The Fit for 55 proposal comes amid the ongoing heatwave and energy crisis crippling European countries. Electricity demand has surged, with baseload electricity prices up over 50% from June.

In July, Germany had to restart its mothballed coal power plants as the country struggled to meet demand. The French minister for the energy transition highlighted that the Fit for 55 package will help to reduce the EU’s dependence on Russia for energy. 

One of the key tools to reduce greenhouse gas emissions will be the EU Emissions Trading System (ETS). Under the revised Fit for 55 plan, the current ETS will be reformed.

The ETS will cover new sectors including maritime transport and road transport. Free allowances will gradually be phased out in certain sectors. Allowances will be reduced by 4.2% annually, compared to 2.2% annually under the current plan.

Energy production and use currently account for 75% of the EU’s emissions. In its Fit for 55 proposal, the European Council will increase the targets for both renewable energy use and energy efficiency.

Under the new target, member states will slash their final energy consumption by 1.5% annually by 2030. This will represent a reduction in final energy consumption from about 11.6PWh in 2020 to 9.2PWh by 2030.

Higher Renewable Energy Targets

The European Council announced a new binding target of renewable energy in the energy mix. 40% of energy will come from renewable sources by 2030, up from the current target of 32%. In 2020, renewable energy sources made up 22% of the energy mix. The new Fit for 55 target will nearly double the current share of renewable energy in the EU.

To achieve this goal, new sector-specific targets will be implemented. For buildings, including industrial and residential, 49% of the energy will be sourced from renewable sources. For heating and cooling uses, the share of renewable energy in the energy mix will increase by 0.8% annually until 2025.

From 2025 to 2030, the adoption will accelerate at 1.1% annually. Similarly, the share of renewable energy in the energy mix for industrial uses will incrementally rise by 1.1% annually to 2030.

In July, IRENA reported that renewables electricity cost continued to remain cost-competitive to fossil fuels, especially with the recent gas price surge. For the first half of 2022, Europe saved an estimated US$50bn by using solar and wind, instead of importing fossil fuels.

Building new onshore wind and solar PV projects are estimated to be 40% cheaper than new coal or gas power plants. In 2021, over half of new renewable installations had lower costs than the cheapest coal power plant in the G20.

Sustainable Transport

Transport currently amounts for a quarter of greenhouse gas emissions in the EU. Under the 2030 goal, EU member states will choose between a 13% reduction in GHG intensity for the transportation sector or a 29% share in final consumption. This will largely depend on the EV adoption rate in the EU. European EV sales reached above 2 million units for the first time in 2021, a 65% increase year-on-year.

In the first half of 2022, over 1.1 million EVs were sold in Europe, on track to beat last year's sales. Road transport totals 70% of EU carbon emissions in the transportation sector.

In terms of market share, the Nordic countries lead the way in Europe. The highest EV market share was in Norway (88%), followed by Iceland (75%), and Sweden (43%). The Netherlands and Germany each had around a 30% EV share, followed by France (20%) and Italy (10%). These numbers are set to increase with the sales ban on internal combustion engine vehicles coming into effect by 2035.

European automakers are preparing for this shift with a number of upcoming EV models joining their line-up. Mercedes Benz announced that all newly launched models will be fully electric by 2025. Volvo targets to be a fully electric car company by 2030.

Volkwagen aims for 70% of its European vehicles sales to be electric by 2030. Similarly, BMW targets 50% of its vehicle sales to be fully electric by 2030.

To support the electrification movement, the charging infrastructure will also be expanded. Recharging EV stations will be installed every 60km on main EU roads by 2030. Hydrogen refuelling stations will be installed every 200km to support FCEVs.

Europe currently has 50,000 fast chargers and 300,000 other chargers. As of July, the Netherlands had the majority of EV chargers (29%), followed by Germany (19%).

Hydrogen and Biofuels

Green hydrogen will play a major role in the race to cut GHG emissions. Under the Fit for 55 package and the REPowerEU plan, the EC targets 20Mtpa of renewable hydrogen by 2030. 10Mt will produced in the EU, with the other 10Mt to be imported. 150GW of additional electrolyser capacity is required in the EU to support this target. Current European installed capacity is less than 300MW.

To meet the hydrogen production requirements, the EC recently approved the EUR5.4bn (US$5.48bn) fund for the IPCEI Hy2Tech. The funds will be used to accelerate the deployment of electrolysers to generate green hydrogen. Other aspects of the hydrogen technology value chain will also receive funding including the storage, transportation, and distribution of hydrogen. Renewable hydrogen is expected to account for 50% of total energy consumption in industry by 2035.

Hydrogen will also be used to produce ammonia, synthetic-diesel, and other sustainable fuels. Under the ReFuelEU aviation and FuelEU maritime initiatives, aircrafts and maritime vessels will switch to hydrogen-based fuels to reduce their GHG emissions.

Aviation accounts for 14% of EU transport GHG emissions. As part of the ReFuelEU plan, aircraft fuel suppliers will have to supply sustainable syn-fuels to EU airports. The minimum share of syn-fuels for aircrafts will reach 6% by 2030 and 32% by 2040.

Long-haul cargo ships are likely to adopt the use of low-carbon green ammonia. Vessels above 5,000 gross tonnes account for 90% of CO₂ emissions in the maritime sector. These large vessels calling at EU ports will have to cut their carbon emissions by 6% in 2030, and 26% by 2040. Maritime transport currently makes up 13% of EU transport GHG emissions.