The EU’s Fit for 55 package marks a significant milestone in the bloc’s commitment to mitigating climate change and achieving its sustainability goals. The package includes a set of proposals presented by the European Commission in July 2021 aimed to make the EU’s economy and policies fit to meet its target of reducing greenhouse gas (GHG) emissions by at least 55% by 2030, compared to 1990 levels.
The proposals cover a wide range of sectors, including energy, transport, industry, and buildings. After two years of negotiations, legislations have been adopted on almost all the proposals put forward. This promises to set a new direction for the EU which elevates the level of ambition, while also presenting important opportunities and challenges for member states, including Malta.
In the energy sector, by 2030, the EU will increase the share of renewable energy production to 42.5% and significantly improve energy efficiency by 11.7% compared to 2020 levels. This will be done by investing in new renewable energy technologies, such as solar and wind power, and by making sure buildings and businesses consume less energy.
In the transport sector, the new rules will facilitate a transition towards sustainable fuels and the adoption of greener practices.
This includes investing in electric vehicles and requiring the aviation and maritime sectors to gradually use lower emission fuels.
Airports must increase the supply of sustainable aviation fuel (SAF) from 2% in 2025 to 70% in 2050. Similarly, maritime operators with ships larger than 5,000 tonnes must reduce emissions by 80% by 2050. The EU has also banned the sale of new internal combustion engine cars and vans by 2035.
In the buildings and industry sectors, investment in energy efficiency and onsite green energy production will be improved. This will be done by requiring building owners and businesses to renovate their premises and invest in more efficient technologies.
Finally, the EU is planning to gradually disincentivise the use of carbon-based fuels across sectors such as aviation and maritime through higher carbon prices and other costs. This will make it more expensive to use fossil fuels, which will, it claims, encourage operators and consumers to switch to cleaner energy sources.
The negotiations surrounding each of these issues were difficult, as member states sought a balance between environmental protection and economic competitiveness. In Malta’s case, it will represent a fundamental shift of its energy generation, transport infrastructure and industrial practices.
The new rules will also come at a substantial cost for businesses, particularly those in high-polluting and energy-intensive industries. Stricter regulations and higher carbon prices will increase production costs, potentially impacting the competitiveness of European industry. Carbon leakage in sectors, where the EU’s ambition is not yet matched by other jurisdictions (such as shipping), is also a real risk which must be managed.
Peripheral and island member states such as Malta will be disproportionately impacted by the new rules, especially those on transportation.
Malta’s connectivity with mainland Europe is completely dependent on the aviation and maritime sectors. Higher costs here may spill over onto the Maltese economy through higher prices for imports and exports, and could also affect incoming tourist figures.
It is imperative that the Maltese government identifies ways to appropriately support enterprises to maintain Malta’s attractiveness for investment and doing business.
One of the most controversial proposals which Maltese business stakeholders are concerned with is the Energy Tax Directive (ETD), which sets minimum tax rates applicable to fuels and other energy products. So far, fuels used in aviation and maritime have been exempt from this tax, but a proposed revision seeks to remove this exemption. This will naturally lead to an increase in the price of fuels.
Consequently, rising transport costs pose important challenges for Malta at no environmental benefit, since this is not expected to lead to a reduction in trips by air or sea. We count on the Maltese government to defend the need for a permanent derogation during EU Council negotiations in view of Malta’s peripherality and island status.
EU funding is indispensable to address the broader challenges brought about by the Fit for 55 legislations. Existing EU programmes are placing a greater emphasis on sustainability, while new instruments, such as the Social Climate Fund and the Recovery and Resilience Fund, add to the overall contribution.
However, it must be ensured that adequate financial support is available for the private sector, since limited resources is a concern affecting companies of all sizes, especially SMEs.
The Fit for 55 package is a significant step forward in the EU’s fight against climate change. The green transition will not happen overnight and will certainly present challenges to the way businesses operate, and how we live our lives. These changes are nonetheless essential to protect our environment for future generations.
For Malta, the Fit for 55 package presents important challenges and opportunities.
Supporting the transition through financial assistance, technical support and other incentives in the coming years will be key to ensure the long-term sustainability of our economy.
Alison Mizzi is the president of the Malta Business Bureau (MBB)