Posted on June, 03 2022

What’s happening?

MEPs in the European Parliament are in Strasbourg next week for a plenary session that will see crucial votes on much of the European Commission’s Fit for 55 package: the EU Emissions Trading System (ETS) - including the proposal for a new Emissions Trading System for road transport and buildings (ETS2), the Carbon Border Adjustment Mechanism (CBAM), the Effort Sharing Regulation (ESR), the Social Climate Fund (SCF), and the Land Use, Land Use Change and Forestry (LULUCF) Regulation. 

Why does this matter?

Decisions taken next week will determine emissions and consequences that will be with us for generations to come. At a time of accelerating climate change, and an energy security crisis which adds to the urgency to wean the EU off fossil fuels, it is clear that the entire legislative framework under the EU Fit for 55 package needs to be as strong as possible. 

While the Commission’s proposals from July 2021 were inadequate, the EP’s Environment committee has in many cases adopted significant improvements - now is the time for MEPs in plenary to support those changes and iron out a few outstanding problems. 

WWF and many others have long pointed out that the 55% net emissions reductions target for 2030 is far from sufficient to contribute to keeping temperature rise to below 1.5°C. Instead, the EU should be aiming for at least a 65% cut in gross emissions and close the many loopholes in the Commission’s proposals. Only with the full toolbox of strong legislation can the EU’s climate and energy objectives be achieved.

Alex Mason, Head of Climate at WWF European Policy Office, said: “The next decade is critical if we’re to stop runaway climate change, so MEPs have a huge responsibility here. The choices they make will help determine how quickly we get off fossil fuels, how the positive benefits are shared and how impacts on people - especially the most vulnerable in our society - are managed. They need to reject the delays being touted by industry lobbies and make sure we harness the real potential  for carbon sequestration in forests and other landscapes.”

What will WWF be looking out for?

Emissions Trading System (ETS) & Carbon Border Adjustment Mechanism (CBAM)

In order to support the 1.5°C goal, the EU ETS emissions reductions target must be increased to 70% by 2030, up from the inadequate 61% target proposed by the European Commission. The EP ENVI committee voted for a 67% reduction target, which must be maintained in the plenary vote.

Resources and energy-intensive industries such as cement, steel and chemicals are responsible for as much as 15% of EU greenhouse gas emissions, and while it is clear that they must decarbonise urgently, their emissions levels have barely budged since 2013.

This is mainly because those industries receive free emissions allowances under the EU Emissions Trading System. This means that while other ETS sectors, like power, have had to pay to emit carbon, these resource and energy-intensive industries have not.  

Now, with the revision of the ETS, it is critical for free allowances to be phased out as soon as possible so that industry is finally pushed towards decarbonising. 

The compromise voted for in the ENVI Committee already provides significant carrots for heavy industry: free ETS allowances until 2030, indirect costs compensation and a colossal Climate Investment Fund. MEPs must now vote in plenary for a stronger conditionality on how free ETS allowances are allocated to industry.

“The overall target is key to turning the ETS into a powerful instrument for decarbonisation. Only by confirming the 67% ETS target adopted by the ENVI Committee would MEPs remain true to their 2020 call for an overall 60% EU climate target as part of the EU climate law. Now is the time to walk the talk!” said Camille Maury, Policy Officer at WWF European Policy Office. 

“Also, MEPs must end freebies for polluting industries as soon as possible by phasing out free ETS allocations to incentivise decarbonisation. And before that, free allowances must come with strict conditions! At the very least, polluters must demonstrate that they have plans to reach climate neutrality and implement the right energy efficiency measures. Throwing money at big industries and trusting blindly that it will be spent in the right way is not only naïve, but it comes at a huge cost to our climate and the public purse. This would be a historic mistake!” she concluded.

Ending free allowances will generate substantial additional auctioning revenues for Member States. These should be invested in energy efficiency, innovation and a socially just transformation. 

“It’s only logical: Money from pollution permits must be spent on climate action. With clear rules on spending ETS revenues - like the ones on the table for the plenary - EU countries will no longer be able to use this money for oil and gas infrastructure in the name of climate action. What’s more, governments can finally be held accountable on how they’ve spent the money. Such transparency has been lacking to date!” said Romain Laugier, Climate & Energy Policy Officer, WWF European Policy Office.

The proposed Carbon Border Adjustment Mechanism (CBAM), which will put a levy on imports of certain goods from regions with less strict rules on climate, must replace free ETS allowances, not be additional to them. 

ETS 2 & Social Climate Fund

The ETS in road transport and buildings (ETS 2) has been controversial due to the failure of the Commission's proposal to include safeguards to ensure that the poorest people in society do not carry an unfair burden from carbon pricing. Funding from the new Social Climate Fund (SCF) would therefore be required to compensate for such potential negative impacts, effectively turning the SCF into a safety net protecting against new social harms, as well as helping reduce existing inequalities and emissions in the respective sectors.

Carbon pricing can, however, play a role to reduce emissions in transport and buildings if it is embedded in an ambitious policy mix, including targeted support for the most vulnerable.

MEPs need to vote to ensure that the right safeguards are in place: controls on the price and full use of the ETS 2 revenues for decarbonising transport and buildings. A proportion of the revenues must be reserved for a large and transformative SCF, which targets support to the most vulnerable and starts helping people at least three years before ETS 2 affects households. MEPs must reject any attempt to open up SCF support to SMEs; SMEs already have better access to money than households and represent 99% of EU businesses, meaning they could drain the fund before it helps those who really need it.

In addition, access to the SCF should be reserved exclusively for member states with a binding national climate neutrality target, to make sure they take responsibility for helping their residents in the transition. It must also exclude any support to fossil fuels to avoid locking vulnerable people into a carbon price for longer.

Katie Treadwell, Energy Policy Officer, WWF European Policy Office said:

“The Social Climate Fund must be more than a safety net for households affected by a carbon price. It must enable them to engage actively in reducing their emissions and provide targeted investment as well as income support to the most vulnerable. This means it must increase as carbon prices go up, it must come in earlier than a carbon price and it absolutely must not finance any fossil fuels.”

Jonathan Packroff, Climate & Energy Policy Assistant, WWF European Policy Office added: 

“Carbon pricing can play a role in decarbonising buildings and road transport, but MEPs must vote to put in place meaningful safeguards, including a limit to the carbon price that can be put on consumers. And all revenues generated by emissions trading must be used to help vulnerable citizens and for investment to cut emissions in these sectors. We also shouldn’t be under any illusions: We will need other measures, too, including stricter rules for carmakers and massive investments in heat pumps, district heating and deep building renovations.”

Land Use, Land-Use Change and Forestry (LULUCF):

The revision of the weak LULUCF Regulation is an opportunity to address both climate change and nature loss in tandem. The cheapest, most effective, and most readily available way to increase Europe’s carbon sinks is to protect and restore forests, peatlands, and other natural ecosystems and promote changes to farming practices that are a win-win for climate and nature.

However, the Commission has proposed increasing the LULUCF target to only 310 million tonnes, a far cry from the 600 million tonnes that could be achieved and that would be commensurate with the climate emergency we face. The Commission proposals also foresee the use of offsetting in the land use sector to avoid emission cuts elsewhere, for example in sectors covered by the Effort Sharing Regulation, which would directly undermine climate action. We need to increase carbon dioxide removal in addition to cutting emissions, not instead of it.

MEPs in the ENVI Committee adopted important improvements that would significantly strengthen the draft legislation, including an increase of 50 million tonnes in the proposed 2030 target, sub-targets for croplands, grasslands and wetlands, a rejection of the Commission’s proposal to merge agricultural emissions with the LULUCF sector after 2030 and - in their amendments to the Effort Sharing Regulation - the deletion of additional offsetting between the LULUCF sectors and those covered by the ESR. 

Alex Mason, Head of EU Climate and Energy Policy, said: “It’s a no-brainer really: The cheapest, most effective, and easiest way to increase Europe’s carbon sinks is to protect and restore our forests, peatlands, and other natural ecosystems. So it’s welcome that MEPs in the Environment Committee voted for a modest increase to the Commission’s paltry target for carbon removals and rejected the Commission’s plan to lump agriculture together with LULUCF. In the plenary in Strasbourg MEPs should vote in favour of all the committee amendments and reject any attempts to delete them or water them down.”

What’s next?

Negotiations on the Fit for 55 package are ongoing in the Council of Ministers and the French Presidency is aiming to reach an agreed position (or ‘general approach’) between Member States by the end of the month, at the meetings of Environment and Energy Ministers. Assuming that happens, then the process of ‘trilogues’ will begin under the Czech Presidency, where negotiators from the Council, Parliament and Commission come together to try and hammer out a deal.