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January 14, 2022

European Commission builds on “Fit for 55” energy and climate package with new measures

Executive summary

In December 2021, the European Commission (the Commission) released a series of legislative proposals as a continuation to the “Fit for 55” package announced in July 2021. The proposals aim to pave the way towards renewable and low carbon fuels and create a market for hydrogen. The package also contains provisions related to methane emissions, providing for obligatory tracking and reduction of methane released into the atmosphere from the energy sector. Furthermore, the Commission set forth the principles around sustainable carbon cycles and for efficient and green mobility and introduced another proposal aiming to foster the decarbonization of the building sector.

The new measures are viewed as another milestone in delivering the goals of the European Green Deal. Ahead of implementation, the measures are expected to significantly accelerate business transformation toward sustainability in gas, agriculture and transportation sectors.

Detailed discussion

Hydrogen and Gas Markets Decarbonization Package  

On 15 December 2021, the Commission published one of the most anticipated regulations for the entire gas sector - the Hydrogen and Gas Markets Decarbonization Package (the Package). The Package proposes a set of amendments to European Parliament (EP) and Council Directive 2009/73/EC of 13 July 2009 concerning common rules for the internal market in natural gas and EP and Council Regulation (EC) No 715/2009 of 13 July 2009 on conditions for access to the natural gas transmission networks.

This is one of the first legislative initiatives in the European Union (EU) setting out detailed provisions for the development of alternative energy carriers. The key decarbonized gases identified in the Package include: hydrogen, biogas, biomethane, ammonia and methanol, which are to gradually become substitutes for the unabated fossil fuels. The regulatory changes are intended to create a market, governance and infrastructure architecture for the transmission and distribution of decarbonized gases in the EU. The Package also envisages expiration of long-term contracts for unabated fossil natural gas by 2049.

Regulation on methane emissions reduction in the energy sector

On 15 December 2021, the Commission published a proposal to track and reduce methane in the energy sector, the first of its kind in the EU. The document recognizes this powerful greenhouse gas as contributing to a quarter of current anthropogenic global warming. The main objectives of the new regulation is to improve the accuracy of information regarding the main sources of emissions, increase reliability of reporting and further effectively mitigate methane emissions. It also imposes a requirement of mandatory leak detection and repair, in addition to a ban on venting and flaring. Importers of fossil energy into the EU will need to provide information on the methane emissions and their mitigation across their value chains. The rules may be amended by 2025 with a view to introduce more stringent measures on fossil fuels imports once all data is available. Lastly, the EU intends to set up and manage a transparency database for fossil energy imported into the EU.

Sustainable carbon cycles

Also on 15 December, the Commission published a communication on sustainable carbon cycles, outlining its vision for carbon farming, industrial carbon capture and use (CCU) and carbon capture and storage (CSS). The Commission has proposed how to increase carbon sequestration and scale-up carbon farming as a business practice. The Commission will foster innovative approaches through public funding to support carbon farming. This year, the Commission will propose a regulatory framework for transparent accounting and certifying carbon removals. According to the communication, carbon removals from forests and agriculture will play a crucial role in achieving climate-neutrality by 2050.

Revision of the energy performance of buildings directive (EPBD)

The European Commission published on 15 December the revision of the EPBD, which translates the Renovate Wave Strategy into legislative action. The EPBD sets the overall vision for new and existing buildings that applies across relevant provisions of the “Fit for 55” package and complements existing legislation (e.g., Energy Labelling Regulation, Ecodesign Directive).

The proposal establishes a zero-emission target for all new buildings by 2030, and by 2027 for new buildings in the public sector. In relation to existing buildings, new energy performance standards would require the worst-performing 15% of the building stock of each Member State to be upgraded by 2027 for non-residential buildings and 2030 for residential buildings. Other changes introduced in the proposal include:

  • Energy Performance Certificates (EPC) - a clearer set of rules (and harmonized by 2025) is proposed for EPC and the obligation to obtain an EPC has also been extended

  • Integration between National Buildings Renovation Plans and National Energy Climate Plans plans will also have to include roadmaps to phase out fossil fuels in heating and cooling by 2040

  • Access to information and lower costs for consumers

Efficient and Green Mobility Package

On 14 December 2021, the Commission published four proposals that will serve to modernize the EU’s transport system:

  • Revision of the TEN-T Regulation – TEN-T Network will be completed in three steps: 2030 for the core network and 2040 for the extended core network, which together form the European Transport Corridors, and then 2050 for the comprehensive network

  • Revision of Intelligent Transport Systems Directive – extends the scope of the Directive to encompass multimodal information, booking and ticketing services and automated mobility

  • New EU Urban Mobility Framework – guidance on how cities can cut down emissions and improve mobility, including Sustainable Urban Mobility Plans

  • Action plan to boost long distance and cross-border passenger rail - establishes roadmap to help the EU meet its target of doubling high-speed rail traffic by 2030, and tripling it by 2050


For additional information with respect to this Alert, please contact the following:

Fit for 55 general

  • Alenka Turnsek, London |
  • Ana Fallas Conejo, Amsterdam |
  • Maike Moore, Berlin |
  • Maikel Evers, Rotterdam |

Carbon Border Adjustment Mechanism

  • Richard J. Albert, Leipzig |
  • Derek Leith, Aberdeen |
  • Kasia Klaczynska-Lewis, Warsaw |

Emission Trading System

  • Kasia Klaczynska-Lewis, Warsaw |
  • Boris Scholtka, Berlin |

Energy Taxation Directive

  • Philippe Lesage, Diegem |

Renewable Energy Directive

  • Frank Burkert, Hamburg |
  • Ingo Bunzeck, Diegem |

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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