COMMENTS ON THE COMMISSION COMMUNICATION ON THE EUROPEAN GREEN DEAL

Climate Leadership Coalition has a positive view on the Green Deal objective of a climate-neutral Europe by 2050 and on the approach that emphasizes growth strategy, strives for competitiveness, is socially just, and encompasses all sectors of society and all industries.

However, we would like to present three proposals to further develop this approach:

– Clarify long-term climate objectives through an EU-wide carbon budget
– Improve the investment environment by making it more predictable and favorable through expanded emission trading and the better integration of the three pillars of the EU’s climate policy (ETS sectors, Effort Sharing sectors, LULUCF)
– Formulate a comprehensive position on land use before new proposals for emission trading, effort sharing, land use, land use change and forestry (LULUCF) legislation are made in summer 2021

Clarify long-term climate objectives through an EU-wide carbon budget

Unclear long-term targets create uncertainty for long-term investors and thereby slow down the transition towards a more sustainable economy. Industrial and energy-related investments typically have an economic life cycle of 40–60 years. Investors require clear long-term targets that decrease uncertainty and enable decisions on large-scale investments.

In their call in 2018, CLC and nearly a hundred Nordic companies, finance sector operators, NGOs, the Confederations of Finnish Industries, and the Central Union of Agricultural Producers and Forest Owners in Finland demanded that the EU and the Member States set and agree on new, sufficiently ambitious climate targets to:

– Achieve net-zero emissions at the latest by 2050;
– Based on the target, agree on a binding carbon budget for the remaining GHG emissions, including the share of emission reductions and carbon sinks; and
– Revise and align the 2030 and 2040 targets with the net-zero target.

The view of the signatories to the call is that a carbon budget is a key element and, in determining it, targets for emission reductions and carbon sinks must be set. We propose that an EU-wide carbon budget principle is included in the European climate law and that the carbon budget is defined, for example, as part of the impact assessment of the 2030 targets.

Improve the investment environment by making it more predictable and favorable through expanded emission trading and the better integration of the three pillars of the EU’s climate policy

As climate action must be taken significantly faster and investments must be bigger than before, the three pillars of the EU climate policy must be further developed. The current set-up of the pillars, in particular the national parts, creates uncertainty. It will be difficult to anticipate and plan for changes in the regulatory environment, since country-based climate policies tend to vary after national elections depending on the parties in power. By 2050, around 200 parliament elections will have been held. Furthermore, separate country-based policies increase the risk of uneven outcomes and overlap in and between Member States.

Technical boundaries between the current three sectors are also on their way out. As transport electrifies and starts using Power-to-X-fuels, it moves gradually under the ETS. Biomaterials will bring the LULUCF sector close to the other two pillars, and Carbon Capture and Utilization (CCU) will lead to a “horizontal flow” of carbon through all three pillars.

Climate Leadership Council ry c/o Sitra, P.O. Box 160 (Itämerenkatu 11–13), FI-00181 Helsinki, Finland

In September 2019, CLC proposed a solution to the EU that is more systemic than the current one:

– The ETS should be expanded to cover heating and cooling as well as transport.
– Carbon capture and storage should be improved, the necessary measuring methods developed, and use of alternatives for high carbon footprint materials encouraged.
– Better mechanisms to prevent carbon leakage should be developed.
– International emission trading systems should be integrated.

The ETS system offers a unique benefit when we need to accelerate climate actions. By reducing ETS allowances, we can quickly reduce emissions. California and Quebec, which integrated into the same system, have showed that an emission trading system can cover the majority of emissions; both systems have a coverage of over 80%.

We propose that the use of the EU ETS as a key instrument be expanded to cover heating and cooling as well as transport and that more systemic solutions be developed for carbon capture from the air while factoring in measurable and verifiable new carbon sinks, carbon storage in products, and the substitution effect when high carbon footprint materials are replaced with low carbon footprint materials. It is important that architecture for this more systemic solution for 2030 and onwards is done before the proposals for legislation on the three EU pillars concerning emission trading, effort sharing, land use, land use change, and forestry are made in summer 2021.

We also support the idea that an extensive share of the EU ETS income should be allocated to the commercialization of pivotal technologies. These include Power-to-X, carbon-free steel, carbon-absorbing concrete, and biomaterials.

As part of the European Green Deal, border carbon adjustments are also proposed. Ensuring a level-playing field is important. If there is evidence of unfair competition, the first action to level the playing field should be to find ways to help the EU’s trade partners to improve their policies, for example by implementing carbon pricing and promoting the trade of climate-friendly goods and services. Other possible actions could include using new and existing regional trade agreements (RTAs), holding talks with like-minded WTO Members, including climate-related issues in the WTO Trade Policy Review Mechanism (TPRM) and border carbon adjustments (BCA) for those sectors that cannot be levelized otherwise. It should be evaluated how trade policies and agreements could be utilized in this, starting from those sectors that cannot be levelized otherwise.

Formulate a comprehensive position on land use

According to information published by the European Commission, separate proposals for clean energy, sustainable industry and circular economy, building and renovating, mobility, agriculture, forestry, and biodiversity will be published between 2020 and 2021. In all of these areas, land use (e.g. agriculture and forestry) or sector products have a central or significant role. We propose that a comprehensive strategy on land use be drawn up. Land use has a special role, for example, in carbon capture, which will be highly significant in the first half of this century for absorbing carbon from the atmosphere and storing it in the soil or forestry products. Furthermore, land use will be affected by major changes to, for example, weather and biological conditions and food production needs and methods. The Green Deal should place more emphasis on bioeconomy and the positive impact it has on climate change through the substitution effect and replacement of fossil raw materials.

Climate Leadership Coalition (CLC) has made this statement also for the The Commerce Committee of the Finnish Parliament on January 20, 2020.

Helsinki 2/1/2020

Jouni Keronen
CEO
Climate Leadership Coalition

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