On Monday 4 October, President of the European Commission Ursula von der Leyen will meet the leaders of the Finnish government in Helsinki to discuss topical EU matters including the recovery plan and the green transition.

Climate Leadership Coalition – the largest climate business-climate network in EU – views important that during the visit also the role of Fit for 55 – package will be addressed. It would have a pivotal role for the climate objectives in Finland and the needed investments.

”European Commission’s Fit for 55 package will fundamentally contribute to the transformation of our economies and societies. The enhancements of the EU ETS and the extension of emissions trading into new sectors will double the size of the market-based system and improve incentives for low-carbon investments”, argue Karl-Henrik Sundström, Chairman, Climate Leadership Coalition and Jyrki Katainen, Vice-Chair, Climate Leadership Coalition.

Since 1990, EU annual greenhouse gas emissions have decreased by 1,400 Mt CO2eq (2018). The Fit for 55 (Ff55) package aims to decrease these emissions by a further 1,600 Mt CO2eq and to increase carbon removals by 42 Mt CO2eq by 2030.

Wider use of EU emissions trading would cover a larger share of emissions, secure emission reductions in the new sectors and would enable an effective carbon price

The cornerstone of the Ff55 is EU Emission Trading System (EU ETS), a market-based, “cap-and-trade” mechanism for reducing emissions. The cap secures emission reductions, and tradability ensures that the reductions are achieved in a cost-efficient way. The emissions capped by the ETS from power generation and energy-intensive industries have been cut by 42.8% compared to 2005. An extension to include the maritime, road transport and building sectors, would widen the coverage of EU emissions trading from a current level of 38% to close to 80% of total emissions (in 2019).

Ff55 includes increasing the ETS emission reduction target for 2030 from 43% to 61% (including the extension to the maritime sector) compared to 2005 and absorbing the historical surplus of allowances. For the separate ETS for transport and heating Ff55 proposes 43% emissions reductions compared to 2005.

CLC views that these actions would strengthen the carbon price signal, improve market stability and result in better incentives for decarbonisation. In the longer term, CLC would prefer to have one ETS system for reasons of technological integration and market efficiency, but it is good to develop a well-functioning separate ETS first for the road transport and building sectors.

The package aims to increase carbon removals, storage and substitutions.The additional carbon removals (42 Mt CO2eq) are planned to be implemented mainly via an increase in  the quality and quantity of the EU’s forest ecosystems and other natural carbon sinks, such as soils, and a reduction in greenhouse gas emissions within the land use sector. The Commission will also adopt delegated acts that add new categories of carbon storage products, including harvested wood products, that have enhanced carbon sequestration or material substitution effects.

CLC highlights the potential of biomaterial substitutions and prefers market mechanisms to incentivise carbon sinks, storage and substitutions. We have addressed these issues in our proposal for a long-term strategy for EU land use and the bioeconomy.

A carbon budget improves predictability and the ability to adjust climate policies rapidly when the need arises.A carbon budget – agreed to be included into the EU Climate Law – would create a baseline for the right amount of EU ETS allowances and if the need arises, rapid changes can be enabled by changing the budget and the number of allowances. The budget agreed within the EU trilogues would better withstand shifts in political power structures and increase predictability as well as investor confidence. To make this mechanism even more robust, CLC and the supporters of the Nordic Call would prefer carbon budget to be “binding” instead of “indicative”. 

The use of carbon price revenues will speed up the development of low-carbon solutions and green business as well as support a fair transition. The Commission proposes to use auction revenues from emissions trading on climate- and energy-related projects and to decrease the social impacts on vulnerable households, micro-enterprises and transport users. CLC supports to use auction revenues as proposed as long as there is need for the transition.

A Carbon Border Adjustment mechanism would enhance a level playing field for competition and incentivise other parties to implement effective climate policies and carbon pricing. The Commission has proposed a Carbon Border Adjustment Mechanism (CBAM), to address the risk of carbon leakage for selected energy-intensive sectors, by pricing the carbon content of products imported into the EU and reducing the free allocation correspondingly. The CBAM would ensure that the price of imports more accurately reflects their carbon content and so enhance a level-playing field for competition.

CLC views that the mechanism would incentivise other countries to implement effective climate mitigation measures and to uphold their commitments under the Paris Agreement. It should also encourage like-minded countries to form voluntary coalitions. CLC views that a product- or material-based carbon footprint would be the best basis for CBAM calculation. In addition, carbon footprints can also be used effectively in public and private procurement. 

The CLC welcomes the Ff55 package also in the UNFCCC context. Together with the Climate Law and Ff55, the EU stands ready for the global stocktake under the Paris Agreement in 2023, and for the subsequent cycles of enhanced ambition.

EU Commission’s Ff55 proposal improves incentives for low-carbon investors and enables a ramp-up of competitiveness for proactive countries. But we need also more actions by the G20 countries, which collectively account for some 80% of global emissions. Especially in light of the alarming findings of the IPCC 6th Assessment Report on the Physical Science on Climate Change published on 9 August, we must see more ambition ahead of COP26 in November. With Ff55, the EU has set the bar.

CLC is a non-profit association and its 87 organisational members employ 520 000 people globally. CLC’s corporate members represent almost 70% of the market cap of OMX Nasdaq Helsinki. CLC’s members believe that transitioning society towards a sustainable economy and consumption habits is not only possible but also economically viable.

More information: Jouni Keronen, CEO, Climate Leadership Coalition, jouni.keronen@clc.fi, p. +358 50 4534881 and Juha Turkki, Development Director, Climate Leadership Coalition, juha.turkki@clc.fi, p. +358 45 3461925