Epic day for climate and sustainability with twin EU decisions

With Biden’s climate summit getting underway, yesterday witnessed twin announcements of environmental regulations from the EU. Individually, each decision will have a huge impact in its own right. Together they define a new epoch for industry and society across Europe, that will have profound impacts in the Nordics.

First up, was the 5am announcement that the European Parliament had reached an agreement with EU member states about the level of ambition in a new climate law, as reported by Euractiv. Arguably this was the bigger of the decisions. The 2030 ambition level received the most media focus, with the parties agreeing to reduce net greenhouse gas emissions by “at least 55%” by 2030, compared to 1990 levels. The Parliament had wanted a 60% reduction, but member states appear to have won the day by pointing out just how dramatic a change it would be to move from the current 40% target.

The agreement defined the target on a net basis, meaning that it allows for the use of carbon sinks, such as forests. As Mundus Nordic Green News has explained, the difference between net and gross is like chalk and cheese in the Nordics. Given that a maximum of 255 Mt p.a. of carbon storage in the landscape is allowed across the EU, gross emissions from industry need to fall by a minimum of 52% by 2030. Putting this into the Nordic context, Sweden currently sequesters around 40Mt p.a. of carbon and Finland sequesters around 20Mt p.a., meaning that these two countries represent around a quarter of the Union’s budget for sinks.

Although the new targets will be legally binding, it will only be so at EU level, and consequently individual countries do not need to achieve the level, as long as other countries overdeliver.

Overall, most observers tend to agree that the deal is a significant climate achievement, described by Nordic Green News expert guest blogger, Magnus Nilsson, as “epoch-making but with beauty spots”. Politico said “EU policymakers agreed to speed up the bloc’s emission reductions to levels considered unthinkable just a few years ago. That puts the EU way ahead of China and the U.S., the world’s two biggest polluters.”

The flipside of the ambition is that in the words of Frans Timmermans that such a target would be “bloody hard to do” and require sacrifices of everyone — industry, citizens, the transport system and the rest of the economy. Swedes should listen to this straight-talking Dutchman. To put it into context, in 2019, before the pandemic struck, Europe had reduced emissions by 24% versus a 1990 baseline. The target was to get to that 40% reduction by 2030. In 29 years emissions had reduced by 24%, i.e. under 1% per year. That left 11 years to achieve a further 16% reduction. The goalpost has now been moved and Europe must aim to achieve a 28% reduction in the 11 years from 2019 – almost 3% per year. This will bite into livelihoods and lifestyles in a way that climate policy has not done until now. Think pandemic levels of change to the way that you live.

The second announcement came officially around lunchtime when the European Commission released its revised taxonomy proposal. As much of this had been leaked earlier, the news was somewhat old. Nonetheless, it was extremely important for the Nordics, especially Finland’s and Sweden’s forest industries. The Commission needed to deal with a number of political “hot potatoes”. The roles of nuclear and gas were deemed too hard to handle for the moment, and decisions on these were postponed. But when it came to forestry, the Commission agreed to accede to Nordic wishes and declare forestry “sustainable”, rather than a transition solution, making financing more expensive. Pascal Canfin, a French centrist MEP who chairs the European Parliament’s environment committee, said “The pressure from Nordic countries, notably Sweden and Finland, has been colossal.”  

Although forestry attracted the most attention, there were other important elements for Sweden in the new package. In the Commission’s initial proposal, hydroelectric power was not considered sustainable, as it violated the “do no significant harm” criteria. This requirement seems to have been relaxed, allowing for balance the protection of ecosystems with watercourses while supporting hydropower.

For cars, there was an allowance for vehicles that emit less than 50 gram of CO2 per kilometre to be sustainable prior to 2025, but after that only cars with no CO2 emissions at all in their exhaust are considered sustainable. In practice, this means that only all-electric and hydrogen vehicles can be stamped green. Wording was also introduced to address Swedish concerns about the energy performance of buildings. 

Despite the apparent victory, the end result did not completely satisfy the Swedish forestry industry. Svebio, an organization representing forest energy, was critical of the administrative burden placed on landholders, and also with the fine print in the decisions. It observed that “The production of biofuels and biogas is included in the taxonomy, but that activity will be meaningless in the long run if no new vehicles are produced that can use these renewable fuels… We question whether taxonomy is the right method to govern climate policy in the EU. Establishing a regulatory framework that distinguishes between sustainable and unsustainable solutions provides scope for both free opinion and lobbying from different industries, companies and member countries. In Svebio’s opinion, it is better to govern with carbon dioxide taxes, emissions trading and environmental legislation, and then leave it to the financial market players to operate in a free financial market without political cues.” 

The point of this critique is that while yesterday’s taxonomy announcement was an apparent victory, allowing for the continuation of burning wood chips to make electricity and heat, it acts against the dream of the Swedish forest industry to manufacture liquid biofuels for use in vehicles. How hard a blow this is is yet to be seen, but our initial take is that this will block the emergence of any significant biofuels industry. If so, this means that batteries and hydrogen become the only practical route forward to decarbonise transport. And that will have a massive impact in Sweden and Finland, which have been committed to a biofuels route until very recently.

Nordic Green News

Sean is responsible for Mundus’ strategy and commercial activities. He began his career in the oil industry Australia. After working internationally in commercial roles with BP in South Africa, the UK and Singapore he moved to Sweden with his family in 2009. He worked in business development and then as the Strategy and Growth Director for NASDAQ Commodities from 2009 to 2015. Sean holds an engineering degree from Adelaide University and an MBA from the Darden Business School at the University of Virginia.