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Dear readers,
After the epochal ruptures, caesuras and crises of the past year, it is a particular concern of ours to wish you a peaceful, prosperous, happy and healthy 2023. Rarely has the beginning of a year been marked by such uncertainty, fear and pessimism. However, those presumptions must be examined more critically than usual.
A war is unsettling Europe, causing energy prices to explode and inflation to gallop. The European economy is at a crossroads. This has rarely been the case since before the Second World War. Supply chains are in danger of being severely disrupted again because China has failed to combat the Corona pandemic domestically. The debt of individual member states is skyrocketing. Interest burdens are devouring public funds that should be spent more wisely on building a competitive digital infrastructure, the energy transition, reducing bureaucracy or developing more efficient education systems. To make matters worse, a conflict between Serbia and Kosovo is smouldering in the Balkans, raising fears of another war. Much suggests that this toxic melange will be with us for quite some time.
Nevertheless, there is reason for hope. Europe has proven that it can act under pressure in a capable and resilient manner. Brussels has succeeded in reacting quickly and appropriately to Russia's war of aggression, which violates international law, while keeping sight of the core tasks it has set itself.
This is also reflected in the Commission's new work programme. Its primary goals are to establish common environmental standards, reform the electricity market, introduce the digital euro, strengthen data protection and consumer rights, secure the supply of critical raw materials and make democracy more defensible. Among other things, this newsletter deals with the European Medicines Agency (EMA), innovations in emissions trading and a reform of the law on digital markets. All this is to be implemented without neglecting economic, humanitarian and military aid to Ukraine.
Isn’t that something?
We hope you enjoy reading this report. Stay with us – and above all, stay optimistic.
Yours
Dr Jörg Köpke
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The Commission, the Council and the European Parliament regularly negotiate in the so-called trilogue on EU legislative proposals in order to find a common position. We have put together a summary of the most important trilogue decisions since the last Newsletter.
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Trilogue agreement on the Machinery Regulation
On 15 December, a preliminary political agreement was reached on the so-called Machinery Directive. This replaces the Machinery Directive (2006/42/EC) and contains safety and health requirements for machinery products. This includes, for example, light electric vehicles such as electric scooters and e-bikes. The regulation provides a conformity assessment for the products covered, and a check for compliance with the safety and health requirements specified in the directive. In the case of high-risk products, this assessment must be carried out by an independent body. Otherwise, self-assessment is also permissible.
Trilogue agreement on the minimum tax directive
On 15 December, the Council adopted the Global Minimum Tax Directive. The consent of the Parliament was not required. The directive serves to implement the so-called Pillar 2 of the OECD's international tax reform. This agreement was reached in October 2021 by almost 140 countries. The main aim of this reform of international corporate taxation is to prevent tax avoidance tactics by large international corporations. Pillar 2 provides for a tax rate of at least 15 % for companies with a total annual turnover of at least € 750 million.
Trilogue agreement on the Pay Transparency Directive
On 15 December, a preliminary political agreement was reached on the Pay Transparency Directive. It provides a right for employees to receive information on the average wage level, disaggregated by sex, of employees doing the same work or work of equal value. Employers must also disclose the initial wage level or wage range for prospective employees. Employers with more than 100 employees must provide information on the pay gap between female and male employees in their organisation to their employees and their representatives and to the competent authority. If there is a difference in the average pay of men and women that is at least 5 % and not justified by objective and gender-neutral criteria, employers must carry out a joint pay assessment in cooperation with their workers' representatives.
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Energy | Climate | Transport
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Trilogue agreement on EU emissions trading: International maritime transport
On 29 November, a preliminary political agreement was reached on the inclusion of international maritime transport in the EU Emissions Trading Scheme (EU ETS I) for industry and energy (see cepPolicyBrief 5/2022), cepInput 8/2021). Emissions of CO2, methane and nitrous oxide on extra-European voyages to and from EU ports are subject to a 50% allowance requirement, and on intra-European voyages and at berth in the EU to a 100% allowance requirement. This applies to ships – including offshore vessels – with a gross tonnage of at least 5000. Shipping companies will have to buy allowances for 40% of their emissions in 2024, 70% in 2025 and 100% from 2026. The revenue from 20 million allowances will be reserved in the Innovation Fund specifically for decarbonisation measures in the shipping sector.
Trilogue agreement on EU emissions trading: Aviation
On 7 December, a preliminary political agreement was reached on the revision of the aviation-related provisions of the EU Emissions Trading Scheme (EU ETS). According to the agreement, from 2022 to 2027 the EU ETS will continue to apply only to intra-European flights (including the UK and Switzerland). The CO2 compensation system CORSIA of the International Civil Aviation Organization (ICAO), however, is to apply only to extra-European flights to third countries or from third countries participating in CORSIA. If the emissions from these extra-European flights reach more than 85% of the 2019 level, they must be offset by corresponding compensatory measures. The free allocation of allowances for the aviation sector will be reduced to 75% in 2024, 50% in 2025 and 0% in 2026. The revenue from 5 million allowances from the aviation sector will be transferred to the Innovation Fund. In addition, 20 million free allowances will be made available to incentivise the introduction of fuels that are "a promising pathway for decarbonising aviation in the short term".
Trilogue agreement on carbon border adjustment (CBAM)
On 13 December, a preliminary political agreement was reached on the introduction of a carbon border adjustment mechanism (CBAM). The CBAM will be introduced from October 2023 – initially only with reporting obligations on "embedded CO2 emissions" – for iron and steel, cement, fertilisers, aluminium, electricity and hydrogen as well as some intermediate products, certain downstream products and indirect CO2 emissions. Companies importing into the EU must purchase so-called CBAM certificates to pay the difference between the lower or non-existent carbon price in the country of production and the certificate price in the EU ETS (see cepPolicyBrief 5/2022). Between 2026 and 2034, the CBAM will only apply to the part of emissions for which no free allowances are issued in the EU ETS I in order to comply with World Trade Organisation (WTO) rules. Free allowances will be phased out more slowly at the beginning and more rapidly towards the end, by 2.5% in 2026, 5% in 2027, 10% in 2028, 22.5% in 2029, 48.5% in 2030, 61% in 2031, 73.5% in 2032, 86% in 2033 and 100% in 2034 compared to 2025. Free allowances will also be phased out for exporters, although they will receive partial financial support. By 2025, the Commission is to assess the carbon leakage risk for export goods to non-EU countries and, if necessary, present a WTO-compliant legislative proposal to address this risk.
Trilogue agreement on REPowerEU
On 14 December, a preliminary political agreement was reached on the REPowerEU Regulation (see cepAdhoc 4/2022), which aims to strengthen the EU's strategic autonomy through energy diversification and to promote the independence and security of the EU's energy supply. Member states can now apply for funding from the €800 billion Recovery Fund, established in the wake of the COVID 19 pandemic, for relevant energy projects as part of their national recovery and resilience plans. The sources of funding for the grants will be the Innovation Fund (60%) and the advance auctioning of ETS allowances (40%). The allocation key is intended to consider cohesion policy, Member States' dependence on fossil fuels and the increase in investment prices.
Trilogue agreement on EU emissions trading reform
On 18 December 2022, a preliminary political agreement was reached on the reform of emissions trading. In the EU Emissions Trading Scheme for Industry and Energy (EU ETS I, see cepPolicyBrief 5/2022) the total cap on emissions will be reduced by 90 million allowances in 2024 and by 27 million allowances in 2026. The annual reduction rate of the cap (linear reduction factor) will be increased to 4.3% per year from 2024 to 2027 and to 4.4% from 2028 to 2030. This leads to an overall emission reduction of 62% by 2030 in the EU ETS I sectors compared to 2005. The Market Stability Reserve (MSR) is strengthened by extending the increased annual intake rate of allowances (24%) beyond 2023. The mechanism against excessive price fluctuations is strengthened, inter alia, through an automatic release of allowances from the MSR.
Installations that receive a free allocation of allowances (free allowances) have to fulfil certain requirements (conditionality), including the implementation of energy audits and, for certain installations, the establishment of climate neutrality plans. Transitionally, additional free allowances for the district heating sector may be granted in some Member States to promote decarbonisation investments.
Trilogue agreement on the Climate Social Fund
On 18 December 2022, a preliminary political agreement was reached on the Social Climate Fund. Part of the auctioning revenues from emissions trading will be used to support vulnerable households and micro-enterprises through the Social Climate Fund (see cepPolicyBrief 6/2022; cepPolicyBrief 14/2022). To receive money from the fund according to a fixed key, member states must submit social climate plans and have them approved by the Commission.
The fund has two objectives: First, it aims to finance direct income support measures to counteract the rise in road transport and heating oil prices – with a cap of up to 37.5% of the total estimated cost of each national social climate plan. Secondly, it will also co-finance long-term structural investments, including the renovation of buildings, decarbonisation measures and the integration of renewable energies into the energy system, the purchase of zero- and low-emission vehicles, charging infrastructure, and the use of public transport and shared mobility services.
Initially, the fund will be financed by the proceeds from the auctioning of 50 million EU ETS I allowances (estimated at €4 billion). With the entry into force of the EU ETS II, it will be financed by the auctioning of EU ETS II allowances up to an amount of €65 billion, with a further 25% covered by national funds (a total of approximately €86.7 billion).
Trilogue agreement on EU emissions trading for buildings and road transport (EU ETS II)
On 18 December 2022, a preliminary political agreement was reached on EU emissions trading for buildings and road transport (EU ETS II). For this purpose, a new separate emissions trading scheme for fuels (EU ETS II, see cepPolicyBrief 6/2022; cepPolicyBrief 14/2022) will be introduced. The manufacturing crafts are also included. The EU ETS II applies to fuel retailers who supply fuels to corresponding sectors. Member States may exempt fuel retailrs from surrendering allowances until December 2030 if they are subject to a CO2 tax at national level equal to or higher than the auction price for allowances in the EU ETS II. If energy prices are unusually high, the start of the EU ETS II can be postponed until 2028 to protect the population from excessive cost burdens.
The linear reduction factor was set at 5.1 from 2024 and 5.38 from 2028. To ensure that "the system functions smoothly", 30% of the first year's auction volume will be auctioned additionally (frontloading). A price stability mechanism is to ensure that 20 million additional allowances are released if the price for an allowance in the EU ETS II rises above 45 euros.
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Trilogue agreement on the Battery Regulation
On 6 December 2022, a preliminary political agreement was reached on the Battery Regulation. The aim is to make batteries more sustainable and to strengthen the circular economy. The regulation applies to all batteries – such as portable, industrial and starter batteries. The entire life cycle of batteries is regulated. This includes requirements for a mandatory minimum content of recycled materials (recyclates) for industrial batteries and starter batteries, among others. In addition, end users are to have the possibility to remove and replace device batteries, for example from smartphones or tablets. Companies have 42 months after the regulation comes into force to adapt their products to these requirements. In addition, there are requirements for battery disposal, such as collection targets for waste portable batteries for producers.
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The EU Commission asks decision-makers and interested parties from civil society for their opinion on European policy proposals. Here is our short-list of the most important consultations:
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Digital markets: Commission proposes rules for so-called gatekeepers
The Commission intends to adopt an implementing regulation for the Digital Markets Act (DMA) and has presented a draft for this regulation. The DMA aims to ensure contestable and fair digital markets by imposing conduct obligations on some very large digital companies, known as gatekeepers. Among other things, the regulation is to contain rules on the protection of trade secrets and the information that companies must report to the Commission if they exceed certain turnover and user thresholds and are therefore presumed to be gatekeepers.
The submission period for opinions ends on 6 January 2023.
Go to consultation
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Digital fairness: Commission to identify need for reform of EU consumer law
In view of the rapid development of digital markets, the Commission is concerned that new technologies and data-driven practices are not sufficiently covered by the Consumer Rights Directive [(2011/83/EU)] and the rules on unfair commercial practices [Directive (2005/29/EC)] and unfair contract terms [Directive (93/13/EEC)]. To ensure that consumers benefit from a comparable level of protection online and offline and that they can play an active role in the digital transformation, gaps in EU consumer law will be identified and appropriate changes proposed. In particular, the Commission wants to hear from consumers about their experiences with the design of websites and apps, personalised offers such as advertising and prices, or withdrawal from subscription contracts as part of the consultation.
The submission period for opinions ends on 20 February 2023.
To the consultation
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Medicines Agency EMA: Proposal for new fee system on the table
The Commission has, with some delay, presented a proposal for a new fee system [COM (2022) 721]. When a medicinal product is to be granted an EU marketing authorisation, the European Medicines Agency (EMA) assesses the quality, safety and efficacy of these medicinal products together with the national authorities. For this, the EMA collects corresponding fees from marketing authorisation holders and applicants. The Commission wants to adapt the legislation because it has identified problems with the collection of fees. For example, the costs of the evaluation are allegedly not in line with the fees set so far. Furthermore, according to the Commission, there is a need for greater flexibility in the fee system when it comes to medicinal product innovations that require more complex assessment procedures. All stakeholders are invited to comment on the Commission's proposal.
The submission period for opinions ends on 7 February 2023.
To the consultation
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16-19 January 2023
Strasbourg
Session of the European Parliament. Among other things, the programme of the Swedish Council Presidency will be presented. In addition, a new Vice-President of the EU Parliament is to be elected following the departure of Eva Kaili.
16 January 2023
Brussels
Meeting of the Euro Group. *
17 January 2023
Brussels
Meeting of the Economic and Financial Affairs Council (Ecofin). Among other things, this will concern the economic and financial impact of Russia’s aggression against Ukraine.
24 January 2023
Brussels
General Affairs Council (GAC) meeting. *
26 January 2023
Brussels
Session of the European Parliament. *
1-2 February 2023
Brussels
Session of the European Parliament. *
6-8 February 2023
Stockholm
Informal meeting of competitiveness ministers. *
*The precise agenda was not yet available at the time of going to press.
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cepPolicyBrief: Industrial Emissions
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In the EU, emissions of pollutants into the air, water and soil from industrial and livestock facilities are to be reduced. To this end, the Commission has proposed amendments to the Industrial Emissions Directive. The Centrum für Europäische Politik (cep) considers parts of the proposals to be contrary to EU law.
Go to cepPolicyBrief 18/2022
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cepAdhoc: AI as Systemic Risk in a Polycrisis
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Whether to protect against credit card fraud, to create climate models or to distribute police forces: Artificial Intelligence (AI) is penetrating everyday life ever more deeply. The data required for this mostly comes from phases of relative stability, which cannot be readily applied in times of crisis. The cep sees this as an underestimated systemic risk - and calls for rules.
Go to cepAdhoc 15/2022
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cepPolicyBrief: Climate and Shipping
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Maritime transport accounted for around 2 percent of global greenhouse gas (GHG) emissions in 2018. This corresponded to about 85 percent of German emissions. Commission, Council and Parliament want to agree on reduction measures for the European Union. The cep warns against Brussels going it alone.
Go to cepPolicyBrief 17/2022
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cepPolicyBrief: Corporate Sustainability Due Diligence Directive
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Well intended, not well done: The European Union wants to oblige companies to protect human rights and the environment in the EU and third countries - from raw materials to products and their disposal, throughout the entire value chain. The Centrum für Europäische Politik (cep) criticises the Commission's draft directive as too vague.
Go to cepPolicyBrief 16/2022
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Dear Readers,
An optimist is someone who fills in crossword puzzles with a ballpoint pen. Let us all take a chance with more ballpoint pens.
Yours
Dr Jörg Köpke
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