Citizens, companies and governments will foot the bill for the accelerated decarbonisation in Europe in the coming years. Delaying with that Green Deal will only increase the European climate bill and erode the European interest in the global economy.
The fact that Europe is now unpacking with legislation that pushes citizens’ gas or heating oil bills even higher and, on top of that, also takes into account the polluting emissions of petrol and diesel cars, has led to a lot of unrest in recent days. Companies are also concerned about even higher energy bills and the cost of pollution.
This concern is the result of European legislation for the Green Deal, the transition to a climate-neutral Europe by 2050. To achieve that ultimate goal, Europe must make a significant leap by 2030. European climate law requires a reduction in net carbon or CO emissions by then2 by at least 55 percent compared to 1990.
The essence
- More than half of the legislation that aims to reduce the European Union’s carbon emissions by 55 percent by 2030 has already been finalized and approved today.
- The European Emissions Trading System (ETS) for heavy industry and electricity production is being expanded to other sectors.
- The separate system of emission allowances (ETS2), which is being set up to ‘green’ the heating of houses and cars, also affects households.
- This mandatory greening threatens to create a social graveyard and can lead to protest.
More than half of the legislation that should reduce the European Union’s carbon emissions by 55 percent by 2030 has now been finalized and approved. That is a feat. Less than a year and a half ago, the Commission put ‘Fit for 55’, the largest legislative puzzle in European history, on the table. In recent weeks, the European Parliament and the member states have reached an agreement on the most central issues in that climate plan.
Pollution rights
The European Emissions Trading System (ETS) has existed since 2005 and only applies to heavy industry and electricity production. But in terms of pollution, that ETS system accounts for about 45 percent of Europe’s CO2emissions. By reducing the number of allowances, heavy industry emissions have already fallen by more than 40 percent. This shortage obliges part of the industry to make production processes greener. In the coming years, Europe wants to further restrict the number of pollution rights. Due to this reduction, emissions from heavy industry must already be 62 percent lower by 2030.
New sectors are also being added to the ETS system. After aviation, shipping is gradually being transferred to the European emissions trading system. Shipping companies must purchase pollution rights for 40 percent of their emissions from 2024 and in 2026 for 100 percent of their fleet’s emissions.
Enhanced emissions trading will help boost investment and reduce carbon emissions faster and further.
For heavy industry, the free pollution rights will be over by 2034 at the latest. Those free allowances must disappear over a period of nine years, starting in 2026. From 2027, a European import levy will also come into effect for iron and steel, cement, aluminium, electricity, hydrogen and fertilizer if they cannot present the same climate efforts.
This border tax or Cbam (Carbon Border Adjustment Mechanism) should prevent European companies from choosing the hazepad to regions that make less effort for the climate. Such ‘carbon leaks’ increase global emissions. Before 2026, the Commission will investigate the impact of Cbam, including carbon leaks. From 2030, this border tax may be extended to other sectors such as chemicals and paper.
Car and house
The most controversial element of the climate package remains the separate system of emission allowances (ETS2), which is being set up to ‘green’ the heating of homes and cars. This system also affects families. The suppliers of heating oil or natural gas will have to pay emission allowances for heating homes. This also applies to suppliers of fuels such as petrol or diesel at the pump. The fuel companies will undoubtedly pass on this additional cost to the customers.
This compulsory greening threatens to create a social graveyard and/or lead to violent protests such as that of the yellow vests in France. Europe has already decided to no longer allow cars or vans with combustion engines on the European market by 2035. The electric car is becoming the norm. However, such an electric car remains unaffordable for a substantial part of the population. Switching to clean energy in homes is also difficult for socially vulnerable groups.
That is why there will be a social fund of 86.7 billion euros from 2026, even before the ETS2 enters into force. Member states themselves must also submit plans for accelerated renovation of homes, for example by installing solar roofs, and contribute to the fund. Belgium can get a maximum of 1.84 billion euros from that pot. Eastern and Southern European countries in particular receive more support from the fund.
Price on CO2
ETS2 won’t start until 2027, possibly even 2028. But its announcement comes at a very inopportune time. Inflation is soaring and energy prices are four times higher than in July 2021, when the European Commission presented its ‘Fit for 55’ climate plan.
The high energy price also increases the pressure to accelerate the transition to renewable energy. ‘A price on CO2 is at the heart of the Green Deal. The enhanced emissions trading will help boost investment and reduce carbon emissions faster and further,” said Frans Timmermans, the European Commission’s climate chief, after the latest climate deals between the European Parliament and the member states.
In a few years’ time, this energy switch will have a serious effect on the energy price and on Europe’s independence and leadership. Green technology is the main weapon in the industrial geopolitical ‘war’ with China and the US.
