No Match Found
On 22 June 2022, the European Parliament adopted the proposal for a revised EU ETS as well as the proposals for the Carbon Border Adjustment Mechanism (CBAM) and the Social Climate Fund. These three proposals are intertwined and after a plenary set back, they had to be renegotiated within the EP’s Committee on the Environment, Public Health and Food Safety (ENVI). Main sticking point was the phase out trajectory of free emission rights in sectors covered by the CBAM. The phase out should now start in 2027 with 93% and reach 0% of free emission rights in 2032.
For these three and the other five Fit for 55-proposals that were adopted on 8 June, the next step is negotiation with the Council of the European Union. An important part of the measures are intended to come into force by 1 January 2023.
In negotiations with the Council, these Fit for 55 Package proposals can still be adjusted. Nonetheless, it is certain that the final version of the package will have a significant impact on companies and individuals, since they need to meet the agreed targets of the European Climate Law: a binding EU 2030 climate target of a domestic reduction of net greenhouse gas emissions (emissions after deduction of removals) by at least 55 percent compared to 1990 levels by 2030.
In particular it will have an impact on companies that are in carbon intensive industries such as iron, steel, aluminium, chemicals and energy. Furthermore, the logistics and transportation sector (including shipping, road transport and aviation), construction sector, and companies owning real estate and/or production sites in the EU that use certain materials from outside the EU will be impacted significantly.
So now is the time for companies to scrutinise their supply and value chains and get a clear view on the related carbon footprint (direct and indirect). Subsequently, options available to reduce the carbon footprint should be investigated. Doing this now, creates the time to implement the required processes and procedures for obtaining the required insights. Subsequently, technical, economic and financial analyses can be performed to assess what abatement options are most suitable. Starting on time also provides for the opportunity to optimise the supply chain, amend procurement contracts and to enter into negotiations/conversations with stakeholders. Doing this in a timely manner, should allow companies to mitigate the additional taxes and levies that will inevitably follow from the measures included in the Fit for 55 Package.
In order to support the business case for investments reducing the carbon footprint, there is a wide range of EU and domestic incentives available. Ideally, both the additional tax measures and the available incentives are an integral part of a sustainable business case assessment.
Together with the proposals of the Fit for 55 package that were adopted on 8 June 2022, now eight Fit for 55-proposals have been adopted by the European Parliament. These are Revision of EU ETS, CBAM, EU ETS for aviation, CORSIA, Effort Sharing Regulation, LULUCF, CO2 emissions standards for cars and vans and Social Climate Fund. For these proposals, the next step is negotiation with the Council of the European Union.
Note that the different legislative proposals of the Fit for 55 package each have different timelines. However, it is widely expected that a large part of the Fit for 55 Package will be enacted by 1 January 2023. Monetary impact in terms of additional taxes could materialise quite soon following the enactment, therefore it is important to start preparing sooner rather than later to identify what the current carbon footprint (direct and indirect) of your operations is and to identify what the abatement options (sustainable business case) are.
The aim of the Fit for 55 Package is reducing the EU’s net greenhouse gas emissions by at least 55 per cent by 2030 compared to 1990 levels, and reach climate neutrality by 2050. Next to environmental targets, the package also addresses certain societal aspects of the energy transition. For example, the Climate Social Fund’s objective is to mitigate the societal impact of the extended emissions trading scheme.
Energy - Utilities - Resources Industry, Tax, Partner, PwC Netherlands
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Partner, Energy transition and sustainable energy, PwC Netherlands
Tel: +31 (0)65 160 08 61
Director (Tax) - Energy, Utilities & Resources, PwC Netherlands
Tel: +31 (0)63 419 61 08
Senior Manager - Tax, Sustainability and Incentives, PwC Netherlands
Tel: +31 (0)62 380 36 54