following legislative proposals:

1) RED III: Revision of the Renewable Energy Directive & new renewable energy target for 2030;

2) ETS: Revision of the Emissions Trading Scheme Directive - incl. aviation and shipping;

3) CORSIA: Decision amending the EU ETS with regards to the notification of offsetting in respect of a global market-based measure for aircraft operators based in the Union (Carbon Offsetting and Reduction Scheme for International Aviation);

4) MSR: Decision amending the Market Stability Reserve;

5) CBAM: Regulation on a Carbon Border Adjustment Mechanism;

6) ESR: Revision of the Effort Sharing Regulation;

7) ETD II: Revision of the Energy and electricity Taxation Directive;

8) EED III: Revision of the Energy Efficiency Directive & new efficiency target for 2030;

9) AFI II: Regulation on the deployment of Alternative Fuels Infrastructure;

10) EPS II: Revision of the Regulation strengthening the CO2 Emission Performance Standards for new passenger cars and new light commercial vehicles;

11) LULUCF: Revision of the Regulation on Land Use, Land Use Change and Forestry;

12) ReFuelEU Aviation Initiative: Regulation on ensuring a level playing field for sustainable air transport;

13) FuelEU Maritime Initiative: Regulation on the use of renewable and low-carbon fuels in maritime transport and on the decarbonisation of shipping.

14) SCF: Regulation establishing a Social Climate Fund.

In addition, two non-legally binding communications of the European Commission were published:

15) 'Fit for 55': delivering the EU's 2030 Climate Target on the way to climate neutrality (“chapeau document”);

16) Strategic rollout plan to outline a set of supplementary actions to support the rapid deployment of alternative fuels infrastructure.

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