This week MEPs in the European Parliament voted on almost half of the European Commission’s ‘Fit for 55’ package.
The eight proposals on which the MEPs debated included the following:
- reform of the Emissions Trading System (ETS), including the introduction of a carbon price on housing and transport
- the carbon border adjustment mechanism (CBAM)
- the revamped Effort Sharing Regulation (ESR) that sets binding national emission reduction targets
- the Social Climate Fund (SCF)
- the revision of the land-use and forestry (LULUCF) regulation, which sets targets for carbon ‘sinks’ (i.e. a natural environment able to absorb carbon dioxide from the atmosphere)
- emissions standards for cars and vans (cars/CO2)
- a proposal governing aviation emissions under the ETS, and
- a proposal on the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
However, in a dramatic series of votes, key pieces of legislation failed to pass, with lawmakers refusing to adopt positions on the reform of the EU’s carbon market, the introduction of a carbon border tax and the establishment of a Social Climate Fund. The text on the expansion and revision of the ETS will be referred back to committee.
What is ‘Fit for 55’?
‘Fit for 55’ is an enormous package of legislative proposals published in July 2021 to make the EU’s climate, energy, land use, transport and taxation policies fit for reducing net greenhouse gas emissions (GHGs) by at least 55 per cent by 2030 (compared to 1990 levels). The package contains the legislative ‘tools’ to deliver on the targets agreed in the European Climate Law, and will fundamentally transform Europe’s economy and society.
See this infographic for a summary.
The proposals are ‘connected and complementary’ and include changes to the EU Emissions Trading Scheme (ETS) and the Effort-Sharing Regulation (ESR), as well as to regulation on land use, forestry and agriculture (LULUCF), renewable energy and energy efficiency, CO2 emissions standards for cars and vans, requirements for aviation and maritime fuels, the Energy Taxation Directive, and a new Carbon Border Adjustment Mechanism (CBAM) which will put a carbon price on imports of a targeted selection of products to avoid ‘carbon leakage'. It also proposed a new Social Climate Fund (SCF), financed by the EU budget, to provide dedicated funding to Member States to help citizens finance investments in energy efficiency, new heating and cooling systems, and cleaner mobility.
Sustainable Finance Strategy
A complementary initiative to the Fit for 55 Package was also published in July 2021, when the European Commission issued its sustainable finance strategy and proposed a Regulation to create the “European Green Bond Standard” or “EUGBS” (a voluntary “gold standard” for green bonds).
The Sustainability Finance Strategy outlines the role of the finance sector in helping meet the EU’s targets to strengthen its resilience to climate change, reverse biodiversity loss and the broader degradation of the environment, and to leave nobody behind in the process.
Speaking at the launch of the strategy and EUGBS, on 6 July 2021 Commissioner Mairead McGuinness, MEP, described climate change as a risk to financial stability, and further stated that what’s needed is a financial system that is resilient against physical and transitional shocks, particularly “the risk of a financial shock if our move towards sustainability is disorderly”.
The Strategy will help the economy transition to sustainability using four pillars: transition, inclusiveness, resilience and the global perspective, and will build a more inclusive sustainable finance framework.