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EU Update – September 2021

29/09/2021

Fit for 55 climate package of the European Commission

As part of the European Green Deal, the EU has set itself the ambition to become the first climate neutral continent by 2050. This requires current greenhouse gas emission levels to drop in the next decades. To achieve this objective, a target has been set to cut emissions by at least 55% by 2030 compared with the levels of 1990. The ‘Fit for 55 package’ is a set of new legislative proposals to review and update the current EU legislation in terms of climate, energy and transport. The first initiatives were already adopted by the Commission and communicated on July 14^th, 2021, such as a revision of the EU Emissions Trading System (ETS) which establishes a market-based carbon pricing mechanism currently covering emissions from the electricity sector and a wide range of energy intensive industrial sectors or a Carbon Border Adjustment Mechanism (CBAM), a market measure that would put higher prices on energy-intensive imports such as steel, cement, aluminium, and electricity from 2023.

Moreover, a range of new or updated targets, as well as regulatory measures were also proposed as part of the package. This includes binding 2030 targets in Member States for renewable energy share (40%) and energy efficiency (36% final energy, 39% primary energy) as part of the amended Renewable Energy Directive (RED) and Energy Efficiency Directive (EED).

The second part of the package, expected to be published on December 14^th, will have implications on consumer behavior, through for example guidelines on the consumption of sustainable products, and as part of a process of reshaping consumption patterns through circular economy initiatives.

Update on the implementation of the EU’s Recovery Plan

NextGenerationEU is a temporary recovery instrument of around €800 billion to help Europe recover from the COVID-19 crisis and contribute building an EU that would be more sustainable, resilient, and digital.

The European Commission has started committing the funds under the next Multiannual Financial Framework (EU’s long-term budget) as of January 1^st, 2021. On May 31^st, 2021, the Own Resources Decision was ratified by all Member States in line with their constitutional requirements, giving the opportunity for the Commission to finance the recovery: the first transaction (€20 billion) was made on June 15^th, 2021. It is the largest-ever institutional bond issuance in Europe.

By the end of 2021, the Commission expects to raise around €80 billion in bonds to maintain flexibility in terms of market access and to manage liquidity needs and the maturity profile as explained in its funding strategy.

State of the Union Address by President Ursula Von der Leyen

President of the Commission Ursula von der Leyen delivered her second State of the European Union address in front of Members of the European Parliament assembled in plenary session in Strasbourg.

Ursula von der Leyen referenced the Intergovernmental Panel on Climate Change (IPCC) report published by the United Nations (UN) which confirms that Climate Change is largely man-made. She highlighted the events over the summer (floods in Belgium and Germany, wildfires from the Greek islands to the hills in France) and called for swift action. She underlined the efforts already made by the Member States and called on the Parliament and Member States to maintain the ambition of the Fit for 55 package. According to her, Europe cannot however do everything alone and the COP26 Climate Summit in November will be a key moment. Climate finance will also be fundamental to help the developing world adapt. The EU has contributed 25 billion dollars a year in this respect. The EU will propose an addition €4 billion for climate finance until 2027 and double the external funding for biodiversity.

In addition, three objectives have been stated:

• Put a price on pollution, support the shift to cleaner energy and sustainable mobility whilst providing social support to help tackle energy poverty.
• Make major economies set ambitions for climate neutrality by 2050 and back them with concrete plans in time for COP26.
• Close a gaping hole towards reaching the global target in terms of climate finance (100 billion dollars a year until 2025).