EU Unveils “Fit for 55” Climate Proposals

15.07.2021 - Building on the Green Deal it rolled out at the end of 2019 and the European Climate Law that goes into effect this month, the European Commission on Jul. 14, concretized its long anticipated targets toward putting the EU at the forefront of political blocs dealing with climate change.

The 13 proposals laid out in Brussels call for reducing average greenhouse gas emissions Europe-wide by 55 % by 2030 achieving “net zero” carbon emissions by 2050, compared with 1990 levels.

In anticipation of the Commission’s agenda, which is called “Fit for 55” – meaning the years beyond net zero – many chemical producers are already at work on their own “greening” strategies. In future, they will have to ensure that their own targets line up with the newest EU proposals, although in view of statements by industry leaders in the recent past it seems that a number of their concerns have been taken account of.

One of the most important discussions will revolve around the Commission’s plan to expand the European Emissions Trading Scheme (ETS), which puts a price on carbon and lowers the cap every year. Since its implementation 16 years ago, the ETS has brought down emissions from power generation and energy-intensive industries by nearly 43%, EU figures show. In its future iteration, toward achieving decarbonization targets faster, the scope will be widened to include the transportation sector, albeit under a separate structure.

To complement the EU’s envisioned substantial spending on climate control, the Commission wants member states to reinvest all of their emissions trading revenue in climate and energy-related projects. The new Renewable Energy Directive will set an ambitious target to produce 40% of energy from renewable sources by 2030, only nine years from now. At the same time, sustainability criteria for the use of bioenergy will be toughened.

Additionally, the tax system for energy products will be retooled to support the “green transition.” This will necessitate aligning taxation with EU energy and climate projects, promoting clean technologies and removing “outdated exemption and reduced rates that encourage the use of fossil fuel” – all goals that environmental NGOs have been advocating for some time.

Finally, a proposed new carbon border adjustment mechanism will attach a carbon price to “selected” imports, which would include fertilizer as well as steel and cement. This, the Commission said, “will ensure that ambitious climate action in Europe does not lead to carbon leakage.”

“Europe is the first continent with a comprehensive architecture to meet our climate goals,” said Commission President Ursula von der Leyen. “Our package aims to combine the reduction of emissions with measures to preserve nature and to jobs and social balance at the heart of this transformation.”

European chemical industry is on board

Commenting on the proposals, BASF’s CEO, Martin Brudermüller, who is at the same time president of the European Chemical Industry Council (CEFIC), called the Fit for 55 package a “crucial step for Europe to lead the global race to climate neutrality by 2050.” It needs to be assured that “huge volumes” of renewable energy and low carbon energy become available as soon as possible,” he noted.

Anticipating that plans for the ETS expansion “might be the most crucial change,” CEFIC’s director general, Marco Mensink, warned that “we have to get it right.” Concurring with the EU’s own assessment, he said that, to help invest in breakthrough technologies, all revenues generated by the scheme need to be returned to the economy to support emissions reductions.

Mensink also praised the Commission’s accelerated development of a hydrogen economy, where he said Europe is already a frontrunner. The CEFIC director said chemical producers welcome the proposed increase in size of the Innovation Fund as well as the introduction of supporting instruments such as Carbon Contracts for Difference (CCfDs), in which companies are compensated for the added costs of key low-carbon technologies.

The latter is a concept close to the heart of European industry. With the backing of several multinational chemical producers, Foundation 2°, a German corporate initiative lobbying for effective market-based conditions for climate protection, included CCfDs in a comprehensive “wish list” for the regulatory sector developed with the aid of think-tank Agora Energiewende and consultants Roland Berger.

Comments by Germany’s chemical industry association Verband der Chemischen Industry (VCI) on the Commission’s proposals were slightly more cautious. While saying VCI companies are on board with the need to deal with climate change, the association’s general manager, Wolfgang Große Entrup, said they can only achieve this if the conditions are right. The export-oriented chemical producers fear that the carbon border adjustment mechanism could potentially send the wrong signal to international customers and thus boomerang.

Consultants Wood Mackenzie were more sanguine. Not reducing CO2 emissions as quickly as possible “means we will need to turn to expensive and unproven technologies to withdraw CO2 from the atmosphere later this century,” they said, adding that “the roadmap laid out by the EU gives investors the incentive start building projects, and consumers the nudge needed to start changing their behavior.”

Author: Dede Williams, Freelance Journalist