European Climate Law Sets a Binding Objective of Climate Neutrality by 2050

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The European Union ("EU") recently adopted "Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate neutrality" ("European Climate Law").

In the midst of a global pandemic and just days before catastrophic flooding in Germany and Belgium, the European Climate Law, published on July 9, 2021, calls for the necessity to address "the growing climate-related risks to health, including more frequent and intense heatwaves, wildfires and floods, food and water safety and security threats, and the emergence and spread of infectious diseases." It sets out a binding objective of climate neutrality, i.e., net-zero emissions in the EU, by 2050 in pursuit of the long-term temperature goal set out in the Paris Agreement. After 2050, the goal of the EU will be to achieve net negative emissions.

In order to achieve the net-zero-by-2050 goal, the European Climate Law provides for an intermediary target of net greenhouse gas emissions reductions of 55% by 2030 compared to 1990 levels. In particular, on July 14, 2021, the European Commission adopted a series of legislative proposals called "the Fit for 55" in order to achieve this 55% reduction target. The Fit for 55 package calls for a revision of several EU climate laws. By way of illustration, it proposes to extend the EU Emission Trading System ("EU ETS") to new sectors, such as maritime transport, as well as fuels used in buildings and road transport. The Fit for 55 package will also include new carbon dioxide emission targets for new cars and vans from 2030 onwards in the EU.

The next intermediate goal, for 2040, has not yet been set. But pursuant to Article 4 of the European Climate Law, the 2040 target should take into account: (i) data, including best available and most recent scientific evidence; (ii) social, economic, and environmental impacts, including the costs of inaction; and (iii) principles such as cost-effectiveness, economic efficiency, and the competiveness of the EU's economy. In this context, the European Commission will propose a carbon border adjustment mechanism for selected sectors to reduce carbon leakage risks in a way compatible with the rules of the World Trade Organization.

The next steps will be the adoption of an intermediate target for 2040 as well as implementation measures, both by EU institutions and Member States. The adoption of such new regulations in the next months and years will create additional constraints and opportunities, both on companies located in Europe and suppliers of goods and services intended for the European market.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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