Energy and Environment Councils set the course for a climate-neutral European economy The European energy and environment ministers have launched one of the most comprehensive climate action packages in the history of the EU. They agreed at their two-day meeting in Luxembourg on far-reaching measures to tighten existing climate rules. The basis for this is the European Commission’s Fit for 55 package, in which the EU aims to cut its climate emissions by 55% by 2030 and thus comply with the Paris climate agreement.

According to the decisions by the Energy and Environment Councils, the trading in carbon emission allowances is to be extended to cover more sectors. New passenger cars are to be entirely zero-carbon from 2035; to this end, progress is to be made on the electrification of transport. The EU’s final energy efficiency target is to be raised significantly and made binding for the first time. The existing mandatory target for renewable energy is raised from 32% to 40%, with ambitious sectoral targets for heating, transport, buildings and industry. On top of this, there are targets and overall requirements for the roll-out of green hydrogen. The burden on vulnerable households is to be mitigated by a Social Climate Fund.

Federal Minister for Economic Affairs and Climate Action Robert Habeck said: “In the midst of Europe’s worst energy crisis, we have launched one of the most comprehensive climate action packages in the history of the EU. It displays the resolve which is needed in this crisis: the decisions are fundamental to making the EU less dependent on fossil fuel and progressing climate action. We need to act quickly and resolutely. The Fit for 55 package sets the course for the restructuring of the economy to make it climate-neutral. Through this package, climate action in the EU will gain irreversible momentum.”

Federal Minister for the Environment Steffi Lemke said: “Europe has set the course today for more climate action in the transport sector. This is a massive step forward and steers the transport sector onto the path to climate neutrality. There is a massive need to catch up in the transport sector in particular. The EU Member States have voted by a very clear majority to decide that, from 2035, all newly registered passenger cars and light commercial vehicles must be zero-carbon. We are thus sending out a clear signal that we need to attain our climate targets. They give the automotive industry the secure basis it needs to plan ahead.”

In a next step, the Energy and Environment Councils will continue the negotiations under the Czech presidency of the Council of the European Union in the trilogue procedure with the European Parliament. The second half of 2022 should see the final drafting of relevant climate action directives in the Fit for 55 package.

The main decisions in detail:

Fleet-wide CO2 emission ceiling
As part of the Fit for 55 package, the European Commission has proposed that the rules on carbon emissions from cars and vans (light commercial vehicles) be updated. This means that, from 2030, the manufacturers will have to comply with tougher fleet-wide CO2 emission ceilings than has been the case. In 2035, the reduction will be 100%, both for cars and vans. Also, according to the decision, the Commission will make a proposal on how, outside the fleet-wide emission ceilings, vehicles can still be registered after 2035 which are run solely on climate-neutral fuels (eFuels); this will have to be in compliance with EU law and in conformity with the EU’s climate targets. The European Commission will draft and present a proposal for the sector outside the fleet-wide emission ceilings. This decision sends out a clear signal for the ramp-up of electric mobility; the manufacturers, who are already pressing ahead with the shift to electric cars, are given a reliable basis on which to plan.

Existing ETS I
The decision by the Environment Council aims to gradually cut the volume of carbon emission allowances – rights to emit CO2 – in the EU’s Emissions Trading System (ETS I) up to 2030 by 61% (previously 43%) from the 2005 level. The allocation of free allowances for the aviation sector and for certain industrial sectors which are particularly exposed to international competition is to be phased out. The Economic and Financial Affairs Council had already decided back in March to introduce a carbon border adjustment mechanism (CBAM) for these industries. Also, maritime transport is to be included in the emissions trading system (from 2024). This means that ETS I will then cover almost half of all European greenhouse gas emissions and the main sources of greenhouse gases that damage the climate: in the energy sector, in energy-intensive industry, and in maritime and air traffic.

New ETS II
The Environment Council advocates the creation of a new, additional and separate emissions trading system for buildings and road traffic – along the lines of Germany’s fuel emissions trading. This new ETS II provides for carbon emission allowances for fuels for vehicles and heating from 2027 in order to improve the position of the much more climate-friendly renewable energy sources. The aim is to reduce the emissions covered by this scheme by 43% between 2005 and 2030. The volume of emission rights is to fall by 5.15% each year, and by 5.43% from 2028. There are no plans to offer allowances free of charge.

Social Climate Fund
A new Social Climate Fund is to provide the Member States with funding to offset the social repercussions of the proposed new ETS II emissions trading scheme. The fund is to support measures and investments in more efficient buildings and lower-emission mobility. The support is to go primarily to vulnerable households, micro-enterprises and transport users. Temporarily, the fund can also finance direct income assistance for households at risk. The fund amounts to €59 billion over a period from 2027-2032, and is financed from revenues from the new ETS for buildings and road traffic.

Border adjustment mechanism
As decided in March by the Economic and Financial Affairs Council, a carbon border adjustment mechanism is to be introduced from 2023 with a three-year transitional phase. This mechanism is to gradually replace the free allocation of emission allowances – the main instrument which currently protects against carbon leakage – in the period to 2035. Going forward, the mechanism will put a price on carbon emissions of certain energy-intensive products imported to the EU. This mechanism will offset the burden imposed on European companies subject to the EU ETS compared with companies from other economic areas. Initially, the CBAM – as conceived by the European Council – will only cover the electricity sector and selected goods from the cement, iron and steel, aluminium and fertiliser industries.

Binding climate targets for sectors outside the EU ETS
The Fit for 55 package will also adjust climate targets for sectors not covered by the existing emissions trading system. The Member States commit to binding climate targets in the sectors of transport, buildings, agriculture and waste, as well as land-use and forestry. Climate action at both European and national is envisaged in order to attain these goals. The responsibility for attaining the targets is ultimately borne by the individual Member States. Here, the revised Effort Sharing Regulation is aiming to cut greenhouse gases by 40% from 2005. The Land Use, Land-use Change and Forestry (LULUCF) Regulation is to reduce carbon emissions by 310 million tonnes by 2030.

Higher target for renewable energy and binding sectoral targets
The previously binding 2030 target in the Renewable Energy Directive is raised from 32% to 40%. Further to this, ambitious and binding sectoral targets are stipulated which promote renewable energy across Europe in all sectors. Also, a European framework is put in place for the roll-out of green hydrogen, particularly in industry and transport.

Overall, the expansion of renewable energy is increasingly broadened to include not only the electricity sector but also the other sectors, and sector coupling is progressed. The share of renewables in the heat sector is to rise by 0.8-1.1 percentage points each year. In the transport sector, the target is raised to having 29% of energy consumption covered by renewables by 2030, with specific targets for advanced biofuels and renewable motor fuel. On top of this, there is for the first time a binding target of 35% for green hydrogen in industry by 2030 and an indicative target that renewable energy should cover 49% of energy consumption in the buildings sector at EU level by 2030.

Binding EU energy efficiency target
The revision of the Energy Efficiency Directive defines for the first time a binding EU-wide target for the development of energy demand. The existing EU-wide energy saving target is again increased significantly. Primary and final energy consumption in the EU need to be cut by 9% compared to a forecast of the development in consumption up to 2030. Further to this, the energy efficiency measures to be taken by the Member States must deliver much higher savings than was previously required. Companies which consume a lot of energy will be obliged to deploy energy management systems in future, and a new register is introduced for the energy consumption of computer centres. Additional measures are also being introduced for the public sector. Furthermore, a new priority is being placed on the fight against “energy poverty”.

Deforestation-free supply chains
The Council of EU environment ministers has adopted a common position on a regulation for deforestation-free supply chains. The new rules are intended to prevent timber, coffee, cocoa, palm oil, beef, soy and derivative products from entering the EU internal market in future if their production has caused deforestation. The Environment Council’s decision is an important step towards better protection for forests worldwide. The decision means that the EU Member States are taking concrete steps so that they will not worsen the biodiversity and climate change crises. The proposed regulation on deforestation-free supply chains sets out due diligence requirements for corporations, making them responsible for ensuring that their supply chains are free of deforestation. The proposal also contains monitoring obligations for Member States.

On Monday, the energy ministers also adopted the European Gas Storage Regulation. Member States are to introduce national measures to attain minimum storage levels in their gas reservoirs.

Tuesday’s Environment Council also presented and discussed the progress reports on the regulation on deforestation-free supply chains and the cross-border shipment of waste.