Five potential flashpoints in EU’s ambitious climate change plan

Thirteen radical proposals to decarbonise Europe and reverse an impending climate disaster. That's what the EU's "Green Deal" package, published this week, was billed as. It's an attempt to reposition the bloc at the forefront of global efforts to address the climate issue after several years of foot-dragging.

The measures are intended to facilitate a 55 per cent reduction in carbon emissions across the European Union by 2030 compared to 1990 levels, en route to achieving net-zero emissions by 2050.

This is a tall order. It means halving the EU’s emissions in nine years and will require radical changes to the way we live, eat and move around the planet. If achieved, the EU’s proposals would make the 2020s the most transformative decade for climate action.

European Commission president Ursula von der Leyen dubbed the proposals the EU's "man on the moon moment". However, environmental campaign groups say the 55 per cent target does not go far enough – Greenpeace is urging a minimum cut of 65 per cent – while certain businesses and industries view the pace of change as too swift and the increased regulations as too much of a financial burden.

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Irish companies, and the Irish Government for that matter, have been good at setting climate targets but poor at actually cutting emissions. This will have to change. The Government missed its 2020 targets both for cutting headline emissions and for switching to renewables. It is now busy formulating its own climate action plan which will include, for the first time, specific carbon budgets for each sector of the economy.

Failure to achieve these targets could trigger a legal challenge, something we’ve seen in other countries.

Business groups here and abroad gave a cautious welcome to the EU proposals, no doubt waiting to see how they will play out. Here are five potential flashpoints:

Buildings and transport

The EU's package contains major new components, not least emissions trading for buildings and transport. The EU's Emissions Trading Scheme (ETS), a system that makes companies pay for the cost of emitting polluting carbons, has been the cornerstone of the bloc's climate policy and a key tool for reducing greenhouse gas emissions cost-effectively.

It is still the world’s largest carbon market. The EU’s climate policy has, however, been focused heavily on the decarbonisation of the electricity and industrial sectors via the ETS and binding targets around renewable energy. This has seen emissions from these sectors fall faster.

Contrast that with emissions from the building sector, which have not decreased significantly, and those from the transport sector, which have actually increased, and which is now the EU’s most problematic sector.

The Green Deal package aims to bring transport and building into the ETS system.

The two sectors account for 22 per cent and 35 per cent of EU emissions respectively, and reductions in these areas are essential if the EU is to reach its climate targets.

"Taking an ETS-type system into the transport and buildings sector will be challenging. We need policy tools to drive high carbon activities out of the system, but there are concerns about the accessibility of alternatives and the potential distributional effects, with the rising cost of heating and transport fuels affecting low income households most," said Eliot Whittington of the European Corporate Leaders Group (CLG Europe).

“These are the people who are also most likely to lack the resources that are needed to switch to lower carbon alternatives,” he added. “To manage this, then careful design of any new policy would be key and ensuring adequate resources for the Climate Social Fund to offer a sufficient level of support to those households most affected by the growing cost of transport and housing,” Mr Whittington said.

Carbon border adjustment mechanism

By far and away the most controversial aspect of the European Union’s latest climate plan is the proposed carbon border adjustment mechanism (CBAM). The EU has pledged to be more ambitious in combating climate change and part of this means imposing greater carbon costs on businesses to drive emissions cuts.

But this increases the risk of what’s known as “carbon leakage” where companies simply move their carbon-intensive production outside the bloc to avail of lax standards in other jurisdictions or where EU products are replaced by more carbon-intensive imports.

To counteract this, Brussels is proposing a carbon tariff on imports. Under the proposed CBAM, EU importers would essentially buy carbon certificates corresponding to the carbon price that would have been paid had the goods been produced under the EU's carbon-pricing rules.

If non-EU producers can show that they have already paid a price for the carbon used in the production of the imported goods, EU importers can claim an exemption.

It is only likely to apply to certain carbon-intensive sectors – steel, cement, chemicals, fertilisers and electricity – and to be adopted on a pilot basis initially. However, high-level industry sources have described it as "administratively complex" and potentially damaging to the upcoming COP26 climate summit in Glasgow as the action is unilateral.

Others said it might trigger a new era of "protectionism". Employers' group Ibec said emissions reduction in Ireland and Europe must be rooted in a decoupling of economic and emissions growth, not deindustrialisation or the export of emissions.

“The proposed carbon border adjustment mechanism is one way of doing this,” it said. “However, it must work in harmony with the emissions trading system, which remains the main tool for industrial greenhouse gas mitigation within the European Union, ” it said.

The switch to electric motoring

The commission’s package sets ambitious new goals for switching to electric motoring. It proposes to cut vehicle emissions by 55 per cent by 2030 and by 100 per cent by 2035. There is, however, slight wriggle room on this if manufacturers struggle to meet it. It could be extended to 2040.

Nonetheless this is equivalent to a complete ban on the sale of new internal combustion engine cars within 14 years. "These strengthened CO2 emission standards will incentivise the deployment of significantly more zero-emission vehicles on the [EU] market," the commission said.

Many believe this is one of the more achievable goals as most European carmakers have centred their industrial strategies around greener motoring and the adoption of electric vehicle (EV) technology. The EU's climate chief Frans Timmermans said recently that the car industry's approach had "changed completely" as the sector invested in low emissions battery technology.

The Irish Government’s target that there will be 936,000 electric vehicles, battery EVs and plug-in hybrid EVs on Irish roads by 2030 puts it behind the curve as it would equate to just one-third of the 2.8 million vehicles that are currently on the road.

Much will depend on price. Many motorists wish to switch but can’t afford to buy at the standard EV price range.

Agriculture

Without doubt, the most contentious and problematic area for Ireland when it comes to cutting headline emissions is agriculture. Successive attempts to curb emissions – some will argue they weren’t exacting enough – have failed.

The chief source of rising emissions is livestock production. Ireland’s dairy herd is almost 30 per cent larger than it was before the ending of EU milk quotas in 2015, while the island’s milk pool is close to 11 billion litres – almost double what it was before the ending of quotas.

The Government’s Climate Action Bill enshrines emissions reduction targets in law, and puts the State on a path to carbon neutrality by 2050. This will involve strict and binding targets for reducing agricultural emissions, which account for 34 per cent of total emissions here, the highest on a per capita basis of any EU member state.

The Irish Farmers’ Association (IFA) have successfully lobbied for certain carbon budget amendments, including one to recognise where carbon is removed or stored in agriculture.

The EU’s Green Deal – also known as the Fit for 55 strategy – adopts new land use targets, including a commitment that, by 2035, “the EU should aim to reach climate neutrality in the land use, forestry and agriculture sectors, including also agricultural non-CO2 emissions, such as those from fertiliser use and livestock”.

Key to this is the use of forests, grasslands and, in Ireland’s case, peatlands. They will be key to eliminating the emissions that can’t be cut by raising taxes or switching technologies.

Energy taxation and fossil fuels

The other major goal in the EU’s green transition is to raise the bloc’s renewable power target to 40 per cent of the energy mix by the end of the decade, up from the current 32 per cent . Renewable energy firms have already overtaken fossil fuel producers in recent years , but this will give them an added incentive.

The current EU energy taxation directive still incentivises fossil fuel usage but the proposals will attempt to overhaul this framework and the way in which energy products are taxed in the EU. Because of the political sensitivities around tax and the requirement for unanimity, previous reform attempts have failed.

“The new rules aim at addressing the harmful effects of energy tax competition, helping secure revenues for member states from green taxes less detrimental to growth than taxes on labour,” the commission said.

The Green Deal pushes the EU’s decarbonisation project into a different gear. Implementing it will – as Timmermans said – be “bloody hard”. Europe’s targets are more ambitious than the US’s and/or China’s but they may still fail to keep global warming below 2 degrees by the end of the century, the overarching target set down in the Paris Climate accord of 2015.