EU Makes Progress on Fit for 55
But also — IRA Spat, Michel in Beijing, Hungary’s Money, Twitter Under Fire, Inflation Cooling Down, Drones 2.0, Chips, Price Cap
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Taking stock of the EU’s environmental regulations
The EU is busy refining its new set of environmental regulations. As part of the “Fit for 55” legislative package, Europe is determined to achieve a 55% reduction in its greenhouse gas emissions by 2030 and reach carbon neutrality by 2050. What’s up EU helps you navigate the bloc’s latest moves towards these objectives, from green packaging to the ETS reform, and more.
PACKAGING • After banning most single-use plastics in 2019, the European Commission is now willing to tackle packaging waste, which has increased by more than 20% over the last ten years. The Commission presented its new rules on the matter, with an overarching aim of reducing packaging waste by 15% by 2040.
Under the proposed legislation, certain forms of packaging will face an outright ban — “say goodbye to mini shampoo bottles”, Politico reports — while others will have to follow strict rules to avoid unnecessary packaging. For example, the e-commerce industry will need to ensure that empty space in packages does not exceed 40% of the products’ size.
The Commission also wants to make recycling and reusing easier. Companies will be required to offer a certain percentage of their products in reusable packaging. When it comes to recycling, the EU wants to clear-up confusion by standardising waste categories over the EU, among other measures.
REUSE VS RECYCLE • Needless to say, the industry has already voiced a number of concerns on the proposed rules. Previous drafts of the Commission’s proposal featured more ambitious targets on reusable packaging, which were heavily criticised — notably by the soft drink industry. Evidently, industrial backlash led to a “watered down” proposal, with reduced targets on reusable packaging and a more favourable stance towards recycled packages.
Environmental organisations now accuse the Commission of giving an overly positive signal on recycling. Recycling, they argue, partly weakens attempts to reduce overconsumption by taking the guilt out of it.
CSR • But packaging is not the only issue environmental advocates are wrapped up in. On December 1, the Council adopted its general approach on due diligence rules for large companies, excluding banks and funds from the scope of the legislation. German Green
MEP Anna Cavazzini described the exemption as “scandalous and incomprehensible”: “the financial sector has an enormous steering effect and the EU should no longer tolerate investments in human rights violations and environmental destruction”, she said.
FINANCE OUT • The move to exclude financial organisations from the regulation was apparently pushed by France, which advocated for a “chain of activities” approach instead of a “value chain” approach. The former, which is narrower and more focused on supply chains, only gives space for rudimentary due diligence requirements when it comes to banks and funds.
Several member states, including the Netherlands, were dissatisfied with the final compromise. Lithuania also expressed concerns about “giving discretion to the member states to decide on the application of this directive on financial undertakings”.
CO2 REMOVAL • The EU is also making progress on carbon removals: as it is impossible to eliminate all emissions, Europe will have to remove carbon from the atmosphere in order to reach carbon neutrality. On November 30, the Commission released its proposal for a EU-wide framework to reliably certify high-quality carbon removals.
In order to make certificates transparent, credible and comparable, the Commission establishes four criteria: quantification of CO2 removal, long-term storage, sustainability and preservation of planetary boundaries, and additionality — making sure that carbon removal activities go “beyond existing practices and what is required by law”.
TOO VAGUE? • Some environmental experts consider that the new regulation lacks precision and could lead to greenwashing. “It’s a framework, it’s very vague, it’s very non-committal, we are lacking a lot of very crucial wording”, Wijnand Stoefs, Policy Officer at Carbon Market Watch, told the FT.
There are also debates over what constitutes a “long-term” or “permanent removal” of CO2 from the atmosphere — in other words, carbon sinks are not immutable, as we have seen with last summer’s forest fires.
ETS • Finally, the Parliament and Council are currently figuring out the details of the ETS (Emission Trading System) reform. On 29 November, the two formally agreed to progressively include maritime transport into the ETS, meaning that, for the first time, the shipping sector will have to pay for its carbon emissions.
“This will not only help the climate but also improve air pollution in cities close to rivers and the coastline”, declared Peter Liese, the Parliament’s negotiator on the ETS reform, after the meeting. “We are ready”, answered shipping representative Jim Corbett, the Europe environmental director of the World Shipping Council.
The preliminary agreement is more ambitious than the Commission’s proposal: in addition to CO2, it will also cover methane and NO2 emissions, meaning that LNG powered ships will also have to pay for their emissions. Moreover, the scope of the regulation has been increased and now covers all offshore vessels bigger than 5000 gross tonnage.
SLOW PACE • While the Parliament and Council managed to agree on the maritime sector, several key aspects of the ETS reform remain open. Maritime shipping “is the only small negotiating success from this night. (...) The negotiations on Europe’s largest climate law are only progressing at a snail’s pace”, Green MEP Michael Bloss explained. The end of free emission permits, the creation of a Social Climate Fund, and the extension of the ETS to the building and road transport sectors, have yet to be clarified.
WHAT’S NEXT? • The final round of talks on the ETS reform will take place on 16 December, but many worry that it will be too short to make final adjustments. There are also concerns about how the upcoming Swedish EU presidency could handle the issue — the Swedish government currently relies on support from the far-right Sweden democrats, which are not pro-climate.
The Commission’s proposals on packaging waste and carbon removal will now be considered by the European Parliament and the Council, in the ordinary legislative procedure. Regarding corporate social responsibility, the European Parliament is not expected to adopt its negotiating stance until March.
In Case You Missed It
IRA SPAT • The US Inflation Reduction Act (IRA) is causing turmoil across the pound, as the EU is searching for a solution to protect its industry from the allegedly protectionist plan. French President Emmanuel Macron touched upon the topic with Joe Biden, who adopted a reassuring stance: “We can work out some of the differences that exist, I’m confident”, the US president said.
Back in Europe, it is now clear that Germany is open to more interventionist measures to protect local industry. During an industrial conference in Berlin, Economy Minister Robert Habeck talked about a “response plan” that might include “local content” requirements. Ursula Von Der Leyen commented on the issue, underlining that the EU must “simplify and adapt” its rules on state aid to resist US pressures on the industry.
After dodging the latest EU-US Trade and Technology Council (TTC) due to a lack of time dedicated to solving the IRA fuss, Commissioner Thierry Breton has called for the creation of a European sovereignty fund dedicated to supporting industrial projects.
Commissioner for Competition Margrethe is taking a different approach: “To do what the Americans are doing, and that we criticize them for, would be a response that would put us in the same position, so that we would also be criticized”, she said during an OECD conference in Paris.
MICHEL’S BEIJING TRIP • On 1 December, Charles Michel’s trip to Beijing took place. The trip has attracted criticism given the political sensitivity surrounding the EU’s attempts to re-shape its relationship with China and anti-zero-Covid protests throughout China. Weeks before, EU leaders held a “strategic discussion” on the future of their relations with China, and whether a harder stance is necessary.
In a three-hour meeting with Xi Jinping, one issue dominated. Reiterating the points made at the EU-China Summit in April, Michel petitioned Xi to “use his influence on Russia” to end the war in Ukraine, emphasising China’s responsibilities as a Permanent Member of the Security Council. Michel also stressed “the human right to peaceful assembly”, acknowledging the unprecedented protests against zero Covid taking place across China. He also emphasised the success of mRNA vaccines in Europe — a salient issue, considering the stumbling block of low vaccination rates among the elderly to China’s zero-Covid policy.
Xi’s agenda was mostly economic, as he emphasised the need for EU states to keep investing in China — responding to rising EU/US tensions over Biden’s Inflation Reduction Act and calls by European business and political leaders for EU states to “diversify” from Chinese markets.
HUNGARY’S MONEY • On 30 November, the Commission issued its opinion on Hungary’s progress under the Conditionality Mechanism. The EU’s executive triggered the mechanism, a regulation which allows to withhold funds when rule of law concerns threaten the EU’s financial interests, against Hungary in April.
Hungary has fallen short of the 17 rule-of-law goals set out in September by the Commission as a condition to access a total of 7,5 billion euros in cohesion funds. The Commission is also keeping 5,8 billion euros of NGEU cash in the EU’s coffers over similar concerns. Since it triggered the Conditionality Mechanism, Brussels and Budapest have engaged in negotiation and blackmail over Orban’s government rule-of-law track record.
The Council has until 19 December to vote on whether to withhold the funds or not. The vote will take place at a qualified majority, just after two votes on a minimum corporate tax rate on multinational companies and on granting macro financial assistance to Ukraine — two topics on which Hungary has used its veto.
TWITTER UNDER FIRE • Twitter issued a blog-post on 30 November, days before French President Emmanuel Macron met Elon Musk, during a state visit to the US. Twitter wants to assure lawmakers in the EU and the US that none of their policies have (yet) changed, and that in the future, “policy enforcement will rely more heavily on de-amplification of violative content: freedom of speech, but not freedom of reach”.
After his meeting with Musk, Macron stressed — on Twitter — that Twitter must adhere to strict content moderation and disinformation rules under the recently voted Digital Services Act (DSA). Twitter needs “more regulation”, the French President said in an interview on Good Morning America.
Macron’s comments come after a video call between Musk and Internal Market Commissioner Thierry Breton, who warned that non-compliance could end-up with fines of up to 6% of global annual turnover or even an outright ban in the EU. Musk has repeatedly said that he found the DSA’s obligations and prohibitions “very sensible”.
INFLATION COOLS DOWN • Eurozone inflation went down last month for the first time in 17 months. Inflation stood at 10% in November (vs. 10,6% in October), according to Eurostat data.
Lower energy and services prices have pushed inflation lower than expected, raising hopes that peak inflation is already behind for the eurozone. After two massive — 75 basis points (0,75%) — hikes, the ECB could slow down the pace of its interest rate rises. Analysts think the Governing Council of the ECB will (only) raise rates by 50 bps at its next meeting on 15 December.
During a public hearing of the ECON Committee of the European Parliament on 28 November, Christine Lagarde however stayed clear of making any statement that would sound too dovish.”Interest rates are, and will remain, the main tool for fighting inflation”, she said, while stressing that fiscal policy must remained “targeted, tailored and temporary” in order not to add too much inflationary pressure.
DRONES 2.0 • The European Commission adopted on 29 November its Drone Strategy 2.0 to create a “large-scale European drone market”. The Communication builds on the EU’s “safety framework for operating and setting the technical requirements of drones” in order to bolster the sector.
Since 2018, drones are subject to a harmonised set of rules on safety at the EU level. Now the EU wants to go further and take legislative action to bolster a market which could be worth 14,5 billion euros in 2023 and employ up to 145,000 people. The numerous use cases for drones — think surveying infrastructure, delivering medical supplies in remote areas, or flying taxis — are a big economic opportunity. The EU is gearing up to launch the “U-space”, a European system to manage drone traffic, as early as January 2023
Concerns about malicious use, cross-border trips, and the legal implications of unmanned air traffic have increased the pressure to develop EU-wide rules. If you want to know everything about this, the 86-page staff working document accompanying the strategy offers a comprehensive state of play.
CHIPS ACT • The Council of the EU has adopted its position on the Chips Act. The Regulation aims to mobilise 43 billion euros in private and public capital to reduce the EU’s dependence on importing increasingly strategic nano chips produced in South-East Asia and the US, which are used everywhere from cars to smartphones. The EU’s share in the global chip market went down from 24% in 2000 to 9% in 2020.
A global shortage has disrupted global value chains in the last years, while geopolitical tensions around the supply of rare metals used to build semiconductors has propped up the call to reduce the EU’s dependence on strategic rivals.
Governments worldwide are already engaged in a subsidy war to attract the “mega-fabs”, the capex-intensive factories that produce nano-chips. Under the Chips Act, Member States would be entitled to provide public money to finance “first-of-kind facilities”. Some are worried that this will give an edge to the richer Member States, who are able to foot the bill.
PRICE CAP • The G7 has finally agreed on a price cap on Russian seaborne crude oil, and EU Member States in the Council have approved its implementation within the EU. The price of Russian oil will be capped at $60 per barrel, although some countries have been advocating for a lower cap to cause more damage to Putin’s military forces. “This is the best compromise we could get today. (...) We will have the first review of the price already in mid-January”, Estonia’s Prime Minister Kaja Kallas wrote on Twitter.
What we’ve been reading this week
Economist Sander Tordoir explores how the European Stability Mechanism (ESM) should be reformed to prepare the Eurozone for its next crisis, in a publication for the Center for European Reform.
In a blog article for the Center for European Policy Studies, Climate Policy researcher Milan Elkerbout explains why the EU should not imitate the US in a green subsidy race.
For Institut Montaigne, Mathieu Duchâtel, Director of the Asia Program, details the elements that could make the European Anti-Coercion Instrument a success.
This week’s newsletter is brought to you by Ysabel Chen, Maxence de La Rochère and Augustin Bourleaud. See you next Monday!