2021: Another decisive year for Europe’s climate ambitions

Several Oxfam activists disguised as (L-R) British Prime Minister Boris Johnson; German Chancellor Angela Merkel; French President Emmanuel Macron; Canadian Prime Ministe Justin Trudeau and US President Donald J. Trump take part in a protest action in the framework of the COP25 UN Climate Change Conference in Madrid, Spain, 10 December 2019. [EPA-EFE/FERNANDO VILLAR]

This article is part of our special report What to expect in EU policy in 2021?.

Climate policy will again take centre stage in 2021, with the European Commission expected to table a mammoth package of green laws in June, before the COP26 UN climate summit in Glasgow caps off a year packed with milestones for European climate policy in December.

First, EU legislators will have to finalise the bloc’s climate target for 2030, with the objective of putting the EU on track to reaching net-zero emissions by mid-century.

While EU leaders painfully agreed on a 55% greenhouse gas reduction target after a night-long summit of excruciating talks in December, they will now have to convince the European Parliament, which has an equal say on the matter and has pushed for a more ambitious 60% objective.

Both have to agree on a final number before the bloc’s new 2030 target can be enshrined into a new European Climate Law, and Parliament negotiators have already drawn their red lines ahead of the talks.

If EU member states don’t seem ready to budge on the 55% target, which most of them regard as a maximum, they will have to make concessions to the Parliament on other aspects of the climate law. Those might include the creation of an independent scientific body to monitor the conformity of EU laws with the bloc’s climate objectives, or sanctions for EU countries breaching the rules.

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As negotiations on the EU’s proposed climate law enter the home straight, Pascal Canfin highlights the European Parliament’s red lines in talks with EU member states.

“Fit for 55”

But as important as it is, the finalisation of the European Climate Law will only be the appetiser for what promises to be a super year for EU climate policy.

“What we do between now and the COP will probably be more important than what actually happens at the COP,” said Brook Riley, head of EU affairs at Rockwool, the world’s leading manufacturer of building insulation material.

“There will be geeky but very important work over the next months as the Commission prepares its impact assessment for the fit-for-55 legislation,” he told EURACTIV in emailed comments.

‘Fit for 55’ is the Commission’s nickname for the massive package of EU legislation it is preparing to table in June with the aim of conforming European laws to the bloc’s new climate objective for 2030.

Just about every EU law on energy and climate is going to be revised as part of the package, ranging from the renewable energy directive to EU legislation affecting energy taxation and the crown jewel of EU climate policy – the Emissions Trading Scheme, which regulates the world’s biggest carbon market.

“Put simply, everything will be put on the table next year,” said Manon Dufour, head of Brussels office at E3G, a climate and environmental policy think tank.

“The Commission is set to redraw crucial climate, clean energy, mobility, and competition policies while steering the recovery from the COVID-19 crisis, defining politically-sensitive trade policies, redefining relationships with its international partners, and setting global green finance standards.”

Part of the package will include “impact assessments” – or comprehensive cost-benefit analyses – that the EU executive has to present with every major legislative proposal. They contain estimates about the impact of legislation on economic growth or job creation, and as such they have a major influence on policymaking.

Rockwool’s Riley said that “the number crunching can make all the difference for sufficiently ambitious legislation: it’s the sleeping giant of the 2021 climate and energy work”.

According to Dufour, the ‘fit for 55’ package will keep negotiators – as well as businesses, special interest lobbyists and NGOs – busy for the following years, but it also carries a risk: as EU negotiators grapple with thousands of pages of legislative proposals and lock horns over technical detail, they risk missing the bigger picture, she warned.

“All parties involved – decision-makers as well as influencers – will do good to keep their eye on the ball. The objective is to drive a pan-European, rapid, and fair transition to climate neutrality. There is no room for wrong choices or half solutions,” Dufour said.

Industrial policy and the carbon border tax

The ‘fit for 55’ package will also contain a brand new addition to the EU’s climate policy arsenal: the much-awaited carbon border adjustment mechanism, which aims to re-establish a level playing field between European industries and manufacturers in other parts of the world which do not face the same carbon costs.

But there are plenty of pitfalls. Introducing the new measure while observing World Trade Organisation rules and avoiding a new trade war with China or the US will be a key test for the EU as it implements its new carbon border scheme.

In fact, Europe’s industrial revival – led by the green and digital transitions – is one of the overarching objectives of Ursula von der Leyen’s European Commission. As part of this, the EU executive is preparing a comprehensive update of Europe’s state aid and competition policy framework in the fourth quarter of the year.

“Given this is largely exclusive EU competence with strong executive powers by the Commission, expect much of this to be in the form of Commission guidelines rather than laws,” said Matthias Buck, head of European energy policy at Agora Energiewende, a German think tank.

“This said, the political message is clear and important: updating Europe’s state aid and competition rules in light of new European climate and energy laws shows an unprecedented appetite for policy-consistency by the current Commission leadership and a paradigm shift in the role of markets,” he said.

Taxing times as EU mulls best way to price carbon at the border

EU climate officials are currently mulling how to deploy a so-called carbon border adjustment mechanism (CBAM) on imported goods, as part of the bloc’s flagship Green Deal initiative, and it is proving to be a complex exercise.

Recovery plans

Another key moment for climate policy in 2021 relates to national plans that EU member states have to submit to the European Commission before they are allowed to tap into the bloc’s €750 billion recovery fund from the coronavirus pandemic.

“It is absolutely critical that member states use the opportunity to front-load as much as possible investments into climate protection and clean energy transition,” Buck said.

Priorities are numerous and include phasing out coal, accelerating renewable energy deployment and grid infrastructure as well as renovating Europe’s building stock and rolling out electric mobility infrastructure.

In December, EU member states agreed to set aside 37% of the recovery fund for the green transition. And the entire €1.1 trillion EU budget for the next seven years (2021-2027) will also have to follow the ‘Do No Significant Harm’ principle, which prohibits investments in fossil fuels and other technologies deemed contrary to the bloc’s environmental objectives.

However, Buck warned the jury is still out about member states’ ability to stick to the EU’s green spending rules, “given the very high pressure to spend EU funds quickly to enable Europe’s economic recovery.”

EU agrees to set aside 37% of recovery fund for green transition

Negotiations between the European Parliament and EU member states on the bloc’s coronavirus recovery fund concluded early on Friday morning (18 December), unlocking €265 billion of the total €672.5 available for the green transition in EU countries.

German elections: a green wave on the horizon?

Before the year ends with the COP26, it will see another major political milestone for European climate policy: the German elections.

“Next year Germany is likely to be a lot more inward-looking, and almost absent at the European level while the elections and coalition negotiations are going on,” said Manon Dufour.

But while Germany has been instrumental in pushing through the European Green Deal at EU level, the current ruling coalition of social democrats (SPD) and conservatives (CDU/CSU) has been unable to drive more ambitious climate policies at home.

Buck predicted that “accelerating climate policy will be a core issue in the upcoming national election”, which may see the Green Party led by Annalena Baerbock and Robert Habeck come in second, according to the current polls.

“The Green Party may thus be in the position to partner with either the CDU/CSU or with SPD/Die Linke to form a new coalition government. Very plausibly, we could see a vigorous push by the next German government to accelerate Germany’s energy transition,” Buck said.

Dufour agreed and added that Europe’s economic powerhouse may well be on the verge of a green wave, which could have lasting implications for European climate policy.

“Germany is likely to come back with a bang once a – potentially greener – coalition is formed, just in time for negotiations on the ‘Fit for 55’ package,” she said.

[Edited by Zoran Radosavljevic]

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