EU reaches ambitious climate deal that could transform economy

In the run-up to the climate summit, EU policymakers agreed to cut greenhouse gas emissions by 55 percent from 1990 levels by 2030.

The EU climate pact sets the stage for tougher rules that will affect industries ranging from transport to energy production [File: Alex Kraus/Bloomberg]

European Union lawmakers reached a late-night deal to make the bloc’s ambitious climate goals legally binding, paving the way for a torrent of new rules and standards to overhaul the entire economy.

A day before a climate summit of world leaders hosted by U.S. President Joe Biden, representatives of EU governments and the European Parliament agreed in principle on the so-called European Climate Law, which foresees a 55% reduction in net greenhouse gas emissions by 2030, compared with 1990 levels, and zero net emissions by 2050. Later on Wednesday, the European Commission will unveil standards for the classification of green investment.

The EU pact, struck against the backdrop of surging support for the Green party in Germany, sets the stage for tougher rules that will affect industries ranging from transport to energy production. It helps cement Europe’s climate goals as being among the most ambitious in the world after the U.K. announced tougher emissions targets Tuesday.

An EU legislative package to be unveiled in June will reinforce carbon pricing mechanisms, foster energy savings, increase the production of renewable energy, boost sustainable transport and curb imports of products that drive deforestation, EU climate czar Frans Timmermans told U.S. lawmakers on Tuesday.

The “package will arguably be the most comprehensive legislative framework in the world addressing climate,” Timmermans said during a hearing of the House Committee on Foreign Affairs. “We need to gather all possible forces in the fight against climate change, abroad and at home.”

Meanwhile, the so-called taxonomy system to be announced on Wednesday by the EU’s executive arm, will introduce a labeling system for green investment that could divert hundreds of billions in funds to specific industries and companies.

The EU also wants to raise as much as 250 billion euros ($301 billion) from its first green bonds to finance a massive economic stimulus package, and private funding is likely to follow into the approved industries. The Commission will start selling debt, jointly backed by the EU’s 27 member states, later this year, to raise the funds for green investment.

The main elements of the EU’s June legislative package include:

  • Strengthening and expanding the EU carbon market and setting more ambitious national targets in sectors not covered by the emissions cap-and-trade program
  • Restoring European forests
  • Increasing renewable energy and energy efficiency targets
  • Tougher CO2 standards for cars
  • Further deployment of alternative fuels infrastructure
  • Higher taxation on most polluting fuels
  • Full-fledged scheme for hydrogen certification
  • Measure to impose a carbon price on some imported goods, or Carbon Border Adjustment Mechanism
  • Curtailing the import of products that drive deforestation or forest degradation around the world
Source: Bloomberg