Climate Week in the European Union

In a plenary session the second week of June, members voted on numerous climate measures that are part of the European Union’s comprehensive strategy for combating climate change. Overall, members of the European Parliament (MEPs) considered legislation for roughly half of the European Union’s ambitious Fit for 55 package, the hallmark of its climate strategy that seeks to reduce emissions by 55 percent by 2030. Eight specific proposals were considered, including the carbon border adjustment mechanism (CBAM) and relevant amendments.

Q1: Which climate provisions were considered in the plenary session this week?

A1: The plenary session considered eight proposals: (1) a reform of the Emissions Trading System (ETS) focusing on reducing carbon emissions in the sectors addressed by 61 percent by 2030, (2) the setting of targets for carbon sinks through revisions to the land use and forestry regulation, (3) a vote on the social climate fund, (4) a regulation on carbon emissions from cars and vans, (5) a change to the effort sharing regulation (ESR) to increase binding reduction cuts from 29 percent to 40 percent by 2030, (6) broadening the scope of the CBAM, (7) a revision to the ETS rule concerning member states’ notification to EU-based airlines under the Carbon Offsetting and Reduction Scheme for International Aviation, and (8) a general revision to the EU ETS for aviation.

Q2: Were there any surprises in terms of climate proposal outcomes?

A2: In a surprise outcome during the plenary vote, the European Parliament failed to pass several of the proposals in the climate package. One success was that the MEPs agreed to a ban on the sale of diesel- and gas-fueled cars and planes by 2035, which could rapidly accelerate the adoption of electric vehicles. Furthermore, they were able to agree upon a common position for carbon sequestration capacity in reforming the regulation for land and forestry, although they rejected the committee’s higher target. However, the MEPs failed to compromise on key provisions in the package, specifically in reforming the carbon market. The parliament pulled the proposed expansion of the Emissions Trading System, the establishment of the CBAM, and the creation of a social climate fund off the agenda due to concerns that they would be rejected.

The proposals failed largely due to ongoing political disagreements about how ambitious the European Union should be in combating climate change. On one hand, the coalition between the left-leaning parties of the Greens and Socialists regarded the compromise deal as threatening the overall integrity of climate proposals by weakening several of the more ambitious targets. These proposed changes to the CBAM included a more gradual phase-out of free allowances until 2034 instead of 2030, and would not have followed the left’s proposed accelerated timeline for CBAM implementation. Regarding the ETS, the center agreed on a 63 percent target for the carbon market reform instead of the proposed 67 percent by the left. The proposed changes produced fear among the left of creating a watered-down version of the package that favored industry. On the other hand, right-wing parties believed the proposals were too ambitious in the face of increasing inflationary pressure. This left the center-right European People’s Party (EPP), the main crafters of the ETS and ESR proposals, without enough votes to pass them. Furthermore, the EPP sided with far-right lawmakers over a later phaseout of free carbon credits, to the dismay of parties on the left.

The failed vote caused the parties to all point the blame at each other, with the EPP’s leader Peter Liese saying that the Greens, Socialists and far-right had wrecked the compromise on emissions trading and that it was a “shame” they voted together. Meanwhile a Greens MEP accused the EPP of making deals with “Nazis.”

Q3: What is the CBAM?

A3: The European Commission released its Fit for 55 proposal, an ambitious climate agenda with a target of reducing emissions 55 percent by 2030. This proposal also contains the bloc’s carbon border adjustment mechanism, or CBAM, which has garnered considerable attention worldwide. The CBAM covers iron and steel, aluminum, electricity, fertilizers, and cement, and is intended to address both carbon leakage—the idea that companies move production offshore to profit from other countries’ lower standards for carbon-intensive production—and the harm done to domestic industries by imports from lower-standard countries. The CBAM requires importers to the European Union to purchase carbon certificates equivalent to the price and amount of carbon produced during production or manufacturing. The proposal uses the European Union’s Emissions Trading System (ETS) rules for carbon pricing to determine the cost. Under the ETS, the European Union grants emissions allowances—which function like permits to emit carbon—that are either allocated for free, auctioned off, or traded.

In May 2022, a series of amendments to the CBAM, championed by Dutch Green Party MEP Mohammed Chahim, were adopted in the Committee on the Environment, Public Health and Food Safety (ENVI) of the European Parliament. These included a centralized system with one CBAM authority, the inclusion of indirect emissions in calculations, extra financial support for Least Developed Countries, a phaseout of free allowances by 2030, and an expansion of hydrogen, organic chemicals, and polymers to the sectors covered by the CBAM. Adopted by the ENVI Committee, these amendments were put to a vote during the plenary yesterday.

Q4: What are some of the other major climate initiatives in the European Union?

A4: In addition to the eight proposals outlined above, there are several other initiatives contained in the Fit for 55 package. These include proposals to increase the use of renewable energy, increase energy efficiency, and promote the deployment of infrastructure to support alternative fuel use. Outside of the Fit for 55 package, the European Union has committed a minimum of 30 percent of its €800 billion ($852 billion) NextGenerationEU recovery plan toward fighting climate change and supporting green projects to greatly increase investment in these areas.

The European Union also launched the European Battery Alliance (EBA) in 2017 to make Europe a leader in sustainable battery deployment and production as the world transitions from fossil fuels to electric generation and storage. The EBA supports each stage in the value chain of batteries, from raw materials to product development to recycling used batteries to be utilized again for raw materials.

The EU attempts to regulate these different initiatives in a cohesive strategy through the renewable energy directive, which is the legal framework regulating the development of renewable energy across all sectors of the European economy. The directive establishes common standards and principles, stimulates investment, and empowers both citizens and businesses to actively take part in the transition to clean energy. The directive was updated and made more ambitious in July 2021 to ensure that the European Union would stay on track for its goal to be climate neutral by 2050.

Q5: What are the next steps for the European Union’s climate agenda?

A5: With the major proposals voted down, the package will head back to the environment committee to be redrafted with new compromises. There parties are hopeful that a new deal can be reached by June 23. The European Parliament will hold additional votes on proposals at a plenary in September, where parties will vote on amendments to the renewable energy directive, energy efficiency directive, and energy tax directive, as well as votes regulating fuels for the maritime and aviation industries. For these upcoming votes to avoid the same pitfalls of yesterday’s plenary, the parliament will have to ensure their compromises have strong support and refrain from the last-minute dealings and maneuverings that plagued the most recent plenary.

In line with the “Brussels effect,” whereby the European Union promulgates policies that are then exported abroad, the EU Fit for 55 package continues to advance within the European legislative process. What remains to be seen is how the Brussels effect will influence countries’ climate agendas, namely the United States and China. However, if the parliament remains divided and unable to compromise on a proposal in the coming months, this could weaken the EU’s climate agenda.

Emily Benson is an associate fellow with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Elizabeth Duncan is an intern with the Scholl Chair in International Business at CSIS. Grant Reynolds is an intern with the Scholl Chair in International Business at CSIS.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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