New European Climate Law

Introduction

The European Climate Law, in the form of a regulation, has recently been adopted as part of EU legislation. The new law will help to achieve the ambition of the European Green Deal and, consequently, compel Member States to act in accordance with the Paris Agreement. The Regulation requires Member States to take steps to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels, signals the implementation of new EU measures with the European Commission monitoring both national and EU efforts, and authorises the European Commission to introduce in the future, as appropriate, any necessary measures aimed at realising climate targets across the EU. Legislative proposals of all Member States will be regularly reviewed by the European Commission which as of now will be also assessing the consistency of all European legislative initiatives with climate targets. Details of the new regulations and their impact on business operations may be found below.

New Regulation

The so-called European Climate Law, i.e. Regulation of the European Parliament and of the Council (EU) 2021/1119 of 30 June 2021 on establishing the framework for achieving climate neutrality and amending Regulation (EC) 401/2009 and Regulation (EU) 2018/1999 (hereinafter the “Regulation”), was published on 9 July 2021 in the Official Journal of the European Union, L 243, volume 64. The Regulation will enter into force 20 days after its publication (i.e. on 29 July 2021) and will be directly applicable in all Member States. The Regulation is one of the instruments designed to realise the ambition of the European Green Deal – a strategy of the European Commission aimed at achieving climate neutrality by 2050, taking into account the principle of a just and sustainable social and economic transition.

Objectives

The EU legislator wishes to comply with the provisions of the Paris Agreement of 22 April 2016 which requires the signatories to present scenarios for greenhouse gas emission reduction prepared using the methodology proposed by the UN Intergovernmental Panel on Climate Change. 

The main objectives of the Regulation are:

• to reduce within the European Union greenhouse gas emissions, after deduction of removals, by at least 55% by 2030 compared to 1990 levels; 
• to limit the contribution of net removals to the Union 2030 climate target to 225 million tonnes of CO2 equivalent;
• to achieve climate neutrality in the European Union by 2050, i.e. to reduce greenhouse gas emissions to zero by 2050;
• to establish a system allowing the European Commission to monitor and review the progress in legislative work aimed at counteracting climate change, including the assessment of Union and national measures;
• to establish a European Scientific Advisory Board on Climate Change that will (i) provide independent scientific advice and (ii) report on Union measures, climate targets and indicative greenhouse gas budgets, as well as their consistency with the European Climate Law and international obligations of the European Union under the Paris Agreement.

Further actions of the European Commission and monitoring measures taken at Union and national level

The Regulation is in fact only a prelude to further, more specific, legislative work aimed at the implementation of the Green Deal.

First and foremost, on 14 July 2021 in connection with the Regulation the European Commission presented “Fit for 55” climate package seeking to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. The package focuses on a wide range of issues: from renewables, energy efficiency, energy taxation, greenhouse gas emission allowance trading, energy performance of buildings to Carbon Border Adjustment Mechanism (CBAM), i.e. border carbon tax. It will continue to undergo the European Union’s legislative procedure. 

Secondly, after the Regulation enters into force both the Union institutions and the Member States will have to take further necessary measures to achieve the objectives of the Regulation. Adoption of the Regulation has clearly defined and emphasised the Member States’ obligation to comply with the Paris Agreement. National and Union actions and strategies should be coherent and mutually supportive, with the European Commission taking the lead. Thanks to its legislative initiative, the European Commission will create a set of adequate instruments and the so-called enabling framework for national legislation. National adaptation strategies and plans adopted by Member States should also be implemented taking into account the EU strategy. Moreover, the European Commission will be authorised to monitor the implementation and consistency of national and EU measures. 

From 30 September 2023, every five years, the European Commission will review the consistency   of EU and national measures with the climate-neutrality objective and with ensuring progress on climate change adaptation.

To provide predictability and confidence for all business entities, including businesses, employees, investors and consumers, at the latest within six months of the first global stocktake to be conducted in 2023, the European Commission will, as appropriate, propose a Union intermediate 2040 climate target. When making its legislative proposal for the Union 2040 climate target, the European Commission will publish the projected indicative greenhouse gas budget for the 2030-2050 period, defined as the indicative total volume of net greenhouse gas emissions that are expected to be emitted in that period, as well as the methodology underlying that indicative budget.

What does it mean for businesses?

Although the new legislation has the form of a directly applicable regulation, it does not impose any specific obligations on legal persons. It is directed mainly at Member States whose activities aimed at implementing instruments to achieve the objectives set out in the Regulation will be monitored by the Commission. It is thus important to remember that the entry into force of the Regulation will mean that more detailed legal acts will be adopted both at Union and national level and will impose specific obligations also on the private sector. In other words, in the coming years businesses should expect regulations implying:

• the need to prepare for more stringent government actions as regards greenhouse gas emission reduction;
• gradual phasing out of energy subsidies, in particular for fossil fuels;
• future availability of adequate instruments and incentives to mobilise the investments needed;
• the opportunity to participate in public consultations on climate and energy and the exchange of best practice aimed at climate protection.

It is worth noting that the legislation is in the form of a regulation rather than a directive. Consequently, it will not be implemented separately in each Member State, which could pose a risk of delay in achieving the EU targets. In accordance with the Regulation, detailed legislative solutions will be implemented both at Union and at national level but, importantly, the European Commission will have tools to make sure that the targets are achieved efficiently: first of all, through the monitoring mechanism allowing it to make recommendations to Member States in relation to any measures they implement, and secondly through its right to legislative initiatives (as well as other actions). 

In this respect, two provisions of the Regulation are particularly significant. Under Article 5(5) the European Commission is obliged to adopt guidelines setting out common principles and practices for the identification, classification and prudential management of material physical climate risks. A harmonized soft law document is thus to be expected and it will definitely have a significant impact on the regulations or interpretation of regulations in Member States. 

However, it is Article 6(4) that seems to be crucial because it indirectly affects all future EU legislation. It provides that the consistency of any draft EU measure or legislative proposal, including budgetary proposals, with the climate-neutrality objective will be assessed by the European Commission. If there is no consistency, the European Commission should align the proposals with the Regulation. As a result, we may expect that any future legislative proposals, regulating all sectors of the economy, will be assessed as to whether they are aligned with climate targets set out in the Regulation.

Authors: Krzysztof Gorzelak, Cezary Zawiślak, Adam Drgas, Tamara Gryglas

The original Polish version of the text can be found here.