The much anticipated ‘Fit for 55’ proposal will be introduced on July 14 by the European Commission. Part of the EU Green Deal ‘Climate pillar’, ‘Fit for 55’ aims to reduce net greenhouse gas emissions by 55% before 2030. Its proposed legislation is set to become the largest package tackled by the EU on record. Prior to implementation, ‘Fit for 55’ will be debated and likely undergo modification by the Council of EU and European Parliament.
Structuring ‘Fit for 55’
The modus operandi of ‘Fit for 55’ is to provide support for the EU climate and energy regulatory foundation. Working in tandem with the recently passed Climate Law, ‘Fit for 55’ targets both a 55% cut in emissions (doubling the current rate) by 2030 and ‘Climate neutrality’ by 2050. More specifically, ‘Fit for 55’ comprises eight amended EU sustainable resolutions, notably regarding the emissions trading system (ETS), energy efficiency, and energy taxation. The legislation will also introduce new initiatives, including a carbon border adjustment mechanism (CBAM).
Old Wine in New Bottles?
‘Fit for 55’ continues the current EU climate enforcement structure. In this two-fold architecture for targeting emissions, large entities such as the aviation industry are regulated by the EU, whereas small sectors including transport and waste management are supervised by their respective national government. The proposed legislation looks to expand the scope of present regulation. In particular, ‘Fit for 55’ aims to extend emissions trading to the maritime, real estate, and transport sectors. The proposed legislation also looks to reduce the risk of ‘Carbon leakage’ by introducing a levy on cross-border transport of carbon intensive goods such as steel and aluminium.
A few controversial clauses will impact ‘Fit for 55’. Indeed, there will likely be outcry from sectors benefiting from free C02 allowances, notably Germany’s export-oriented industry, that are impacted by the legislation’s changes to ETS and its introduction of a potential ‘Carbon leakage’ levy. In addition, the ‘Fit for 55’ CBAM initiative relies on global, rather than regional, acceptance of the EU’s carbon pricing schemes in its implementation. Structural roadblocks for ‘Fit for 55’ include a required unanimous approval, rather than majority vote, for energy taxation. In addition, the proposed legislations pivot towards the maritime, real estate, and transport sectors are curtailed by technological lock-ins and price inelasticity.
It is clear that the success of ‘Fit for 55’ depends on lawmakers’ ability to traverse regulatory, financial, and social boundaries. On a regional level, negotiators need to evaluate and convince corporations and small businesses that the proposed legislation will not cause a market downturn in the EU. On a global level, lawmakers must consider the concerns of low-income and coal-dependent countries in and outside of the EU to ensure a unified effort for an even grandeur green deal at the upcoming COP26 this November.
Article written by Alexander Brunner