On 14 July 2021, the European Commission published an extensive legislative package (Fit for 55) that revises basically all EU climate and energy legislation. The aim of the package is to reach the new, tightened target of 55% less emissions by 2030 from 1990.
Fortum Group welcomes the Fit for 55 package: it sets the EU on the right pathway towards climate neutrality by 2050 and demonstrates the EU’s global leadership in mitigating climate change. However, going forward it will be crucial to take a cost-efficient and technology-neutral approach for the necessary transformation of the European economy.
Our key messages on the package:
Decarbonisation efforts shared more evenly across all sectors
- The Fit for 55 package highlights cost-effective allocation of the efforts amongst various sectors; Fortum strongly supports this approach. Sector integration through electrification and hydrogen produced from renewables and low-carbon energy sources play an important role in decarbonising other sectors, increasing both cost- and energy efficiency.
Targets and legislative instruments need to be better synchronised
- At the first glance, the Fit for 55 package seems to provide a balanced approach to various climate and energy policy areas. However, the synchronisation of targets and different legislative instruments remains a key issue going forward. It is of high importance to provide coordination between the Emissions Trading Directive and the parallel revision of the Energy Efficiency Directive (EED) and the revised Renewable Energy Directive (REDII). Renewable, low-carbon electricity and hydrogen produced from renewables and low-carbon energy sources together with increased energy efficiency all contribute to the achievement of the EU’s climate target.
Extending carbon pricing to buildings and transport welcomed
- Carbon pricing is the most cost-efficient, technology-neutral and flexible instrument in emission reduction. We welcome the Commission’s proposal to establish a standalone emissions trading system for heating of buildings and transport with a separate carbon price that will gradually converge with the main ETS. It is an appropriate approach to extend carbon pricing to new sectors without jeopardising the functioning of the existing EU ETS.
ETS proposal increases the predictability of the decarbonisation efforts
- We welcome the Commission’s proposal to strengthen the existing ETS by increasing the LRF of the ETS to 4.2% starting in the year after entry into force of the legislation, rebasing the cap, and strengthening the MSR. We appreciate the Commission’s proposal to increase the MSR intake rate to 24% until 2030. These changes will give long-awaited predictability for the companies in their decarbonization efforts.
REDII with increased renewables ambition supports the climate goal
- Renewable energy sources are an essential contributor to the further decarbonization of the energy sector, and they need to be complemented with clean dispatchable technologies such as low-carbon electricity, energy storage, and hydrogen produced from renewables and low-carbon energy sources.
- The revised REDII proposal covers renewable hydrogen whilst hydrogen produced from low-carbon energy has been left to the gas decarbonisation package due by year-end. Ensuring consistency between these legislative proposals is key.
The hydrogen legislation must be well-balanced and technology-neutral
- Hydrogen as an emerging technology requires the establishment of a consistent and business-oriented regulatory EU framework. Whilst the further expansion of renewables will be key in hydrogen development, limiting it to only new-build renewable installations (“additionality”) will not enable a cost-efficient and prompt development of the European hydrogen economy.
- EU hydrogen legislation should take the carbon content and a robust and trustworthy guarantee of origin system as the main basis.
CBAM is expected to enhance the climate efforts of the third countries
- A fully new legislative element in the Fit for 55 package is the proposal for the carbon border adjustment mechanism (CBAM) including electricity imports from outside the EU. While it will support the competitiveness of the EU’s own production, it will also encourage third countries to develop their climate regulation and emissions pricing systems. Concerns remain with regard to its WTO compatibility and negative reactions from major trading partners such as the United States.
