Last month, the European Commission — the executive branch of the European Union — unveiled a package of 13 policy proposals collectively aimed at cutting 55 percent of the bloc’s greenhouse gas emissions by 2030, compared to 1990 levels. Aptly (or awkwardly) named “Fit for 55,” the proposals set out concrete measures that the E.U. can take to meet its legally binding 2030 emissions goal. “Fit for 55” would update current legislation, which is not sufficient to meet the official E.U. goal of neutrality by 2050.
“Fit for 55” is just a proposal. It still needs to be approved by the E.U. parliament and its member states. It will face fierce opposition on its path to implementation, including from Eastern European nations that still rely heavily on coal. Nonetheless, it offers three broad lessons about the E.U.’s approach to climate policy in the coming decades.
The scale of the E.U.’s climate policy effort is unparalleled
The United States and China have announced carbon neutrality goals without yet backing them with concrete policy proposals. In contrast, the E.U. Commission is offering “Fit for 55” as a detailed pathway to meet its 2030 climate commitments, on its way to neutrality. If implemented, the proposals would quickly and significantly expand efforts to reduce emissions. The proposal includes updated renewable energy and energy efficiency targets. If implemented, at least 40 percent of total energy consumption will be met from renewable sources by 2030. The commission is also proposing to lower the overall emissions cap for its Emissions Trading System (ETS), which has long been criticized for its low carbon price; that matters because the lower the cap and the higher the price, the more incentive producers will have to shift to low-carbon technologies.
The proposal would also broaden efforts to reduce more emissions than just those from industry and the power sector. The new efforts would include buildings and transportation, where emissions have remained flat or even increased in recent years. Buildings and transportation jointly account for more than half of E.U. emissions. Tackling these is necessary in any realistic path to carbon neutrality.
The commission wants to avoid public pushback. It has proposed using a quarter of ETS revenue to set up a social climate fund of 72 billion euros, or $85 billion. The fund would subsidize building renovations and electric vehicle (EV) purchases, among others, and compensate the poorest E.U. households for increased energy and transportation costs. Such measures might not quiet opposition from interest groups and skeptical member states, but they signal the commission’s awareness that the economic transformation required to meet the 2030 (and eventually the 2050) goals would be unprecedented.
E.U. climate policy is now industrial policy
“Fit for 55” seeks to combine climate and economic goals by establishing innovative and competitive low-carbon industries that guarantee jobs and prosperity on the path to carbon neutrality. That’s particularly notable in transportation; the proposals mandate reducing new vehicles’ average emissions by 55 percent in 2030 and 100 percent in 2035. This amounts to an outright ban of internal combustion engine vehicles by 2035, expanding similar policies that have already passed in individual member states such as France.
Such a proposal sends a strong signal to European car manufacturers that they need to complete the transition to electric vehicles or be left behind in a global industrial policy competition with China. In combination with promises to expand charging infrastructure and increase taxes on conventional fuels, “Fit for 55” builds on ongoing efforts to close key gaps in green industrial supply chains. The E.U. has funded a European Battery Alliance to establish a competitive European battery industry that would reduce Europe’s dependence on China, which has long dominated the manufacturing of clean energy technologies.
All this fits with a shift after the coronavirus pandemic to push globalization back and create domestic sources of growth. Thirty percent of Europe’s pandemic stimulus package is supposed to go to projects that further both economic competitiveness and address climate change, primarily through support for green industries. Now, “Fit for 55” seeks to increase competitiveness of Europe’s green industrial sectors and reduce dependence on China in industries critical to a zero-carbon future.
The E.U. is not planning to wait for others.
Perhaps the most contentious element of the “Fit for 55” proposal is the introduction of a “Carbon Border Adjustment Mechanism” (CBAM), which would allow the E.U. to forge ahead on emissions reductions without waiting for China or the United States. The CBAM would create a carbon fee on imports into the European Union, initially in emissions-intensive industries such as steel, cement, electricity, aluminum and fertilizer, to ensure that European firms don’t face a cost disadvantage because they are complying with Europe’s low-carbon policy. Companies could avoid the fee if their products have lower carbon content than their E.U. equivalent or have been subject to a carbon price similar or higher than the E.U. carbon price.
Emissions-intensive E.U. industries cautiously support these plans, even if they would prefer to be exempted from carbon pricing altogether. Global trading partners — including Brazil and China — have strongly opposed such measures and argued that the mechanism would violate WTO safeguards against protectionism. Others have noted that many of the poorest nations that would be affected by the policy are African countries that are extremely vulnerable to climate change, potentially increasing global inequity.
The biggest hurdle may be the United States, since the CBAM will lead to transatlantic trade conflict unless the United States introduces similar measures. While the Biden administration has signaled some support for a similar border adjustment fee, such proposals have not translated into real action, and may be further derailed by the midterm elections.
If the E.U. indeed manages to overcome its internal obstacles to passing this ambitious set of proposals, the CBAM might finally be creating a global carbon price, so long as it motivates Europe’s greatest trading partners to join the bloc in a climate club. At this point, however, domestic politics mean that trade conflict and deteriorating economic relationships are at least as likely.
Jonas Nahm (@jonasnahm) is an assistant professor of energy, resources and environment at the Johns Hopkins School of Advanced International Studies, and author of the forthcoming “Collaborative Advantage: Forging Green Industries in the New Global Economy” (Oxford University Press, 2021).