The EU Adopts Ambitious Climate Law – A Prelude to a Wave of Green Regulations

Climate targets

The European Climate Law sets out a 2050 EU climate neutrality target, with an intermediate target set for 2030 and another to be set for 2040. Climate neutrality involves (1) reducing GHG emissions and (2) removing any remaining emissions through offsetting measures (carbon sinks, such as planting trees) to achieve a net-zero emissions balance. The legally-binding path toward 2050 climate neutrality is as follows:

• By 2030: reduce net GHG emissions (emissions after deduction of removals) at the EU level by at least 55 % compared to 1990 levels and increase the EU’s carbon sink capacity. To ensure that sufficient actual emissions reductions are made by 2030, the contribution of removals to the 2030 climate target is capped;
• By 2040: the Commission will make a proposal for the 2040 climate target at the latest six months after the Paris Agreement’s global stocktaking exercise, set for 2023. At the same time, the Commission will publish a so-called “GHG budget” showing the projected maximum amount of GHG emissions that the EU can emit for the 2030-2050 period, without placing the EU’s commitments under the Paris Agreement at risk. The extent of emissions foreseen in the “GHG budget” will be one of the factors used to define the EU’s 2040 climate target;
• By 2050: achieve climate neutrality in the EU, in line with the Paris Agreement’s long-term goal of keeping the rise in global average temperature below 2 °C, preferably to 1.5 °C; and,
• Beyond 2050: seek to achieve negative emissions in the EU.

Reshaping the EU’s regulatory environment to achieve the climate targets

The European Climate Law establishes a binding requirement for EU institutions and Member States to adopt a regulatory environment enabling the achievement of the climate targets. Specifically, they must take “the necessary measures” at the EU and national levels to achieve 2050 climate neutrality.

The Commission has oversight to ensure that the EU gets and stays on track towards climate neutrality. The Commission’s mandate is as follows:

• Review existing EU laws to see what revisions are needed to achieve climate-neutrality, and if not, develop specific proposals;
• Right to initiate further proposals if, during the legislative process, the Commission’s initial proposals are weakened in such a way that the 2030 target would not be achieved;
• Assess the consistency of “any draft measure or legislative proposal” with the climate targets; and,
• Track progress by September 2023 and every five years thereafter: assess the collective progress made by EU Member States and the consistency of EU and national measures with the climate-neutrality target, and propose further action if needed.

The European Climate law also establishes a European Scientific Advisory Board on Climate Change consisting of 15 scientific experts, each appointed for four years. The Advisory Board will provide independent scientific advice on climate policies and issue reports on the consistency of existing and proposed EU measures, climate targets, and GHG budgets, with the objectives in the Climate Law and the EU’s commitments under the Paris Agreement. EU Member States are also called on to set up national climate advisory bodies to provide expert scientific advice on climate policy to the relevant national authorities.

Wave of green proposals in the pipeline

The European Climate Law has been adopted amidst several ambitious legislative proposals aimed at setting the EU on track to achieve its climate targets. Some proposals (like the proposed Battery Regulation) have already been presented, and are working their way through the legislative process. On July 14, 2021, the Commission is expected to present its so-called “fit for 55 package,” setting out its plan to achieve the 2030 climate target. The following proposals are expected:

• A proposal for a Carbon Border Adjustment Mechanism;
• Revision of the EU Emissions Trading System;
• Revision of the Renewable Energy Directive;
• Revision of the Energy Efficiency Directive;
• Revision of the Energy Tax Directive;
• Revision of the Directive on deployment of alternative fuels infrastructure;
• Revision of the Regulation setting CO2 emission performance standards for new passenger cars and for new light commercial vehicles;
• Revision of the Effort Sharing Regulation;
• Revision of the Regulation on the inclusion of greenhouse gas emissions and removals from land use, land use change and forestry;
• A proposal for a Regulation on sustainable aviation fuels (ReFuelEU Aviation);
• A proposal for a Directive on sustainable alternative fuels in maritime transport (FuelEU Maritime);
• A proposal for a Climate Action Social Facility;
• A new EU forest strategy (non-legislative);
• A proposal for a Regulation to reduce methane emissions in the oil, gas and coal sectors (expected last quarter of 2021);
• Revision of the Energy Performance of Buildings Directive (expected last quarter of 2021); and,
• Revision of the Third Energy Package for Gas (decarbonising gas markets) (expected last quarter of 2021).

Preparing for the green wave

The newly adopted European Climate Law and the much anticipated wave of proposals in the “fit for 55 package” will have significant implications across economic sectors, including agriculture, automotive, consumer goods, energy, metals, and transport.

Within the EU, the new “green” rulebook will necessitate restructuring the economy towards sustainability and, as a result, create significant economic opportunities and challenges. For example, the transition to a climate-neutral economy may pave the way for innovative technologies along the entire lifecycle of products targeting their design, alternative approaches to manufacturing, energy saving and end-of-life management (repair/reuse/recycling). In the global context, the EU’s “green” transition will also have major implications for imported products that may be subject to key aspects of the EU’s “green” rulebook, such as the proposed border adjustment mechanism.

Companies should seek to stay abreast of the EU’s “green” initiatives and provide input in the legislative processes for the forthcoming “fit for 55 package” proposals. Companies should also assess the impact of the EU’s new “green” rulebook on their business and explore options to benefit from, or mitigate, its impact.