What the EU’s climate plan means for Europe

July 15, 2021

July has been a big month for Europe and not just because of the Euro Championships. After two years of excruciatingly hard work the Commission has published its epochal new climate package. The EU’s ambition is unmistakable. Its goal is to slash emissions by 55% compared to 1990 in the next nine years. To achieve this, the Commission proposes 12 new laws including a carbon border tax, a revamped carbon market for industry, as well as ambitious and binding new targets for renewable energy and national climate action.

If this was a match report it would read something like this: At times spectacular, at others less so – enough to win, but not perfect.

As important as ambition is the way in which the Commission wants to reach the goals. Despite there being a lot of talk about the Commission’s ETS proposal (more on that later) the heavy lifting is actually going to have come from the auto, oil, aviation and shipping industries who’ll each be required to hit emission reduction goals. That’s much fairer and more effective than placing the burden on citizens. It is also a winning economic strategy that will see Europe lead the world in some of the 21st century’s most important technologies.

The new car CO2 standards are the poster child of this approach. To hit net-zero by mid-century, carmakers must reduce emissions from new cars by 55% in 2030, and 100% in 2035, meaning that in 14 years time all new cars sold will be emissions free. The rapid scaling of electric cars will improve their quality while slashing costs, making e-cars the logical choice for drivers. The plan isn’t perfect though. It gives too much credit to fake electric cars (plug in hybrids), the 2030 target is too low, and there are no interim targets, meaning carmakers can keep polluting until 2029. While this needs to change, the direction of travel is clear: the age of oil, energy dependence and car pollution is coming to an ending.

The EU executive has also delivered on charging. The proposed infrastructure law (AFIR) will ensure complete charging coverage across the EU and help to extinguish charging anxiety. Crucially, the law requires states to start building a charging infrastructure for electric trucks, paving the way for an ambitious truck CO2 proposal next year. Make no mistake, trucks can and must go zero emissions by the middle of the next decade.

On aviation, the Commission’s plan is a small but important step in the right direction. In addition to a stronger aviation carbon market, the Commission wants to introduce a kerosene tax for European flights. That will require unanimous approval by the EU which is hard but no longer impossible. Crucially, the plan also includes the world’s first serious attempt to require fuel shift in the aviation industry. The aviation blending law relies too heavily on biofuels and lacks important safeguards for e-kerosene, but it still represents a breakthrough.

Another breakthrough is that for the first time ever, anywhere, shipping emissions will be capped and included in a carbon market. That won’t be enough to deliver Paris Agreement-compliant shipping, but it is the best news so far in the battle to decarbonise shipping.

But it wasn’t all well played. The Commission has badly missed the goal on fuels. The clumsily designed shipping law will drive the market for fossil gas and biofuels, but do next to nothing to promote genuinely clean fuels like ammonia. That the transport Commissioner wants ships to shift to LNG is made abundantly clear by her proposal to require all EU ports to build LNG refueling infrastructure. This is shortsighted and obstructs rather than aids climate action.

The package’s other disappointment is also related to fuels. Despite shifting the law from an energy target to a greenhouse gas target, the new Renewable Energy Directive has all the flaws of its predecessors. It extends support to unsustainable crop biofuels including palm and soy, discriminates against electricity and sets difficult to achieve blending requirements for advanced biofuels and hydrogen based fuels. There is hope though. Countries including the Netherlands, Germany, France and Belgium have recently reformed their green fuel laws in favour of electricity, making it likely they won’t sign off on the law without major changes.

Finally, readers of our bulletin will remember Ursula von der Leyen very much wanted to include road transport in the EU ETS. That’s not happening. The proposal is now to create a toned down and separate carbon price that will be phased in between 2026-2028. The scheme has been designed to keep down the cost of the carbon permits, aiming for a price of around €20/tonne. That could increase fuel prices by 5 cents per litre by 2026-28 – not exactly earth shattering but we can hardly oppose a tax on dirty oil, can we? Yet, even this massively toned down road ETS is hugely controversial. Let’s hope it doesn’t overshadow or slow down the much more important parts of the package.

On balance this is a good result. But the job is not done. Much remains to be improved. At the same time the oil industry, supported by auto suppliers such as Bosch, car laggards like Stellantis and Toyota, and biofuel producers, will try to use their formidable lobbying power to try and destroy much that is good in the package. So the next two years promise more excruciatingly hard work. But it will be worth it, for if we succeed, we will end the age of oil, energy dependence and car pollution, and we will give our children a better and safer world to live in.

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