Thursday, Feb 09, 2023

EU wants to tax aviation fuel and phase out polluting cars by 2035

EU wants to tax aviation fuel and phase out polluting cars by 2035

Brussels has announced a range of new laws to help reduce carbon emissions. #BrusselsBureau

The European Commission has announced plans to cut greenhouse gases from the transport sector by 90% by 2050 in order to meet the goals of the European Green Deal.

As part of a raft of new legislation, unveiled on Wednesday, passenger cars – which are responsible for around 12% of total EU emissions of carbon dioxide (CO2) – that run on fossil fuels like petrol and diesel will be completely phased out by 2035.

Consequently, all new cars registered as of 2035 will be zero-emission.

Brussels plans to revamp the bloc's infrastructure to stimulate the uptake of electric vehicles, with new regulations ensuring that all EU citizens can recharge and refuel their vehicles anywhere in the bloc.

The undertaking will be arduous: by the end of 2020, there were only some 226,000 publicly accessible recharging points across EU territory and the market is heavily concentrated in the Netherlands, France and Germany.

Brussels also wants to boost the domestic production of hydrogen and its use as an alternative fuel.

However, this market is even smaller: in 2020, there were only 125 hydrogen stations in the bloc serving a fleet of over 2,000 vehicles.

The objective is to have charging points at regular intervals on major highways: every 60 kilometres for electric cars and every 150 kilometres for hydrogen refuelling.

13 draft laws

The EC has put forward a massive legislative package to slash the EU’s greenhouse gas emissions by at least 55% by the end of 2030, a colossal and drastic endeavour that will irreversibly transform all economic sectors.

The bundle of 13 draft laws include a border tax on polluting imports, a regulation to phase out fossil fuel cars, plans to increase the uptake of alternative fuels, an expansion to the current Emissions Trading System, a higher price on carbon, a social climate fund to tackle energy poverty and a new target to double the share of renewable energy over the next 10 years.

In what is arguably one the biggest, boldest – and perhaps riskiest – proposals ever originated in Brussels, the so-called "Fit For 55" initiative aims to realise the ambitious goals of the European Green Deal and make the EU the first climate neutral continent by 2050 – a commitment that is already legally-binding but requires a comprehensive practical architecture.

"Our current fossil fuel economy has reached its limits. And we know that we have to move on to a new model – one that is powered by innovation, that has clean energy, that is moving towards a circular economy," said European Commission President Ursula von der Leyen, while presenting the proposals alongside six commissioners.

Wednesday's presentation sets in motion unprecedented legislative efforts in which the EU's two co-legislators, the European Parliament and the EU Council, will be subject to intense lobbying from industry organisations and civil society. Long-standing clashes between Western and Eastern member states are expected to continue.

Although interconnected, the draft laws will have to be assessed and negotiated individually until both legislators reach a final version, a process that usually takes around two years but could drag on for the most divisive texts.

Given the international dimension of climate change, the legislative package will also be scrutinised by the EU's main allies and trading partners, potentially causing friction with those who lag behind the bloc's climate ambitions.

"This is the make-or-break decade in the fight against the climate and biodiversity crises," said Frans Timmermans, the Commission's vice-president in charge of the Green Deal.

"We're putting a price on carbon so people have the incentive to use less carbon and we put a premium on decarbonising so that we stimulate innovation and adaptation."

Carbon border tax

The European Commission wants to slap a price tag on the carbon that is imported into the EU's single market. In practice, this means the introduction of a new border tax.

The executive argues that the bloc is subject to more strict climate rules compared to those of their trading partners, who operate under a more relaxed environment.

This divergence creates a situation known as carbon leakage: as the EU moves decisively to cut down greenhouse gas emissions (an effort that entails significant costs and innovation for European companies), other non-EU countries increase their emissions to gain a competitive advantage.

To protect their domestic industry from unfair competition, the Commission is determined to establish a carbon border adjustment mechanism (CBAM) that will put an extra charge on the imports of carbon-intensive goods. The levy will mirror the bloc's own carbon pricing rules, forcing imports to have a similar price as if they had been produced following EU legislation.

The extra charge will be paid by the EU businesses that import the polluting goods into the single market. The revenues obtained from the tax will add to the EU's common budget, which in turn will serve to finance the post-coronavirus recovery and the costly green transition.

Brussels expects to raise about €10 billion a year though the duty.

The carbon adjustment mechanism will be gradually rolled out, with a transitional phase running until 2025. Initially, the instrument will target the imports considered more at risk of carbon leakage: cement, iron, steel, aluminium, fertiliser and electricity. The list will be later expanded to other sectors.

Countries like Turkey, Russia, Ukraine, Egypt and China will be immediately affected by the measure since they represent the biggest exporters of the selected products. The Commission says it is conducting extensive bilateral discussions with non-EU countries and hopes the levy will incentive their partners to reduce emissions and adopt greener policies.

The tax could prompt a dispute within the World Trade Organization (WTO) if the measure is seen as an unjustifiable, discriminatory barrier to trade.

A new Emissions Trading System

Another major proposal presented by the Commission is a revision of the EU's pioneering Emissions Trading System (ETS), the world' first and biggest carbon market.

Launched in 2005, the system covers 31 countries (the 27 member states plus Iceland, Liechtenstein and Norway) and involves more than 10,000 powers plants and industrial installations.

The ETS works based on a "cap and trade" principle. On the one hand, the EU sets a cap on the maximum amount of greenhouse gases that the installations can emit. On the other hand, it creates permits for each unit of emissions. Companies can then buy and trade emitting permits among each other to fulfil their needs. The cap is reduced over time, ensuring that emissions decrease.

The current price under the ETS is more than €50 per ton of emitted carbon.

Today, the ETS comprises sectors such as electricity and heat generation, commercial aviation, oil refineries, steel production and several chemical products. In total, the system covers around 40% of the EU's greenhouse gas emissions.

The Commission thinks this figure is insufficient to meet its climate neutrality goals so it is now proposing to upgrade the system and incorporate the maritime sector. The pollution caps will be tightened, raising the price of emitting carbon.

More controversially, the executive plans to create a parallel, stand-alone ETS dedicated to buildings and road transport, two of the most polluting sectors that have been so far exempted from the cap-and-trade system.

"Buildings today consume 40% of the energy consumption and the road transport emissions have continuously increased – not decreased but increased," said von der Leyen. "We must reverse this trend and we must do it in a fair and in a social way."

The new scheme will make fuel suppliers pay an extra charge to compensate for the pollution coming from heating installations and diesels and petrol cars. The proposal is already raising fears that companies will pass on these expenses onto the consumers and the poorest households, which have fewer resources to transition towards cleaner alternatives, will be the hardest hit.

French MEP Pascal Canfin, who chairs the European Parliament's environment committer, has called the new ETS "politically suicidal" and warned that it might trigger social discontent similar to the 2018 Yellow Vests movement in France, which was caused, among other factors, by a fuel tax.

Environmental organisations, like Greenpeace and the European Climate Foundation, have cast doubt over the effectiveness of this new system, saying there is no guarantee of meaningful emission cuts.

Taking into account these concerns, the Commission also unveiled a new social fund to cushion the impact of price hikes and cut bills for vulnerable households and small businesses. The Social Climate Fund will be financed through the EU budget and will provide €72.2 billion of funding between 2025 and 2032, with an aim to mobilise €144.4 billion with the contributions from national governments.

Asked about the growing criticism surrounding the new ETS, Timmermans said the scheme was a "good proposal" and was ready to fight for it.

Aviation and maritime

Beyond road transport, the Commission has set its sights on the aviation and maritime sector, which have proven harder to decarbonise than road transport.

For aviation, the goal is to bring into the mainstream Sustainable Aviation Fuels (SAFs), which the executive considers "technologically ready" to replace fossil fuels. A new rule will compel airlines to blend fossil fuels with SAFs until the mix is the only one available by 2030. Free emitting permits for air carriers will disappear after 2026 and a tax on kerosene will be gradually introduced.

The maritime sector will be obliged to be more energy efficient and increase the use of clean energy. By 2050, renewable low-carbon fuels should constitute more than 80% of the sector's fuel mix. This strategy will work in parallel to the revised ETS system, where shipping companies will begin buying and trading carbons permits for the first time.

"We need this [the ETS revision] because we just have to consider that one single cruise ship alone uses as much CO2 per day as 80,000 cars," said von der Leyen.

The changes in the aviation and maritime industry could lead to higher prices for plane tickets and goods shipped by sea. "Unilateral and double pricing of CO2 under several market-based measures would be economically counterproductive," said industry group Airlines for Europe (A4E

What else is part of Fit For 55?

Fit For 55 introduces another ambitious climate target: over the next ten years, the EU will have to double its share of renewable energy, going from the 20% goal (achieved in 2019) to 40% in 2030.

Greenpeace and other environmental organisations had previously said the 2030 share of renewable energy should be at least 50% in order to comply with the Paris Agreement.

The use of renewable energy varies widely across the bloc: countries like Sweden, Finland and Latvia already surpass the 40% threshold, while others, such as Luxembourg, Malta and the Netherlands are hovering over the 10% mark.

The final figure will be calculated as an EU-wide aggregate: it doesn't mean that all 27 EU member states are compelled to reach the 40% target by 2030.

In total, the Fit For 55 package includes five brand new proposals, such as an EU forest strategy and the aforementioned carbon border adjustment mechanism, and eight revisions and updates to existing EU legislation, like the emission trading system and the renewable energy directive.

The energy efficiency directive will now require the public sector to renovate 3% of its buildings each year. The Commission hopes building renovation will be one of the main sources of job creations in the new green economy. Member states are already allocating hundreds of millions to this costly exercise as part of their post-pandemic recovery plans.

The EU regulation on land use, land use change and forestry (LULUCF) is too being revised. Adopted in 2018, this law attempts to strike a balance between the land use that releases CO2 (for instance, when a forest is turned into arable land for agricultural purposes) and the land use that removes CO2 from the atmosphere (natural forest help absorb emissions).

The EU's revised removal target has been set at 310 million tons of CO2 emissions by 2030. The Commission wants the land use, forestry and agriculture sectors to become climate neutral by 2035, including also agricultural non-CO2 emissions, such as those from fertilisers and livestock.

Reacting to the whole Fit For 55 package, the World Wide Fund For Nature (WWF) said the package was "stronger and wider ranging than anything that has come before" but added the climate targets contained in the proposals remain "far too low" to keep temperatures below the 1.5°C mark.


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