Making Europe greener, fairer, and more sustainable is at the heart of the European Commission’s new work programme.
By Paul Davies, David Little, Michael D. Green, and Pierre Bichet
On 19 October 2020, the European Commission (Commission) published its Work Programme (Programme) for 2021. The Programme — “A Union of vitality in a world of fragility” — provides an overview of the Commission’s legislative priorities for the upcoming year and a timeline on when legislative initiatives will likely be published.
The initiatives for 2021 have been revised to support the economic recovery given the COVID-19 pandemic. The Programme makes clear that the recovery should be both green and sustainable.
The EU Green Deal
In December 2019, the Commission announced the European Green Deal, a comprehensive environmental plan that included a 2050 zero-carbon target. More recently, Commission President Ursula von der Leyen announced a more ambitious greenhouse gas (GHG) target of at least a 55% reduction by 2030, compared to 1990 levels. These targets will be combined in a “Fit for 55 Package”, which will cover several topics, including:
- Introducing a carbon border adjustment mechanism: Carbon leakage occurs when companies in energy-intensive industries relocate from the EU to jurisdictions with less stringent emissions regulations due to the costs incurred under EU GHG emission reduction policies (in particular, the EU Emissions Trading System (the EU ETS)). The carbon border adjustment mechanism will help motivate foreign producers and EU importers to reduce their carbon emissions, while ensuring a level-playing field conducive to trade. The Commission believes the mechanism is compatible with World Trade Organisation rules, as it may be justified under an exceptions regime to General Agreement on Tariffs and Trade, which allows for measures on the grounds of human health and natural resources protection.
- Revising the EU ETS and the Energy Tax Directive (ETD): The Commission recommends expanding the EU ETS to cover all emissions resulting from fossil fuel combustion, road transport, and building. For sea transport, intra-EU maritime transport should be included in the EU ETS, and for aviation, the number of freely allocated allowances should be reduced. Further, it is proposed that the EU should strengthen the cap of the EU ETS in order to create a long-term carbon price signal and drive further decarbonisation. However, there is a lack of alignment between the ETD and other policy objectives, including the EU ETS, the Renewables Directive, and the Energy Efficiency Directive. The ETD does not adequately promote GHG reductions, energy efficiency, or alternative fuels (hydrogen, synthetic fuels, e-fuels, advanced biofuels, electricity, etc.). The ETD does not provide sufficient incentives for investments in clean technologies. The Commission thus intends to ensure, inter alia, that green renewable electricity can be taxed more favourably than brown electricity.
- Amending the Renewable Energy Directive: One such proposal, for example, is to explore the establishment of minimum mandatory green public procurement criteria and targets in relation to renewable electricity, and considering additional measures to support renewable and low-carbon fuels, possibly through minimum shares or quotas in specific end-use sectors (including aviation and maritime).
- Reducing methane emissions in the energy sector: Methane is the second largest greenhouse gas contributor to climate change following carbon dioxide. The EU will propose legislation on compulsory measurement, reporting, and verification for all energy-related methane emissions. The EU will also develop improved measurement and reporting of methane emissions by companies, including through sector-specific initiatives. Satellite-based detection of super-emitters through the EU’s Copernicus programme will also be reinforced.
- Enhancing smart and sustainable transport: Here, the Commission intends to further develop and deploy electric vehicles, advanced biofuels, and other renewable fuels. Access to batteries (for electric vehicles) and clean hydrogen is also considered crucial.
- Continuing the implementation of the circular economy action plan: This will involve looking at eco-design and sustainable products, particularly the circular economy with respect to electronics, including improving the collection, reuse and repair of mobile phones, laptops, and other devices.
- Boosting organic production and supporting biodiversity: As part of this plan, the EU “Farm to Fork” Strategy seeks to increase public awareness and demand for sustainable food. The strategy includes significantly reducing the use of chemical pesticides, fertilisers, and antibiotics, and reducing the risk of products associated with deforestation entering the EU market.
Other sustainability initiatives
Though not strictly falling under the European Green Deal heading, the Programme contains other initiatives aimed at enhancing a sustainable economy in the EU.
For example, a legislative proposal will be presented to improve the working conditions of people providing services through platforms, with a view to ensuring fair working conditions and adequate social protection.
Legislation on sustainable corporate governance will also be proposed to foster long-term sustainable and responsible corporate behaviour. The legislation aims to ensure that sustainability is further embedded into the corporate governance framework with a view to better align the long-term interests of management, shareholders, stakeholders, and society. The legislation will aim to improve the framework to incentivise boards to integrate properly stakeholder interests, sustainability risks, dependencies, opportunities, and adverse impacts into strategies, decisions, and oversight.
Finally, the Commission will also continue its progress on sustainable financing, notably by proposing to establish an EU green bond standard. The ambition is for the EU to become the largest issuer of green bonds: the EU seeks to finance 30% of the EU Next Generation (a temporary recovery instrument of €750 billion) through the issuance of green bonds. An estimated 37% of the Next Generation funding will be further invested in European Green Deal objectives, including what the Commission has termed lighthouse European projects: hydrogen, green building, and one million electric charging points.
Competition law as a tool to enhance environmental, social, and corporate governance
The Commission will propose a legal instrument to level the playing field regarding foreign subsidies. The Commission recently consulted the market on a proposal to add a new tool to the EU’s protections against international competition by addressing the potential distortive effects of foreign subsidies on the EU single market. If the EU finds that a foreign subsidy distorts the internal market, the market distortion will need to be balanced against the positive impact the foreign subsidy might have within the EU regarding e.g., jobs and environmental considerations.
The Commission will also continue its ongoing review of competition rules to ensure they are fit for the changing market environment, including the greening of the economy. In particular, the EU has published a call for contributions to gather ideas and proposals on how EU competition rules (state aid, antitrust, and merger control) and sustainability policies can best work together. The aim is to gather the widest set of views possible to determine how the competition rules should be amended (if necessary) to help facilitate the transition to a green and sustainable economy. The deadline for contributions is 20 November 2020. The contributions will feed into a conference taking place in early 2021.
The different Commission initiatives — legislative and non-legislative — will be tabled throughout 2021. The measures envisaged by the Commission are wide-ranging and ambitious, and will require profound changes by the EU and each Member State. Nonetheless, the Programme highlights the EU’s continued commitment to “building back better”, and confirms that the European Green Deal is at the heart of the Commission’s current policy-making.
Latham & Watkins will continue to monitor developments in this area.
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