ZPP Newsletter
Warsaw, 26th October 2021
Position of the Union of Entrepreneurs and Employers on the ‘Fit for 55’ package
While the Union of Entrepreneurs and Employers does not question the necessity to care of the climate and the natural environment, the measures to be taken to that end should be of a sustainable nature and should therefore also take its socio-economic aspects into account.
In our view, the draft documents and legal acts constituting the ‘Fit for 55’ package presented for consultation are an expression of a purely ideological approach to combating climate change. The instruments and solutions provided for in them fail to guarantee the achievement of set goals. However, a tangible effect of their enforcement may be the impoverishment of European society and a reduction in competitiveness of the EU economy.
In the context of works undertaken to develop a European climate policy, the current state of the European energy system should also be taken into account, which is characterised by high instability and excessive dependence on third-party countries. Unfortunately, in the presented documents, we cannot find the balance between striving for a zero-emission economy and ensuring energy security for the entire EU.
The ‘Fit for 55’ package[1] is a set of interconnected proposals which together aim to ensure the implementation of the ambitious EU climate policy. The amendments proposed in the package cover not only the areas of climate and energy, but also such sectors as fuel, electricity, heavy industry, road transport, real estate, land use and forestry. Their main goal is to reduce greenhouse gas emissions by 55% by 2030, in comparison to levels from 1990, and climate neutrality by 2050.
It is the belief of the Union of Entrepreneurs and Employers that the prepared strategy is excessively optimistic concerning the opportunities that the planned energy transformation may bring, and it disregards the considerable risks that arise due to the implementation of such radical reforms.
One should consider that the implementation of the instruments included in ‘Fit for 55’ (a significant part of which are of a fiscal or para-tax nature) will result in the loss of competitiveness of the European economy and thus a widespread impoverishment of EU citizens.
The introduction of such significant reforms without prior appropriate macroeconomic analyses that would take into account the impact of the ‘Fit for 55’ package on the economy of the entire EU as well as individual member states in the period up to 2030 and beyond can be viewed as slightly lacking vision. The presented documents also overlook the estimated social and economic impact, although it is obvious that the strategy being implemented will bring about significant economic changes for the EU population and enterprises.
The European Emissions Trading System (EU ETS)[2] – a speculative instrument to negatively impact other sectors of the economy
The EU ETS obliges issuers to obtain and redeem allowances to emit carbon dioxide (EU allowances, or EUA). Therefore, emission allowances are necessary for EUA installations to be able to conduct economic activity in their industry. These are, for example, combined heat and power plants that burn emission fuels.
The free pool of allowances that can be used by selected enterprises operating under the EUA system does not cover the entire market demand. For this reason, the system allows for secondary transactions whereby installations with a surplus of allowances can sell them to the party with a shortage, which is unable for various reasons to reduce emissions to the necessary minimum.
The nature of the CO2 emission trading system allows investors to join the transactions. They form the secondary group of EUA buyers. One should keep in mind that investors do not require an operating licence and thus allowances become one of the many products available on European financial markets. Investors are interested in purchase of instruments solely in order to gain profit (from arbitration, derived from price differences, or speculative on exchange rate differences) or, alternatively, to hedge themselves against unfavourable price changes. Such an emissions trading system leads to the formation of bubbles, increasing EUA prices. This, in turn, leads to the fact that companies emitting greenhouse gases incur increasingly higher costs for obtaining allowances, instead of allocating these funds to activities and investments reducing CO2 emissions.
Following the above-mentioned reasons, the Union of Entrepreneurs and Employers negatively evaluates the functioning of the ETS system whose actual impact on reducing CO2 emissions remains limited. Therefore, we are equally critical of the proposed amendments to include maritime economy, road transport and real estate in this system.
CBAM[3] – protectionism may backfire on the EU
The introduction of the Carbon Border Adjustment Mechanism (CBAM) at EU borders will in fact establish an additional customs duty on the import of certain goods. Such a solution will certainly be negatively perceived by the Union’s trading partners, who, in order to “maintain a sense of symmetry”, may decide to introduce retaliatory tariffs. Therefore, in our view, the introduction of a carbon tax would result, among other things, in an increase in domestic production costs due to the increase in the prices of imported semi-finished goods. On the other hand, retaliatory duties imposed by other countries would significantly weaken the position of EU exporters.
Moreover, apart from negative economic effects, CBAM may be of little benefit to the climate. While the European Commission claims CBAM will cut greenhouse gas emissions by 1%, the Cambridge Institute for Sustainability in its recent analysis estimated its impact at merely 0.023%[4].
Conclusions
The Union of Entrepreneurs and Employers in indeed aware of the necessity to act for the climate and the environment. We believe, however, that the European climate policy is ill-designed, as it only sets ambitious goals, and does not provide for effective ways to achieve them. Instruments that are intended to help take care of the environment are as a matter of fact short-sighted in their nature. In short term, they are likely to have a quick albeit non-lasting effect, yet in the long run they will prove devastating for the European economy and therefore for the entire Community.
For this reason, we are in favour prudent and reliable measures to achieve low-carbon emissions in the European Union. We oppose any and all actions that may cause harm to the competitiveness of European enterprises, as well as the widespread impoverishment. Consequently, we ought to ensure that reforms do not generate the risk of increasing poverty in terms of energy and mobility. In our view, the EU should, on the one hand, guarantee appropriate support mechanisms and a fair transformation of the fossil-fuel mining and energy sectors, and, on the other hand, should not limit investment opportunities, for example with the use of transition fuels, which significantly help to maintain the energy security of individual member states.
The current climate policy is to a large extent a set of penalties, restrictions and taxes. More emphasis ought to be placed on positive measures that will encourage CO2 emitters to invest and modernise. Deregulatory and entrepreneurial initiatives are what is needed to help Europe return to the global economic elite.
There can be no doubt that the EU could take more effective pro-ecological actions, while at the same time having a greater impact on shaping climate policies in third-party countries.
Find out more: 26.10.2021 Position of the Union of Entrepreneurs and Employers on the ‘Fit for 55’ package
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[1] Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions ‘Fit for 55’: delivering the EU’s 2030 Climate Target on the way to climate neutrality (COM (2021) 550 final).
[2] Directive of the European Parliament and of the Council amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union, Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and Regulation (EU) 2015/757.
[3] Regulation of the European Parliament and of the Council establishing a carbon border adjustment mechanism.
