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  29 July 2021  

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Dear readers,

Shortly before forming her Commission in 2019, President von der Leyen released a set of political guidelines setting out her priorities for her mandate. These guidelines put forward a specific set of goals for Europe’s climate policy, chief among which were the promises to reassess our 2030 emissions reduction target and to write the 2050 climate neutrality objective into EU law.

The European Green Deal then translated these guidelines into a very detailed plan of action, which the European Commission’s Directorate-General for Climate Action has been working hard to implement ever since.

In the intervening two years, we have successfully enshrined the climate neutrality target into Europe’s first-ever Climate Law. We have also presented a comprehensive and realistic 2030 Climate Target Plan and secured political endorsement of the updated 2030 greenhouse gas emissions net reduction target of 55% below 1990 levels. This target has been communicated to the UNFCCC as the EU’s nationally determined contribution, or NDC, to meeting the Paris Agreement’s goals.

This month, I am very pleased to announce that the Commission has taken the next step in transforming the promises of the European Green Deal into reality. We have adopted a series of proposals to make European policies better suited to achieving the updated 2030 target. The scale of what we are proposing is massive, yet proportional to the challenges we face to do Europe’s part in stopping global climate change.

First, we intend to strengthen the EU Emissions Trading System (EU ETS), the cornerstone of the EU's policy to combat climate change and our key tool in reducing greenhouse gas emissions cost effectively, by tightening the overall emissions ‘cap’ and increasing the linear reduction factor to 4.2% per year, compared to 2.2% under the current system. We will bolster the Market Stability Reserve, the system that addresses the build-up of allowances in the system and improves the functioning of the carbon market by adjusting the supply of allowances to be auctioned, maintaining the annual intake rate of allowances at 24% of the outstanding surplus. This will avoid an excessive accumulation of allowances and ensure stability in the market.

Moreover, with a view to ensuring a fair contribution of all sectors of our economy to emissions reductions, we propose to extend the EU ETS to maritime transport, as well as establish a new, separate emissions trading system to cover emissions from fuels used in buildings and road transport. This new system would be separate from the existing ETS, and would regulate fuel suppliers rather than the household or car owners. It would allow the sectors to fully incorporate the externalities of their emissions and provide the economic incentives for cost-efficient emission reductions in these sectors.

At the same time, we propose to introduce a new Social Climate Fund to support Member States in addressing any social impacts on vulnerable households, micro-enterprises and transport users that arise from the new system. This Fund would provide €72.2 billion in financing over seven years, or the equivalent of 25% of expected revenues under the new emissions trading system covering buildings and road transport. It can fund Member States’ programmes designed to support investment in increased energy efficiency of buildings, the decarbonisation of heating and cooling and zero- and low-emission mobility and transport, specifically directed at vulnerable households. Direct income support can also be made available to vulnerable households, in order for them to absorb the immediate price impact of the new emissions trading system.

Our proposal also provides for an increase of the Innovation Fund by 200 million allowances. To these could be added those allowances that would no longer be allocated for free to sectors protected against carbon leakage by a new Carbon Border Adjustment Mechanism, further strengthening the Innovation Fund. This could bring the Innovation Fund up to €47 billion (in today’s prices) to be invested over 10 years to support the deployment in the market of breakthrough low carbon technologies in all sectors of the economy. The Modernisation Fund would be increased by an additional 2.5% of total allowances, strongly enhancing its capacity to support the lower income Member States in the modernisation and decarbonisation of their energy systems.

Finally, we have proposed that the entirety of emissions auctioning revenues that accrue to Member States are used to advance their climate action and energy transformation.

Aviation must also play its part, which is why our proposal on emissions trading includes a progressive reduction of free allowances to the sector, with full phase-out foreseen for 2027. Flights within the European Economic Area (EEA) would continue to be covered under the existing ETS. In parallel, we suggest to implement the International Civil Aviation Organisation’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) for extra-EEA flights.

Furthermore, we propose that Member States increase emissions reductions targets for sectors covered by the Effort Sharing Regulation (ESR), namely road transport, heating of buildings, agriculture, small industrial installations and waste management. Under our proposals, these sectors will need to reduce their emissions by 40% by 2030 compared to 2005 levels, a significant increase from the existing target of 29%. This will continue to follow the guiding principles of our current Regulation, which is that reductions are carried out in a fair and cost-efficient manner that takes into account individual GDP per capita and permits Member States to utilise certain flexibility mechanisms where needed. The existing architecture and scope of the ESR will be maintained, and the Regulation will continue to cover the road transport and buildings sectors alongside their inclusion in the new emissions trading system mentioned earlier.

These proposals also aim to stop and remedy the decline of natural carbon removals within the EU. We are proposing to reform and simplify the rules under the current regulation on land use, land use change and forestry, and to introduce a more integrated policy framework covering all activities related to land use, forestry, and agriculture. This begins with a target to improve our natural carbon sink – namely the removal of carbon from the atmosphere that our land, and especially our forests, provide – by 2030, to counter the presently declining sink and address future damage that climate change may cause to the sink through fires, droughts and new diseases. This 2030 target will be accompanied by a new, Union-wide objective to achieve climate neutrality by 2035 in the combined land use, agriculture and forestry sector. Our proposal for a new Forest Strategy also sets out a vision and concrete actions for increasing the quantity and quality of forests in the EU and strengthening their protection, restoration and resilience, aiming to ensure the multi-functionality of EU forests and highlights the pivotal role played by foresters. These upgrades to our existing legislation on natural carbon sinks will facilitate each Member State’s progress towards achieving their targets with increased precision and accuracy.

We will also update our energy systems in order to make them fit to deliver on our targets, first by increasing our binding renewable energy targets to produce 40% of our energy from renewable sources by 2030, including measures to promote the uptake of renewable fuels such as hydrogen in industry and transport. At the same time, reducing energy consumption is essential to bringing down both emissions and energy costs for consumers and industry. We are therefore proposing to increase energy efficiency targets at EU level and make them binding, to achieve by 2030 an overall reduction of 36-39% for final and primary energy consumption compared to the historic baseline.

It is crucial that we speed up Europe’s transition to zero-emission road mobility. We intend to do so by introducing stricter CO2 emissions standards for new cars, which will have to produce 55% fewer CO2 emissions by 2030 compared to the 2021 starting point and zero CO2 emissions by 2035, as well as new vans, which will have to reduce their emissions by 50% by 2030 and also achieve zero CO2 emissions by 2035. These new standards will not only contribute to meeting our greenhouse gases emissions reduction goals, but also provide Europeans with better air to breathe, reduce consumers’ energy costs, as well as incentivise innovation in zero-emission technologies and strengthen the technological leadership of the automotive value chain.

As a complementary policy to the standards, we also propose a requirement for Member States to expand their charging capacity in line with the market deployment of zero-emission car and van sales. The Alternative Fuels Infrastructure Regulation will ensure the timely availability of charging and fuelling infrastructure for the zero-emission vehicles that our stronger CO2 standards will usher onto the market.

We have further proposed to align the taxation of energy products and electricity with our increased climate ambitions, including by removing fossil fuel tax exemptions and promoting the uptake of less polluting energy products such as renewable hydrogen and advanced biofuels. Within the proposal for the revision of the Energy Tax Directive, we have notably proposed to no longer exempt fossil fuels used for intra-EU air transport (except cargo-only flights), maritime transport and fishing from energy taxation in the EU. This is an important measure, given the role of these sectors in energy consumption and pollution. At the same time, we are proposing to tax electricity less than polluting forms of energy, such as fossil fuels. It is true of course that electricity today is often produced with fossil fuels, but European and Member States policies to decarbonise electricity generation are progressing apace, with the goal of zero emissions power in Europe in 2050. Thus it makes sense to support electrification of larger parts of our economy in parallel.

Finally, we have introduced a proposal for a novel carbon border adjustment mechanism (CBAM), which will ensure the EU’s climate objectives are not undermined by production facilities relocating to countries with less ambitious climate policies, in particular those who do not put a real price on carbon. Fully compatible with WTO rules and the EU’s other international commitments, including our free trade agreements, the CBAM is designed to be the counterpart of the EU ETS for imports in certain sectors from third countries. The CBAM will cover the iron, steel, cement, aluminium, fertilisers and electricity sectors, i.e. those that are highly energy-intensive and those vulnerable to carbon leakage. A pilot phase will enter into force in 2023, followed by a gradual phase-in from 2026 to 2035 in order to provide businesses and countries with legal certainty and stability.

Through the measures contained in this package, we are seeking to reorient Europe’s journey to climate neutrality by 2050 in a way that benefits citizens, the economy and the environment in equal measure. Unprecedented resources have been earmarked to support this “green transition”. The EU’s recovery plan, NextGenerationEU, foresees a strong contribution. Member States’ national recovery and resilience plans financed under the Recovery and Resilience Facility must contribute to the green transition with measures accounting to at least 37% of the plans’ allocations. The long-term EU budget for 2021-2027 has been tailored to support the green transition. 30% of programmes under the MFF are dedicated to supporting climate action, for example through cohesion policy, agriculture, and the LIFE programme for climate and environment. The goal of directing 35% of research and innovation funding under Horizon Europe towards green investments, as well as the various partnerships and missions under the programme, will provide the necessary resources for developing sustainable and innovative solutions to the green transition. Horizon Europe provides substantial support for SMEs, in particular start-ups and spinout companies to develop and scale up game-changing innovations. In addition, we have stipulated that this, together with the continued focus on sustainable finance, has the potential to unlock the massive private investment into a greener economy.

Indeed, this package of proposals was formulated with European citizens in mind and civil society has played a major role in its development. Extensive public consultations were carried out during the preparatory phases and the feedback we received was taken into account during the preparation of every one of the proposals adopted.

Overarching principles of fairness and solidarity are integral to this package. Measures to ensure equity for citizens and consumers and between the EU and our international partners have been inserted at every opportunity – between generations, Member States, regions, rural and urban areas, and different parts of society. By taking action now, we will reduce the burden on future generations to address climate change and reduce the risk of climate impacts themselves. By setting national greenhouse gas reductions targets that take into account capacity to act; providing EU funding, exemplified by the Just Transition Mechanism, that allows to address challenges at regional scale associated with the climate neutral transformation; and by installing a Social Climate Fund that allows to channel support to vulnerable households to address the impact of increasing fuel prices and allow them to shift away from fossil fuels use, we are confident that we will stimulate the creation of green jobs and maintain the EU’s record of cutting greenhouse gas emissions while growing its economy, at the same time making sure no one gets left behind.

We know that the green transition can only succeed if the EU has a workforce equipped with the necessary skills to remain competitive. Education and training are essential to raising awareness and boosting skills for the green economy, as found in the instruments such as the green strand in Erasmus+ and the Education for Climate Coalition. With the European Skills Agenda for sustainable competitiveness, social fairness and resilience, the Commission is rolling out flagship actions to equip people with the right skills needed for the green and digital transition. Under the Agenda, the Commission will facilitate the development of commitments for re- and upskilling in all industrial ecosystems. Various sectoral ecosystems, including the automotive, have already committed to re- and upskilling their workforce across the entire value chain, as part of the Pact for Skills.

Yet this is not just about creating new jobs or cutting emissions. Our proposals would also improve the safeguarding of our natural resources, reduce pollution and enhance biodiversity. We have a real opportunity to improve the quality of hundreds of millions of people's lives, in a world where extreme and devastating weather events are occurring on an ever more frequent basis. Finally, these proposals, which demonstrate the EU is moving quickly implement our international and domestic targets with concrete policies, will strengthen the EU’s leadership role in raising ambition around the world and are proposed at a key moment in preparation for the COP26 in Glasgow.

In terms of next steps, the entire package has now been transmitted to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions for their consideration. I will certainly keep you updated on its progress.

If you'd like to learn more about the climate-related elements of this announcement, please do consult our website. Details on the wider package can be found here.

Happy reading,

Mauro Petriccione
Director-General for Climate Action, European Commission

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