The European Commission’s plans on cutting greenhouse gas emissions by at least 55% by 2030 should now be followed by clear net zero transition pathways at the sector level, which would provide clarity to the investment community and a much-needed push for the rest of the world to follow suit.
The 2030 Climate Target Plan now goes to the European Parliament and the European Council[1] for approval. While adoption by parliament is almost a given, we believe it will not be an easy discussion within the council. Once agreement is reached, the Commission intends to make the necessary changes to key EU regulations and mechanisms by June 2021.
As a next step, sector level pathways should guide public policy and public spending, including green procurement, at EU and member-state levels, especially in the recovery from COVID-19.
The millions of euros of grants and credits that the EU is about to make to support companies should be conditional on their commitment to meeting the net zero emissions targets by 2050 and halving emissions by 2030, as set out in the recently developed, science-based EU Taxonomy.
Ahead of the announcement, BNP Paribas Asset Management, as part of the IIGCC policy group[2], had called on the European Commission and EU member states to raise Europe’s greenhouse gas emissions reduction target to ensure ‘at least’ a 55% reduction in emissions by 2030.
The push has the support of corporate leaders and investors whose letter to EU heads of state and government, i.e. the European Council, was presented to the European Commission at the start of Climate Week NYC.
The actual EU plan
The EC has made a big step towards 2030 targets aligned with what science recommends. This level of ambition for the next decade is expected to bring the emissions pathway more in line with the long-term agreed EU target of net zero emissions by 2050, as well as ensure a more balanced course to reaching climate neutrality by 2050.
The target is based on an Impact Assessment of the social, economic and environmental effects, which “demonstrates that this course of action is realistic and feasible.”
According to Exane Paribas[3], this involves more than doubling the rate of decarbonisation of the economy from 1.3% a year from 2005 to 2019 to 2.7% from 2019 to 2030.
The scenario involving a mix of regulation and carbon pricing includes a modelled price of CO2 of EUR 45/tonne real (perhaps EUR 55/tonne nominal) by 2030, well above the current EUR 28/tonne price, but not a triple-digit cost, as some bulls might have hoped.
We believe political support behind the target is growing and all sectors will now have to take such a step-change in climate action seriously.
Reinforcing efficiency and renewable energy policies, strengthening standards
The amendment to the proposed European Climate Law – to include the 2030 greenhouse gas emissions target as a stepping-stone to climate neutrality – will be complemented by legislative proposals to be presented by June 2021 addressing the implementation, including:
- Revising and expanding the EU Emissions Trading System
- Adapting the Effort Sharing Regulation[4] and the framework for land use emissions
- Reinforcing energy efficiency and renewable energy policies
- Strengthening CO2 standards for road vehicles.
The 2030 Climate Target Plan marks a significant step forward in the EU’s ambition, with the expansion of the ETS to all fossil fuel use expected to complement targeted actions in the buildings, transport and land use sectors.
While the sustainable finance agenda and private financing of the climate ambition are not substantially referred to, the plan refers to the EU taxonomy, the EU Green Bond Standard and climate benchmarks playing a crucial role in driving sustainable investment.
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