Airlines and Automakers Brace for EU’s Momentous CO2 Clampdown

Europe’s airlines are pushing back against the European Union’s upgraded climate plan, saying a planned tax on jet fuel is counterproductive as the region’s transportation sector braces for measures that will make the region the first carbon-neutral continent.

Punitive measures such as taxation reduce resources that could support investments to cut emissions, the International Air Transport Association said, while Deutsche Lufthansa AG said the EU’s proposals will need additional measures to ensure a level playing field for carriers. The maritime industry warned the bloc’s plans will hinder talks on a global carbon levy.

The European Automobile Manufacturers’ Association welcomed mandatory targets for the ramp-up of charging infrastructure in all member states to reach “very challenging” targets to cut emissions.

Key to the EU’s ambitious goal is the bid to cut emissions by 55% in 2030 compared to levels in 1990, up from a previous target for a 40% reduction. A transformational overhaul that will change how people drive and fly is at the core of hitting the goals to reduce pollution from transport, a sector that accounts for as much as a quarter of total emissions.

To get there, the EU is, among a broad swathe of policy measures, seeking to phase out combustion-engine cars by requiring emissions from new cars and vans to fall by 55% from 2030 and to zero by 2035, and new taxes on aviation fuel. The Commission also wants maritime transport to become part of the EU’s carbon market, already the world’s biggest.

Airlines and Automakers Brace for EU’s Momentous CO2 Clampdown

Pollution from transportation has remained stubbornly high in the EU. While overall emissions fell by around a quarter since 1990, led by a halving in emissions from electricity production, greenhouse gases from transport rose by about a third, according to figures from the European Environment Agency. Industrial emissions fell around 36% over the period.

The EU’s Fit for 55 package, which puts the region ahead of other major economies, is unlikely to be implemented exactly as proposed and years of political wrangling with member states will ensue. As late as this week, France resisted the EU’s plan to end sales of new combustion-engine cars to advocate for more lenient targets and a longer leash for plug-in hybrid vehicles.

Here’s how each industry is reacting:

Road Transport

While automakers are already deep into shifting to EVs, a 55% CO2 cut for average fleet emissions by 2030 is a significant step up from the previous target of a 37.5% reduction from 2021 levels. Earlier proposals has envisioned an even steeper drop of 65%.

Thanks to generous incentives, Europe overtook China as the world’s largest market for plug-in hybrid and electric cars last year and EVs made up nearly 15% of deliveries during the first quarter. But much more is required, particularly sales of purely electric cars, which will have to account for between 60% to 70% of sales in 2030, according to Barclays.

What BloombergNEF says

“The timescale of the change is unprecedented, as this shift has to happen within two-to-three model cycles. Opel, Volvo and Ford plan to sell only zero-emission cars, whereas Volkswagen and Stellantis have set ambitious EV sales targets for 2030. The proposal also puts plug-in hybrid technology at risk.”

-- BloombergNEF analyst Nikolas Soulopoulos

Click here to read the research.

Such levels of EV sales has put charging infrastructure into sharp focus, especially for mass market buyers less likely to be able to plug in their vehicles at home. The EU plans to require member states to install charging points in line with EV sales and at regular intervals along highways of every 60 kilometers (37 miles) and every 150 kilometers for hydrogen refueling.

This should deliver on a previous goal of 1 million public recharging points by 2025 and approximately 3.5 million by 2030, the EU said.

“Without significantly increased efforts by all stakeholders -- including member states and all involved sectors -- the proposed target is simply not viable,” BMW Chief Executive Officer and ACEA President Oliver Zipse said.

The Commission is also proposing a new emissions trading system for the fuel supply industry for vehicles and heating, applied to suppliers.

The EU’s moves haven’t come out of nowhere, and many carmakers have accelerated their EV shifts of late.

Volkswagen AG, Europe’s biggest automaker and behind the industry’s biggest EV push, on Tuesday announced it wants to build a battery plant in Spain, the third out of six planned sites. VW’s closest competitor in the region, Stellantis NV, last week joined a slew of other major manufacturers with a 30 billion-euro ($35.4 billion) spending spree on EVs.

Meeting the EU’s tougher targets will be “not at all easy,” Volkswagen CEO Herbert Diess told Bloomberg Television. Scaling up battery production will be a “huge” challenge both for the industry and VW, he said.


Aviation contributes about 4.5% of total EU emissions. Even before the pandemic brought air travel to its knees, the sector was in the crosshairs of lawmakers and the flight-shaming movement spurred on in part by Swedish climate activist Greta Thunberg.

Airlines will eventually have to pay for the pollution from their planes with a gradual phasing out of emission allowances. The EU says it’s concerned that without the curbs proposed, CO2 output will continue to grow, imperiling mid-century climate targets.

The proposed measures include taxation on jet fuel for intra-European flights, mandatory carbon offsets as well as requirements for a gradual increase in sustainable aviation fuel blended in with kerosene. A 2% blend will be required starting in 2025, rising to 63% in 2050. An increasing portion will be synthetically made over the period. They’ll be exempt under the EU’s new energy taxation framework.

“Taxes siphon money from the industry that could support emissions-reducing investments in fleet renewal and clean technologies,” said Willie Walsh, IATA’s director general and the former head of British Airways’ parent IAG SA.

While the industry welcomed some of the measures, airlines are set to fight hard behind the scenes to soften the blow and there’s risk of a resumption of wrangling with governments and carriers outside the European Union.

“These measures will definitely raise the cost on airlines and eventually raise ticket prices,” said Laurent Donceel, a senior policy director at lobby group Airlines for Europe. A tax on kerosene won’t directly lead to a reduction in CO2 output, and may even lead to aircraft taking longer routes to circumvent the levy, Air France-KLM’s Dutch arm said.


The EU’s proposed new rules will slowly push shipping, which emits as much carbon as Belgium in the region, away from oil and toward clean propellants like biofuels.

The regulation comes in three parts. The sector will be included in the bloc’s carbon market for the first time. Separately, the FuelEU Maritime initiative aims to increase the use of alternative fuels, targeting a cut in emissions intensity of 2% by 2025 and increasing to 75% by 2050. This goal should get an additional push from plans to start taxing shipping fuel, while sustainable and alternative fuels will be exempt.

”It’s difficult to see what extending the EU ETS to shipping will achieve towards reducing CO2, particularly as the proposal only covers about 7.5% of shipping’s global emissions,” said Guy Platten, secretary general of the International Chamber of Shipping that represents more than 80% of the world’s merchant fleet. “The industry’s overwhelming preference is for a global levy which will incentivize real emission reductions rather than red tape.”

Both the FuelEU initiative and the carbon market will cover intra-EU traffic, plus half of the voyages for ships sailing into -- and out of -- the bloc.

While the measures “will make things more expensive,” the impact on the cost of end products is likely to be relatively small, said Jan Dieleman, head of Cargill Inc.’s ocean transportation business.

Using biofuels purchased by shippers from outside the EU to replace oil-derived marine fuel could prove tricky, because the bloc can’t enforce its sustainability criteria outside its borders, according to the European Community Shipowners’ Associations, which represents the continent’s shipping industry.

The EU’s proposed rules may also force shipping’s global regulator, the International Maritime Organization, to step up efforts on decarbonization, or risk being sidelined by other authorities, like the EU. The UN body has been criticized for moving too slowly, while industry titans A.P. Moller-Maersk A/S and Trafigura Group have both called for a global carbon tax.

©2021 Bloomberg L.P.

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