On 14 July 2021, the European Commission published the largest legislative package related to the climate and energy: “Fit for 55”. The main assumption of the new package is a reduction of 55% in greenhouse gas emissions in the European Union by 2030 (compared to 1990 levels), which will make it possible to achieve net-zero emissions by 2050.

Fit for 55 is a key element of the European Green Deal adopted in December 2019, aimed at transforming the economies of Member States in order to bring them into line with the largest climate-energy reform in the history of the European Union.

Main assumptions of Fit for 55

Fit for 55 is a collection of 13 EU legislative proposals concerning various branches of the economy, which contains amendments to existing legislation as well as entirely new legislative proposals. In total, together with the grounds for the proposals, it amounts to nearly 4,000 pages of documents. The following sections describe the most important assumptions of the draft regulations.

Reform of the EU Emissions Trading Scheme (EU ETS)

The EU Emissions Trading Scheme (EU ETS) concerns selected sources of greenhouse gas emissions by, among others, industry, the aviation sector, and energy generation. The reform assumes further limits on the number of allowances to emit greenhouse gases, a result of which will be a further increase in the prices of greenhouse gas emission allowances. Another assumption is to broaden the EU ETS to include maritime transport, and a withdrawal of free emission allowances for the aviation sector. The scheme also includes the planned introduction of a “mini-ETS”, whose mechanism will be created in an analogical way to the EU ETS and which will consist in evaluating emissions for newly included sectors of the economy, i.e. construction and land transport. The reform assumes that Member States should still allocate newly gained revenue from trade in emission allowances to projects related to the climate and energy.

Tightening up the targets as part of the Effort Sharing Regulation

A review of the existing Effort Sharing Regulation (ESR) provides for each Member State stricter target values related to reducing emissions concerning, among others, road transport, construction, maritime transport, agriculture and waste. The value of the target for a given Member State will be defined on the basis of GNP per inhabitant. This will definitely involve a significant increase in the value of the reduction targets for Poland, estimated by as much as 16-30% depending on the calculation method.

Setting a target for afforestation

A target will be set out in the binding regulation on use of the land, forestry and agriculture concerning the removal of carbon dioxide by using natural absorbers, i.e. afforestation. The target set out in the proposal is the absorption of 310 million tonnes of CO2 emissions by 2030, and involves a plan to plant three billion trees in the EU by 2030.

Tightening up CO2 emission standards for passenger cars and light-commercial vehicles

Changes in this regard are based on a tightening up of the CO2 emission standards for passenger cars and light-commercial vehicles. In 2030, cars must emit 55% less CO2 than in 2021, while by 2035 all newly registered cars must be zero emission. Furthermore, the changes include an obligation on Member States to create charging points for electric cars and hydrogen-filling on motorways. The plans also anticipate the creation of access to clean electricity for ships and aircraft by defining the maximum limit of CO2 emissions, which will force the use of modern zero-emission technologies in these transport sectors.

Carbon Border Adjustment Mechanism (CBAM)

It is planned to introduce a mechanism for adjusting prices at borders with account taken of CO2 (the Carbon Border Adjustment Mechanism, CBAM). This is aimed at counteracting transfers of high-emission production outside Europe, i.e. “emissions’ leakage”. This proposal assumes the imposition of additional charges on products that are imported into the EU on the basis of the level of greenhouse gas emissions necessary for their production. This will affect entities that deal in the import of, among others, cement, iron, steel and aluminium.

Tighter energy requirements

For this sector, changes are being prepared concerning three directives. The first concerns renewable sources of energy and assumes that 40% of energy generated in the European Union in 2030 will be derived from RES. This represents a change compared to the currently applicable 32%. Additionally, the purposes of using renewable energy, biofuels biogas, and biomasses in such sectors as construction, transport and heating will be defined. The second directive focuses on efficient energy consumption. Member States will be obliged to achieve annual energy savings in final consumption of up to 1.5% by 2030 compared to the current 0.8%. The limit on energy consumption will be effected by, among others, the mandatory modernisation of part of public administration buildings. The third directive concerns energy taxation. Here, a rationalisation of the use of optional tax exemptions and reliefs is planned, as well as support for green transformation thanks to low-emission energy source incentives.

Social Climate Fund

The European Commission has proposed the creation of a Social Climate Fund that will support citizens and encourage investments in energy efficiency, as well as the modernisation of heating and cooling systems. The Social Climate Fund will be covered from the EU budget, from an amount of 25% of the forecast revenues from fuel emission trading for construction and road transport. It is anticipated that Poland, as the largest beneficiary of Social Climate Fund, will receive almost EUR 13 billion, which represents 17.6% of the entire budget. As a result, this will encourage private entities to invest in modern solutions for buildings, and will thus increase demand for these types of products.

What’s next?

At the current stage, individual draft legal acts that are part of the "Fit for 55" package will be submitted to the European Parliament, where they will be given their final wording. The entire legislative process will take time and it will be challenging for Member States to find common compromises. There are contradictory positions and opinions among all Member States regarding the proposed changes. The proposed solutions will certainly be an immense challenge for Poland. The proposals described above are currently at the design stage and require monitoring for further amendments. The introduced solutions will enter into force at the earliest in 2024.