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Hydrogen in the EU: interview with Gijsbert Wierink, founder of Plutonic Raw Materials Advisory (RMA)

In light of the ongoing geopolitical tensions and the current European energy crisis, Commission President Ursula Von Der Leyen declared that “hydrogen can be a game-changer” during her State of the European Union address. In her mission statement, she explained how investments in hydrogen are necessary to scale up the hydrogen market so it can contribute to decarbonizing the EU economy and move away from fossil fuels. The  REPowerEU plan, presented by the Commission on 18 May 2022, reflects equally ambitious plans for hydrogen, doubling the production and import of renewable hydrogen by 2030.

In order to outline the impact and feasibility of the EU’s ambitions, Dr2 Consultants interviewed Gijsbert Wierink, founder of Plutonic Raw Materials Advisory (RMA), to share his views on the recent policy developments. As an expert in strategic sustainable raw materials and supply chains, Plutonic RMA finds itself right in the midst of the proposed policy measures.

How do you see the role of hydrogen in the EU’s sustainable economy?

Smart use of hydrogen can make EU economy more sustainable. The key here is to assess the energy economy as an integrated and interdependent system.

Hydrogen can be used for different purposes, for example, to produce fertilizers and certain petrochemical products. Much of the hydrogen currently used is produced from non-renewable sources, both in terms of the raw materials and the energy needed for production. The production and use of hydrogen in these areas is associated with significant emissions of greenhouse gasses. Alternatively, green hydrogen is hydrogen that is produced using renewable energy sources and raw materials. The emissions for production and use of green hydrogen should be net-zero, or at least very close to that. For the most polluting activities, such as transportation or heavy industries like the metallurgical and materials sector, hydrogen could replace the role of energy carrier and reduction agent that is now fulfilled by hydrocarbons or coal. There are some great projects and innovations in these areas.

Building vehicles with an Internal Combustion Engine (ICE) that run on hydrogen is a good step. Such hydrogen ICE does not produce carbon dioxide (CO2), although the combustion process still generates nitrogen oxide (NOx) emissions. Hydrogen fuel cells, however, do not emit CO2 or NOx and can be a greenhouse-gas-neutral solution. Another great example of decarbonization is the use of hydrogen as a reducing agent in the metallurgical industry. In simplified terms, iron metal is made from iron ore (an oxide) by bringing it into contact with a material that has an even stronger tendency to oxidize. In most cases this is carbon, resulting in liquid iron, carbon monoxide, and carbon dioxide. Nevertheless, a leading steelmaker recently made the first fossil-free steel by using hydrogen as a reducing agent. This provides perspective, but importantly, technology needs to be adapted and scaled to meet the current demand.

There are quite a few technologies under development that could abate heavy industries and transportation. I believe there is experience and a willingness from the industry and the markets to make hydrogen work. When the European institutions can set standards and support industries and education in this area, we have a good chance of decarbonizing the European economy and beyond.

Do you believe the proposed hydrogen volumes under the REPowerEU are feasible (i.e. 20 million tons of renewable hydrogen by 2030; 50% import/50% domestic production)?

“Bloody hard, but possible”, to paraphrase the European Commission’s Vice President Frans Timmermans. There are many great challenges to addressing this forced demand for hydrogen in the production, transport, storage, and use phases. Current global hydrogen demand is around 90 million tons per year. Importantly, however, the REPowerEU refers to so-called green hydrogen. Hydrogen comes in different flavors, so to say, depending on both the raw materials and the source of energy used for the process.

On the least environmental end of the spectrum, there is black, brown, and grey hydrogen, produced from fossil materials and using fossil fuel as energy source and emissions may not be captured. On the other end of the spectrum, there is green hydrogen – produced from the electrolysis of water, using renewable energy. Water molecules (H2O) consist of two hydrogen (H) atoms and one oxygen (O) atom. The hydrogen and oxygen atoms can be split into hydrogen and oxygen gas using electricity – this is called electrolysis. Hydrogen gas is called green hydrogen when it is produced from the electrolysis of water using renewable energy.

The EU-27 annual electricity production is around 2700-terawatt hour (TWh), of which about a third comes from renewable sources. At an electrolysis efficiency of 70%, the production of one ton of green hydrogen requires about 57-megawatt hour (MWh). Here, I ignore losses due to the transport and storage of both hydrogen and electricity. Producing 10 million tons domestically would require about 571 TWh of renewable energy capacity just for electrolysis. In practice, this would mean roughly doubling the current renewable energy production capacity.

Europe has about 17% of current electrolysis capacity globally, the US about 45%, and the rest is produced mostly in the Asia Pacific. The Middle East, China, as well as Australia, are increasing their renewable energy production as well as hydrogen production rapidly. Hence, there will probably be enough global capacity for Europe to be able to import 10 million tons of green hydrogen per year by 2030. The question is whether this hydrogen will be available for import into the EU. This depends greatly on how the geopolitical landscape develops over the coming decade, as we see currently with natural gas and battery metals.

How do you think we can move the hydrogen economy from niche to scale?

I agree that scaling is key to further developing the technology and experience necessary to bring down costs. In this respect, there are many lessons to be learned, both good and bad, from the recent scaling up of solar and wind energy. Europe, and in particular Germany, has had a respectable global position in photovoltaics development and production in the past despite many challenges. One of these challenges has been that production has moved to the Asia Pacific, particularly China, and costs have been driven down. This made production and development less feasible in Europe. Nonetheless, apart from environmental concerns, we must consider the supply chain security and the geopolitics that come with the territory.

Scaling up hydrogen technology is on the one hand a technical and educational issue, where we need to promote and support companies and educational institutes to expand capacity in the EU. On the other hand, this is very much a legislative and policy issue, where the European Institutions play a crucial role. To scale up, we need consistency and stability in the investment, industrial, as well as educational arenas. Nobody will invest money or dedicate their career to something that might change in two years. This is one of the things we can learn from other renewable technologies in the past. Consistent policies and a stable investment environment are crucial to long-term success.

Perhaps not a popular and flashy way of putting it, but here boring is good. The European Union and its Member States need to build trust among the industries, the markets, and the public. Trust and stability will bring down investment risk and increase the chances of this technology scaling up and contributing to our climate goals.

In terms of raw materials necessary to produce hydrogen, do you believe the EU’s ambitions are feasible?

To produce green hydrogen, we need electrolyzers and renewable energy capacity, both of which require a dramatic increase.

Many of the raw materials needed to produce green hydrogen are in limited supply in Europe or are so-called critical materials, materials that are subject to supply risk and are not easily substituted. The main types of electrolyzers are alkaline (AEL), proton membrane exchange (PEM), and solid oxide (SOEL) electrolyzers. Generally, these technologies require membranes and electrodes that are made from critical materials including platinum, palladium, iridium, nickel, and aluminum for the electrodes and graphite, titanium, and others for membranes. Furthermore, metals such as copper, aluminum, and tin are necessary for connections and the electric grid.

Besides, the technologies used to produce renewable energy including wind turbines, solar cells, hydropower, and other technologies, require a wide variety of special metals and minerals, which are often not available in sufficient amounts in Europe for the dramatic expansion in renewable energy capacity needed. Examples of these materials include silicon, tellurium, germanium, boron, indium, and gallium for photovoltaic cells. Production of wind turbines requires boron, niobium, and others. Most of the above renewable energy sources require so-called Rare Earth Elements (REEs). REEs are a group of 17 special metals and are needed to produce, for example, the permanent magnets in windmills and electric motors.

Clearly, we will need to significantly improve European control over critical raw materials supply. This means a more engaged foreign policy and collaboration with producing countries, as well as improving processing and recycling capacity and knowledge in Europe. The European Union and its Member States are currently focused on crucial areas, such as improving and promoting raw materials education, supporting renewable energy and battery companies, and investing in research, aimed to make the processing capacity in Europe more feasible. I believe this is possible in Europe. The important and challenging part will be to do all this in a fast, coordinated and aligned way.

Do you have any advice for other organizations or companies which might also see threats and/or opportunities with the EU’s ambitions for hydrogen?

I believe it is important to look at such problems and possible solutions on a systemic level. The last thing you want is to do good in one area and damage our environment, society, or economy in another area. At the same time investment risk is another concern. You do not want to invest in one area and have a problem in a few years, such as many farmers recently experienced.

Realism, collaboration, and a systemic approach. The main driver for the hydrogen economy in the EU comes from the European Green Deal and its latest addition REPowerEU. There are amazing opportunities in the hydrogen economy, and these can be realized by an integrated and multipronged approach. I believe that industry, educational institutes, and policymakers want REPowerEU to be a success. An integrated approach can be realized with strong integration between policy, industry, and education. We need to speak with each other and listen. We must keep our eyes on the greater goals – reducing the effects of climate change and sustaining a democratic and autonomous Europe.

Anyone interested in contributing to and benefiting from the hydrogen economy can engage with the R&D community and industrialization of green hydrogen. Such strong collaboration can create momentum that would be hard to generate alone. The European Institute of Innovation and Technology (EIT) provides a great set of platforms for this through a range of so-called Innovation Communities in the areas of raw materials, manufacturing, energy, and more. Other specific organizations include Hydrogen Europe, the European Clean Hydrogen Alliance, H2 Forum, and many others at European and Member State levels.

The key message is to take action and to take action together.

Is your business fit for the energy transition?

The EU’s ambition to reduce emissions and reduce dependence on fossil energy sources, especially driven by the on-going energy crisis, will impact all businesses operating in the EU but also offer opportunities for more sustainable energy consumption.

Dr2 Consultants offers tailor-made solutions to navigate the evolving policy environment at EU level and anticipate the impact of the energy transition on your organization.

For more information on Dr2 Consultants’ full range of services, do not hesitate to contact us.

About Gijsbert Wierink

Gijsbert Wierink is the founder of Plutonic RMA and has over 15 years of experience in mineral processing and recycling, innovation management, and mathematical modeling. He combines a high level of technical knowledge in raw materials processing with an analytical approach and international business experience.

Over the past decades, raw materials have become critical raw materials, requiring an understanding of both the benefits and risks of working with such materials. Through his knowledge, Gijsbert advices organizations on the potential benefits and risks, helping them create a strategy that gives them control over their objectives. 

European Cyber Resilience Act: can new requirements for products strengthen your organization’s cybersecurity resilience?

On 15 September, the European Commission published a Cyber Resilience Act (CRA), which aims at setting common cybersecurity standards for connected devices and services. The European Union has long been taking action against cybercrime. Following up on its path to the digital decade to deliver on the EU’s digital transformation by 2030, this regulation seeks to protect consumers and the market from cyber incidents. Being a package of rules that should embed digital security in Europe, it also includes two guidelines: one on networks and information systems (NIS), which aims to improve Member States’ cybersecurity capabilities and encourages information sharing while the other one being the Cybersecurity Act, which entered into force in 2021 and defines the tasks of European cyber watchdog, ENISA. 

With this blog post, Dr2 Consultants is happy to provide an overview of the main implications and opportunities for European businesses, focusing on: 

  • The objectives of the legislation. 
  • The implications for providers of digital products and connected services. 

Read our summary below and if you want to have an in-depth view of the content of the proposal, you can check here our detailed analysis.

What’s the objective of the European Cyber Resilience Act?

As different economic sectors have become more dependent on digital technologies in executing their businesses, the opportunities that digital connectivity brings also expose economies to cyber threats. The amount, complexity, scale, and impact of cybersecurity events are also growing. When everything is connected, a cybersecurity incident can affect an entire system, disrupting many economic and social activities. The Cyber Resilience Act introduces rules to protect digital products that are not covered by any previous regulation. This way, it will be the first (‘the Internet of Things or IoT) legislation in the world. 

First communicated by European Commission President Ursula von der Leyen in her State of the Union Address in September 2021, the Cyber Resilience Act seeks to establish common cybersecurity rules for digital products and associated services that are placed on the EU market. Von der Leyen emphasized the growing importance of cybersecurity and called on Europe to properly address cyber threats and to become a leader in cyber defence. “With the economy and society relying more and more on digital solutions, it is crucial to ensure that we can defend ourselves in a world increasingly prone to the hacking of connected products and associated services”, she stated. Also, Commissioner for the Internal Market, Thierry Breton, specified his expectation for this initiative. He wished to increase Europe’s cyber defence capabilities by including defence requirements in the legislation. 

What implications will the European Cyber Resilience Act have for your business?

Dr2 Consultants has identified a number of essential requirements for hardware manufacturers, software developers, distributors and importers who place digital products or services on the EU market. The requirements proposed include: an ‘appropriate’ level of cybersecurity, the prohibition to sell products with any known vulnerability, security by default configuration, protection from unauthorised access, limitation of attack surfaces, and minimisation of incident impact. 

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Furthermore, two categories for critical products are listed: 

  1. The first category includes browsers, password managers, antiviruses, firewalls, virtual private networks (VPNs), network management, systems, physical network interfaces, routers, and chips used for entities falling under the NIS2.  Moreover, it also includes all operating systems, microprocessors and industrial IoT not covered in class II.
  2. The second category includes higher-risk products such as desktop and mobile devices, virtualised operating systems, digital certificate issuers, general purpose microprocessors, card readers, robotic sensors, smart meters and all IoT, routers and firewalls for industrial use.  

The main difference between the two categories is the compliance process. Moreover, the commission asks manufacturers to perform regular tests to identify vulnerabilities in their products. Lastly, Member States would also have to put in place market surveillance bodies. The penalties for non-complying with the requirements can amount to €15 million or 2.5% of the annual turnover. 

Stakeholder reactions

In H1 2022, the Commission launched a public consultation and call for evidence on the Cyber Resilience Act open until 25 May 2022. The first overall reactions from the industry and other stakeholders to this initiative were positive. Consumers expect the products they purchase to be safe and secure. Hence, creating greater awareness of the importance of these security requirements in products will result in customers considering key security criteria when making purchasing decisions.  

However, to avoid confusion, the industry also warned that the legislation should encompass a clear definition, considering differences in the development, functionality, and use of digital products. Different sectors also ask the Commission that it should consider existing vertical legislation for specific sectors and/or product groups. Adding essential cybersecurity requirements risks excluding SMEs from the market. Businesses also need to know exactly what kind of technical specifications they must comply with to ensure adherence to CRA obligations. For instance, app developers warn of the extra costs in maintaining a cyber-resilient environment for the benefit of consumers. They prefer guidelines or recommendations. 

Next steps

A new call for feedback on the proposed legislation is open until 15 November. In the meantime, it is not yet known which European Parliament’s committee will lead this file. However, either the Internal Market and Consumer Protection Committee (IMCO) or the Industry, Research and Energy Committee (ITRE) are expected to be asked to take the lead. While, for the Council of the EU, EU ministers will meet to discuss the file for the first time on 6 December.  

Dr2 Consultants will follow the legislative developments very closely, and thanks to its expertise and wide range of clients in the digital sector, Dr2 Consultants is expertly placed to assist your company in identifying the impact of and leveraging the opportunities offered by the Cyber Resilience Act. 

Would you like to know more about how your organization can make the most out of this regulation? Subscribe to Dr2 Consultants’ newly launched service for EU data-related policies or get in touch with our Managing Partner Jasper Nagtegaal. 

European Data Act: a harmonized framework for accessing and sharing data

On 23 February 2022, the European Commission published the long-awaited “Data Act”, which is a proposal for regulation to establish a harmonized framework for industrial, non-personal data sharing in the European Union.

The European Data Act will make more data available for use and will set up rules on who can use and access what data, for which purposes across all economic sectors in the EU. According to the Commission, the new rules are expected to create €270 billion of additional GDP by 2028.

In concrete terms, the Commission proposes:

  1. Improved access to private sector data for the public sector (B2G);
  2. Fairness of data access and use in business relationships (B2B);
  3. New rules allowing customers to effectively switch between different cloud data-processing services providers.

The EU inter-institutional negotiation: plenty of changes on the plate

The inter-institutional negotiations within the Council of the EU and the European Parliament already started in the past weeks.

As far as the European Parliament is concerned, it endorsed the allocation of competences between its committees on 30 June, after more than four months of internal discussions and bounces. In the final shape, the competences have been attributed as follows:

  • MEP Pilar del Castillo Vera (EPP, ES) in the Industry, Research and Energy (ITRE) Committee is in charge of drafting a report,
  • Adam Bielan (ECR, PL) in the Internal Market and Consumer Protection (IMCO) Committee has shared competences on the entire file, plus exclusive competences on Articles 23, 24, 25 and 26, as well as Recitals 70 until 76,
  • Sergey Lagodinsky (Greens, DE) in the Civil Liberties, Justice and Home Affairs (LIBE) Committee has shared competences on the entire file, plus exclusive competence on Articles 4(3), 4(6), 5(5), 5(8), 8(6), 17(2)(c), 27(3) sub-paragraph 2, 35 and 37, as well as the last sentence of Recital 63 and Recital 84,
  • and Ibán García del Blanco (S&D, ES) in the Legal Affairs (JURI) Committee has exclusive competences on Articles 1(3), 1(4), 4(5), 5(6), 5(7), 5(9), 6(1) (only on the caveat for the protection of personal data), 6(2b), 16(2), 18(5), 19(1b), 31(2a), 32(3) (only on specific cooperation mechanism of the GDPR), 33(3) and 33(4). The committee also shared competences on Articles 1-6, 8-12, 14-19 and 31-32.

Member States on the other side move much faster. Already in mid-July, the Czech Presidency of the Council of the EU tabled a partial draft compromise for discussion within the Council’s Telecommunications and Information Society Working Party of 19 July. During the debates, the scope of the European Data Act was under examination, with for example proposals to delete the mention of “moveable” products, apply the regulation only to a specific list of products, or focus on the types of data generated rather than the type of devices. Restrictions for gatekeepers were also discussed, as well as a reduction of the SME exemptions, and the obligations to make data generated by products more accessible. A second partial compromise text is expected to be discussed on 5 September.

Stakeholder reactions

Because the proposal is a horizontal legislation impacting different sectors, many stakeholders have been attempting to influence the legislative process and contribute with their views. While some organizations welcomed the text and proposed to expand the data access rights to more users, others warned that the regulation lacks horizontal specifications and common methodologies for data sharing. As evidenced during the Breakfast webinars (I, II and III) organized by Dr2 Consultants together with policymakers and testimonials from the transport and sustainability sectors, the obligation to share data might actually end up in a loss of competitiveness for the European industry, leading to unintended consequences.

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Next steps

The European Parliament’s committees kickstarted discussions in the second week of September, and on 19 September the ITRE committee had already published its draft report. In a nutshell, the report focuses on broadening the exemptions from small to medium-sized enterprises and ensuring interoperability of cloud switching. However, the other committees still haven’t published their draft opinion.

Amendments to the draft report of the lead ITRE Committee can be tabled until 28 October. However, given the diverging stakeholder reactions and the options tabled within the Council working parties, the draft text is still a malleable piece of legislation, potentially prone to plenty of changes. The Data Act is not expected to be finalized before the end of 2022.

What’s the objective of the European Data Act?

Complementing the Data Governance Act, which aimed to increase trust and facilitate data sharing across the EU and between sectors, the Data Act’s core objective is to put users and providers – large and small – on more equal footing in terms of access to data. Concretely, Dr2 Consultants expects every actor that contributes to the generation of data should be able to access said data. This means that users will get standard access to the generated data on any of their integrated tools. These could be virtual assistants, connected home appliances and so forth. The data should be easily and freely accessible and shareable with third parties.

The proposal is based on the results of an open public consultation carried out by the European Commission in 2021, which showed that an EU action is needed on business-to-government (B2G) data sharing for the public interest, especially for emergencies and crisis management, prevention and resilience. For the past three months, the Commission has been working to address certain concerns regarding the necessary legal clarity to B2G data sharing. In the proposal, the Commission appears to have tried to limit mandatory B2G data sharing to cases in which an ‘exceptional need’ exists.

What implications will the European Data Act have for your business?

A piece of horizontal legislation, the Data Act will apply to device manufacturers, providers of digital services and connected products (such as ‘the Internet of Things or IoT) as well as public authorities in the EU. Dr2 Consultants advises businesses to pay close attention to the developments in the coming months.

The proposed legislation mandates data sharing requirements to allow data sharing among businesses, public authorities and users. SMEs are exempted from these obligations, but overall the requirements imply that the European Commission has opted for a one-size-fits-all solution that compels all businesses to adapt.

Certain limits will be put in place to guarantee that third party access to shared data remains safe and harmless to the parties involved. This entails agreed upon measures to protect confidentiality, privacy and trade secrets as well as restrictions of the use of the data by market competitors of the data holder.

Neither data holders nor third parties will be allowed to influence or prevent the user’s data sharing behaviour in any coercive, manipulative or technical way. Only micro and small companies will be excluded from these strict guidelines if they’re independent from other companies.

In particular, providers with a significant position in the market will be labelled as gatekeepers within the market. Such actors will be subject to more specific restrictions, as third parties are not allowed to share data with these gatekeepers, nor are gatekeepers allowed to request access to these data.

Specific attention goes out to the risk of non-EU countries gaining access to data. The European Data Act goes beyond current restrictions regarding the transfer of personal data outside the EU by extending such restrictions to non-personal data. Only when an international agreement is in place will court orders from third countries be adhered to. This is relevant keeping in mind the ongoing efforts of the US and the EU to reach such an agreement.

Furthermore, the draft sets out provisions to ensure interoperability and cloud switching and safeguards for international data transfers. The previous SWIPO initiative for cloud-switching was deemed insufficient for this purpose as the Commission now opts for binding measures. The goal will be functional equivalence when moving software to another cloud platform. This means required compatibility of interfaces and platforms with all other services. Proper interoperability is essential for fair competition to function in the digital data market. To realistically strive for interoperability, a degree of harmonized standards among cloud services will be necessary. European standardisation organisations will be approached for this purpose, possibly accompanied with a mandatory implementing act if necessary.

What does the European Data Act mean for you?

Because of the targets of the proposed regulation, which range from service providers and gatekeepers to device manufacturers, companies and public authorities, the Data Act will have implications of data sharing, interoperability standards and cloud switching for many industries and sectors of the society.

Dr2 Consultants closely follows legislative developments regarding the Data Act and other data-related policy issues. Thanks to its expertise and wide range of clients in the digital sector, Dr2 Consultants is expertly placed to assist your company in identifying the impact of and leveraging the opportunities offered by the Data Act.

Would you like to know more about how your organization can make the most out of the data regulation? Subscribe to Dr2 Consultants’ newly launched service for EU data-related policies, or get in touch with our Managing Partner Jasper Nagtegaal.

 

Public Affairs in an economic downturn: how to recession-proof your Public Affairs activities

Crisis preparedness and management are essential parts of a successful Public Affairs strategy. Whether it is a pandemic, global conflict or economic downturn, being adaptable and flexible is a must. As companies and organizations eye a potential recession, what can you do to prepare your Public Affairs activities for an economic downturn?

Cutting costs is among the first things managements decide about when the economic outlook becomes worrying and Public Affairs tend to be among the most vulnerable functionalities of organizations that become victims of downsizing. However, a well-functioning Public Affairs department is critical when bracing for an economic downturn to ensure your company can withstand a recession. Staying in the frontline of EU policymaking allow organizations to better position themselves and be ahead of the crowd, be prepared for new legislation and benefit from new opportunities.

New challenges for Public Affairs

The recent example of the COVID-19 pandemic showed that those companies who remained visible and active in Brussels despite the insecurities and the strict working from home policies benefited the most from the changing legislative landscape as they managed to stay connected and maintain their access to key policymakers (e.g. successfully conveying messaging on keeping borders open for goods, review of state aid rules for companies that were hit by the pandemic). 

Recession-proofing is all about being as efficient and streamlined as possible: one way to achieve this is to consolidate and visualize the upcoming policy and market trends that impact your organization, map stakeholders and track engagements. Creating and maintaining an online repository for your co-workers where you can keep track of your activities can create a culture of seamless collaboration and transparency. Doing this will drive alignment and improve institutional knowledge as well as make your Public Affairs activities relevant and visible towards your management. 

More than ever, during an economic downturn it is vital to be aware of potential risks and threats that can be detrimental to your organization. Tracking key legislation can be a challenge for any company, so it is important to arm yourself with solutions that meet your needs, power your decisions and evolve with your priorities. 

What to expect from the EU? 

As the EU is bracing for the biggest economic recession of the past decades, the EU institutions are working hard to coordinate measures in view of mitigating its impact. It is yet unclear what extent and how long the downturn will last but learning from previous crises, the EU will use the momentum to build upon a more sustainable and energy-efficient and -independent policy for the EU27. Therefore, we can expect that in the wake of the crisis, the European Parliamentary elections of 2024 as well as the policy agenda of the new European Commission will further embrace the twin priorities (sustainability and digitalization) of the Von der Leyen Commission and taxonomy will be also in the heart of the new institutional work programme. 

Therefore, in order to stay up-to-date, remain relevant and able to influence policy making in the months ahead, continuous investment in Public Affairs and presence in Brussels is a key for success. Dr2 Consultants has already helped companies to effectively streamline their activities during the COVID-19 pandemic. Reach out to us if you want to learn more about our track record and approach of providing efficient Public Affairs support. 

This is an opinion article by Viktoria Vajnai, Managing Partner Dr2 Consultants 

Digital Services Act

Digital Services Act proposal: the start of a new era in digital regulation

On 5 July, the plenary session of the European Parliament approved the inter-institutional agreement with the Council of the EU on the Digital Services Act (DSA). The DSA has the goal to create a comprehensive set of new rules for all digital services, including social media, online marketplaces, and other online platforms that operate in the European Union, and it introduces new binding, harmonized, EU-wide obligations which will have a significant impact on a wide range of digital services that connect consumers to goods, services and content.

The inter-institutional agreement establishes the principles of what should be illegal offline, should also be illegal online, which results in certain new obligations for providers of digital services and online platforms. The obligations include new measures to prevent illegal content and to increase traceability and accountability of traders on online marketplaces. To further enable correct practices measures for more transparency of platforms with regards to their content moderation and algorithms will be introduced, as well as bans on misleading practicing and dark patterns.

With this blog post, Dr2 Consultants aims to shed light on some of the main provisions of the Digital Services Act and their subsequent impact on businesses.

What implications could the Digital Services Act proposal have for your organization?

The rules proposed by the DSA are designed asymmetrically: On the one hand, SMEs will have obligations proportionate to their ability and their role, size and impact in the online ecosystem while ensuring they remain accountable. On the other hand, very large online platforms that reach more than 10% of the EU’s population (45 million users) monthly in average will be considered systemic in nature and with a significant societal impact, hence, they will be subject to specific and stricter obligations.

The DSA will target the intermediary services offering network infrastructure (such as internet access providers and domain name registrars), hosting services (like cloud and webhosting services), and online platforms (such as online marketplaces, app stores, collaborative economy platforms and social media platforms).

Numerous businesses affected by the new rules

Dr2 Consultants identifies some of the main issues that could impact businesses. All online intermediaries offering their services in the EU Single Market, regardless whether they are established in the EU or outside, will have to comply with the new rules and they will have obligations in terms of transparency, fundamental rights protection, and cooperation with national authorities.

The inclusion of the requirement for non-EU companies to have a legal representative in the EU, while being burdensome for such companies, has so far been accepted positively by European players as it would ensure a level playing field within the Single Market. Relating to the fines for the violation of rules, the issue has been raised that the threat of significant fines for non-compliance might lead to preventive removal of content, which might otherwise be considered legal, putting companies in the uncomfortable position of risking fines under the Digital Services Act or being criticized for violating freedom of expression by censorship. Furthermore, there have been concerns among media stakeholders that the DSA could harm media freedom and pluralism, and therefore called for obligation of non-interference preventing platforms from jeopardizing the freedom of the press.

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Information society services, which offer a wide range of services such as search engines, cloud services and other platforms would be likewise impacted by the new rules. Specifically, search engines have been included in the scope by the Member States’ position as well as opinions issued by the European Parliament’s committees (namely ITRE and JURI).

Stricter rules for very large online platforms

More stringent obligations will apply on the largest platforms with more than 45 million monthly users: these include risk preventing measures, independent audits and more control for their users over moderation settings. Furthermore, the biggest platforms will be forced to provide greater transparency on online advertisements. Dr2 Consultants expects these extra obligations will require additional resources and raise a question about the legislative coherence between the Digital Services Act on the one hand, and provisions in for instance the recently published European Democracy Action Plan on the other hand.

Finally, gig economy companies, such as well-known travel accommodation websites, would experience significant changes as the extra requirements against illegal content and the provision of information on users would allow local authorities to require the removal of unregistered properties and receive information on hosts with outstanding tax obligations. Big European cities such as Amsterdam, Berlin and Paris adopted rules against said platforms and the Digital Services Act would allow them to enforce them.

Mixed response from stakeholders

Dr2 Consultants acknowledges that industry stakeholders’ responses to the proposal are rather mixed. On the one hand, several representatives from the industry stressed the risk that the DSA could lead to overregulation as some of the issues introduced by the proposed amendments could be already addressed taking into account the existing EU legislation (e.g., ePrivacy Directive and General Data Protection Regulation). Moreover, they highlighted the need for workable provisions and ensure a balanced legal framework. On the other hand, consumer protection groups called for further and stricter obligations for platforms, namely on the liability regime and the use of personal data for direct marketing (targeted advertising).

Next steps for the Digital Services Act

The Council is expected to formally approve the agreement in September, following this the DSA will enter into force six months after publication in the Official Journal of the EU. As the DSA is a regulation, it will apply directly in the EU Member States.

Dr2 Consultants continuously monitors the developments of the discussion on the new rules for digital services and supports its clients on these matters accordingly. If you would like to know more about this regulation or the overall legislation that the Commission will publish on the digital policy, please contact Dr2 Consultants, or visit our Digital & Tech webpage to learn more about our services.

You might also be interested in:

Data Governance Act: main elements and business implications

Tax initiatives on the digitalisation of the economy and their implications for businesses

Sustainability in the product’s introduction to market

PART II
This article is part of a series of articles on sustainability in the lifecycle of a product

Getting your product into your customers’ hands

The EU has the ambition of transitioning to a truly sustainable economy and becoming carbon neutral by 2050. Starting with the publication of the European Green Deal in 2019, the EU is adopting environmental, climate and energy legislation with a wide-ranging scope, which will impact European and international companies’ entire chain of activities, both in terms of challenges and opportunities.

In a series of articles, Dr2 Consultants is analysing the impact of EU policies on four key areas of companies’ operations: the product (pre-)development, the introduction to the market, the end-of-life, and strategy and reporting. Building on the first article on the products’ (pre)development, this article focuses on sustainability in product distribution (packaging, waste, labels, and logistical activities).

Thanks to our partner Hezelburcht, this article also offers an insight into relevant EU funding opportunities for (groups of) companies in the described areas of activities.

Designing sustainable packaging to reduce waste

The EU has been trying to reduce its packaging waste since the introduction of the Packaging and Packaging Waste Directive (PPWD) in 1994. Despite the rules for packaging waste prevention and management set by the PPWD, packaging waste per inhabitants in Europe continues to increase (in 2019, EU inhabitants generated approximately 178.1 kg of packaging waste, less than half of which was recycled. This has led the Commission to launch a revision of the PPWD. Mainly, it intends to upgrade the Directive into a Regulation directly applicable in Member States, ensuring unified packaging requirements across Member States. The proposal is expected in November 2022.

Through the revision, the Commission aims at further strengthening the sustainability of packaging and reducing packaging waste through the increase of recycling targets, the creation of binding reuse targets and the establishment of recycled plastic content targets for plastic packaging. Most importantly, the Commission aims at making mandatory that all packaging on the EU market be recyclable or reusable by 2030, getting rid of all single-use packaging.

Packaging is a key aspect of the introduction of the product on the market. The legislative framework for packaging is about to drastically change, setting stricter conditions for companies on how they package their products, promoting sustainability. Companies will have to adapt their supply chains to fit these requirements.

Moreover, EU citizens are increasingly concerned with the environmental footprint of their consumption habits, and packaging is one of the main aspects taken into consideration when purchasing consumer goods. The past years have seen an increase in consumption of more sustainable packaging, such as glass or steel packaging, against plastic packaging, but also a higher interest for packaging-less options, such as bulk buying. Companies can leverage this consumer interest and distinguish themselves from competitors by addressing packaging in their sustainability strategy.

Relevant EU funding instruments

The EU grant program LIFE – focusing on environment and climate actions – offers opportunities for projects in the field of circular economy or waste (management). LIFE projects are pilots, demonstrations or best practices of at least €1 million. LIFE calls open on a yearly basis, usually in the period April-May. The LIFE call 2022 is already open with a deadline set for deadline 4 October 2022.

The polluter pays

To encourage more sustainable packaging and reduce overall environmental impact, the European Commission is leveraging the “polluter pays” principle, which requires polluters to bear the environmental and social cost of their activities or products, rather than the wider society. This should incentivize polluters to avoid environmental damage by holding them accountable.

The 2018 PPWD introduced the polluter-pays principle with regards to packaging waste, creating a mandatory Extended Producer Responsibility for all packaging by 2024. As such, the responsibility for the financing of collection, recycling and end-of-life disposal is put on producers. To encourage the design and use of packaging that is increasingly sustainable, the financial participation is to be modulated by Member States in accordance with the  “waste hierarchy” defined in the Waste Framework Directive, which informs all packaging legislation. The waste hierarchy classifies the ways to manage waste, from the most to least sustainable: waste prevention, reuse, recycling, recovery. Disposal of the packaging should only be a last resort.

The Waste Framework Directive is currently also being revised by the Commission, and will focus on reducing waste generation through reuse of products and components and improving separate collection to avoid mixed waste, facilitating recycling or reuse.

The principle of the polluter pays is an important incentive for companies to improve the sustainability of the packaging before putting their products on the market to avoid extra costs. However, opportunities can be found in revision of key waste legislation, which will make it easier to implement reuse or recycling on packaging.

Promoting sustainability on the shelf

Another key aspect of introducing a product on the market is to create consumer interest. With consumers being concerned more and more by the environmental impact of their purchases, companies are increasingly using sustainability labels or claims on the packaging of their products or in adverts as marketing tools to attract consumers.

However, due to the plethora of existing, and more or less regulated, environmental labels in the EU and worldwide, both consumers and companies can experience difficulties in determining the reliability of a label. Additionally, environmental claims are not regulated at EU level, leading to different frameworks between Member States.

In response to greenwashing, whereby companies give an exaggerated impression of the sustainability of their products or activities, the European Commission decided to introduce an obligation for companies to substantiate these claims or justify the use of certain logos through a standardized methodology. Certain misleading claims could also be forbidden. The proposal for a Regulation on substantiating environmental claims is due to be presented in November 2022.

By making the most sustainable option more easily identifiable through this proposal, the Commission notably aims at incentivizing companies to truly enhance their environmental performance if they are to safeguard a competitive edge in a market increasingly driven by sustainability considerations. Companies will also have to take this parameter in consideration in their overall strategies, including in their marketing strategy.

Reducing CO2 emissions in distribution processes

Once a product is packaged and ready to enter the market, it must be distributed. Logistics, especially the transport of products, will be impacted by the new rules to limit emissions and boost the energy transition presented in July 2021 as part of the Fit for 55 package, another key building block of the European Green Deal. Notably, emissions from the transport sector are to be included in the EU Emissions Trading System, potentially as of 2026 for commercial vehicles. This means that companies will have to purchase carbon allowances to account for the emissions of their transport activities, increasing costs.

However, the new energy and climate legislation presented in the package will provide opportunities for companies to more easily reduce the environmental impact of their logistics operations. The revisions of the CO2 emission standards for cars and vans and of the CO2 standards for heavy-duty vehicles will decrease the amount of CO2 that newly commercialized vehicles can emit, making gradually available more and more zero-emissions vehicles. The revisions of the Renewable Energy Directive, Alternative Fuels Infrastructure Regulation and Energy Taxation Directive, by increasing the availability of renewable energies and lowering their costs, and by boosting the coverage in charging and sustainable fuel refilling stations across the EU, will also make it easier and cheaper to rely on sustainably powered transport modes.

Maritime transport is also due to improve its environmental impact, with the FuelEU Maritime legislation aiming to make the uptake of sustainable maritime fuels gradually mandatory.

In general, the EU heavily supports the uptake of new mobility solutions, especially building on the digital transition, as outlined the Smart and Sustainable Mobility Strategy. The Commission encourages the use of innovative technologies such as artificial intelligence, but also data collection and data sharing, to enhance logistical efficiency. Funding opportunities are available for companies developing projects, for example on multimodal mobility or on solutions to green the last mile, under EU funding instruments such as the Connecting Europe Facility or Horizon Europe.

Companies will therefore have to consider the environmental impact of their distribution activities, which often represent a large share of a business’ emissions. However, for companies looking to improve the sustainability of their logistics operations, many opportunities will arise from the new legislation.

Relevant EU funding instruments

There are several EU grant programs aimed at making transport more sustainable. One of these is the LIFE program mentioned earlier. Another example is Interreg (such as North Sea Region (NSR)), which offers opportunities for pilot projects in the field of zero emission mobility. Within Interreg, parties from several countries – within the respective program area – are expected to test a certain solution. The 2nd Interreg NSR call of 2022 will be opened on 1 August.

In addition, CEF Transport focuses on further improving the TEN-T (Trans-European Transport Network) and making it more sustainable. CEF Transport is a is a large EU grant program with various priorities (such as improving cross-border rail connections and increasing the modal shift within ports: shifting transport of goods from road to water and/or rail). Within this EU program, a call is opened every year; the CEF Transport call 2022 will be opened in September.

Within CEF Transport there is a separate part: AFIF (Alternative Fuels & Infrastructure Facility). AFIF focuses on the rollout of the infrastructure needed for alternative fuels – including hydrogen – within Europe (note: vehicles and vessels are eligible to a limited extent). In contrast to the regular annual CEF Transport call, AFIF concerns a combination of a CEF Transport grant and a loan (which may involve a loan from the EIB). In addition, AFIF is a rolling call with several ‘cut-off dates’ / deadlines, namely: 10 November 2022, 13 April 2023 and 19 September 2023.

Furthermore, Horizon Europe provides grant opportunities for R&D projects (including in certain cases demonstrating the outcome of research). A number of Horizon Europe calls are currently open in the area of mobility (deadline: 6 September 2022). In the period 2023-2024, several calls will again be opened concerning clean solutions for all modes of transport.

Conclusion

The new European environmental rules will have strong implications on introduction to market of products, setting a trend for more sustainable choice of packaging, restricting labelling and environmental claims, and promoting logistical activities that are environmentally friendly and respectful of human rights. Companies can leverage the EU’s twin (green and digital) transition to a zero-carbon, zero-waste economy to become a front runner in terms of sustainability.

While touched upon briefly, the next article of the “Sustainability in the lifecycle of a product” series will explore the relevant legislation impacting the product end-of life.

Curious about how EU environmental legislation applies to your company’s activities? Dr2 Consultants’ European Green Deal Impact Scan and Sustainability Consulting provide you with a comprehensive overview of how EU legislation will affect your business, identifying the opportunities and challenges and highlighting how your company’s strategic goals could be updated. Want to know more? Don’t hesitate to contact us!

Similarly, are you eager to exploit funding opportunities at EU level linked to the activities described in this article? Then do not hesitate to reach out to our partner, grant consultancy Hezelburcht!

Read also:

PART I: Sustainability in product (pre-)development

REPowerEU: A boost for the European energy transition

This week marks a major development in the path towards an independent EU energy market. Through the REPowerEU plan, published on 18 May (an outline of which was published on 8 March), the European Commission highlights an urgent need to reduce the EU’s reliance on Russian fossil fuels, especially on natural gas imports. But how does this plan concretely foresee to reduce dependence, ensure strategic autonomy of the EU in the field of energy and how will it accelerate the clean energy transition? In this article, Dr2 Consultants presents the main takeaways of the REPowerEU plan.

The EU’s recipe for a green transition

In 2021, the European Commission proposed a package of measures to tackle the transition to more sustainable energy systems by means of the “Fit for 55” package. If all proposals as part of the package would be implemented, annual fossil gas consumption could be reduced by 30%, equivalent to 100 billion cubic meters (bcm), by 2030. However, in view of the invasion of Russia into Ukraine and the subsequent energy crisis, the REPowerEU Plan aims to accelerate this process.

The REPowerEU plan is based on three main elements:

  1. Saving more energy (and thus reducing energy dependency) through the promotion of energy efficiency;
  2. Diversifying energy supply (seeking new markets for imports), in order to reduce dependency on Russian energy;
  3. Substituting fossil fuels through the acceleration of Europe’s clean energy transition (combining investments and reforms).

Energy savings

Together with the REPowerEU plan, the Commission presents an EU Save Energy Communication. The new plan builds on the Fit for 55 proposals from July 2021 and calls for their speedy adoption. Among others, the European Commission proposes a legal amendment to raise the targets as put forward in the Energy Efficiency Directive – a revision that is part of the Fit for 55 package and currently under revision –  from 9% in the current proposal to 13%. On heat pumps, the EU wants to double the current deployment rate, resulting in a cumulative 10 million units over the next five years. Moreover, Member States are encouraged to come with measures such as reduced VAT rates for high efficiency heating systems and for insulation in buildings, as well as other energy pricing measures, which encourage switching to heat pumps and the purchase of more efficient appliances.

Accelerating clean energy transition

The REPowerEU plan recommends replacing fossil fuels, such as natural gas with renewable fuels from both biological as well as non-biological origin in the near future. By accelerating the transition towards and increasing the uptake of fuels such as hydrogen and biomethane, Europe can replace fossil imports by renewables at a faster pace than foreseen. The Commission will finalize the proposed regulatory framework for hydrogen and will soon publish two new draft legal acts to define and boost the production and market development of renewable hydrogen within Europe. On biomethane, the Commission is proposing an action plan to achieve 35 billion cubic meters (bcm) of annual biomethane production by 2030. The Commission wants to address the main barriers to increasing the production and use of biomethane. Taking away these barriers will make it easier to facilitate its integration into the EU gas market.

Fit for 55 services

Furthermore, REPowerEU urges for much more action on deploying renewable energy and related smart energy technologies, such as heat pumps and hydrogen electrolyzers. It puts forward an increase to the Renewable Energy Directive target – a revision that is part of the Fit for 55 package – from 40% to 45% by 2030, equivalent to 1236GW of installed renewables capacity, a significant step up from the 1067GW targeted in the original proposal for a revision.

Lastly, REPowerEU also includes a strategy for solar energy to make it an important part of the EU’s energy and heating systems. This proposes a target of over 320 GW of newly installed solar photovoltaic capacity by 2025, and almost 600 GW by 2030. The European Commission introduces a solar rooftop obligation for commercial and public buildings by 2026 and for new residential buildings by 2029. Moreover, an EU large-scale skills partnership to develop the necessary skilled workforce to produce, install and maintain these panels and an EU Solar Industry Alliance to support the EU industry in expanding the domestic production of photovoltaic panels.

In the new detailed plan, the Commission encourages Member States to identify the most suitable projects for renewables where permitting would be shortened and simplified. Normal renewable energy licensing procedures usually take years, meaning a significant acceleration of the rollout of renewable energy projects in the years to come.

Diversifying energy supply

Similar to the vaccine purchase schemes during the COVID-19 pandemic, the Commission would like to negotiate (gas) purchasing agreements on behalf of the whole EU through a ‘joint purchasing mechanism’, as part of the EU External Energy Strategy. The vehicle currently used for purchasing agreements is the EU Energy Platform, a voluntary mechanism used to pool demand, and to coordinate the use of the import, storage and transmission infrastructure. By negotiating in this way, the Commission wants to secure more reliable suppliers of gas and hydrogen, build long term partnerships, and thanks to the collective purchasing power of all Member States strike better deals (including cooperation on hydrogen and other green technologies).

As part of the REPowerEU communication on 23 March 2022, the Commission adopted a legislative proposal for obligatory gas storage rules. The proposed rules include the obligation for Member States to fill all gas storage sites to at least 80% by November 2022 (and 90% in subsequent years), new mandatory certification for storage system operators and a 100% transmission tariff discount for gas storage facilities. The file is currently being negotiated by the co-legislators under an urgent procedure, so that it can take effect from Summer 2022.

With regards to the European embargo on Russian oil products, as announced by the Commission as part of its sixth sanction package, an agreement among the Member States has not yet been reached. The introduction of REPowerEU should help the Member states to transition away from Russian oil products, but the negotiations are reported to be at a standstill. The decision on a potential embargo is likely to be taken at the highest political level during a Special meeting of the European Council on 30 and 31 May.

What to expect next?

The REPowerEU plan is a landmark publication with far-stretching impact on various industries, and is expected to guide reforms and investments in the years up to 2030. In order to replace Russian fossil fuels and diversify the EU’s energy mix, the Commission is increasing the targets for the production and import of energy carriers such as renewable hydrogen, biomethane and LNG significantly. Additionally, the plan proposes to significantly shake up the investment landscape, e.g. by repurposing the Recovery and Resilience Facility and easing permitting procedures. It is expected that this mix of measures will strengthen the business case of projects in the energy transition and will provide guarantees to investors.

Moreover, with its dedicated External Energy Strategy, the Commission rightfully acknowledges the need for strong partnerships with other continents across the globe to diversify its energy supplies. It is expected that new platforms such as EU Energy Platform and the Mediterranean Green Hydrogen Partnership will play a key role in setting a clear regulatory framework to accommodate global trade flows and harmonize standards between continents.

Furthermore, the revised targets within some of the (already controversial) Fit for 55 files, such as the Renewable Energy Directive, are expected to be subject to intense negotiations among the co-legislators. Whilst there is general consensus on the objectives of the REPowerEU plan – diversify energy sources and stimulate the transition towards renewable energy sources – policymakers disagree on the measures necessary to realize these objectives.

Want to know more about these latest developments and how they impact your organization? Please get in touch with us via our website. We also invite you to stay up to date via Dr2 Consultants’ weekly Fit for 55 policy updates (read the latest update here and subscribe here).

Sustainability in product (pre-)development

PART I
This article is part of a series of articles on sustainability in the lifecycle of a product

 

The beginning of life: product (pre-)development

The EU has the ambition of transitioning to a truly sustainable economy and becoming carbon neutral by 2050. Starting with the publication of the European Green Deal in 2019, the EU is adopting environmental, climate and energy legislation with a wide-ranging scope, which will impact European and international companies’ entire chain of activities, both in terms of risks and opportunities. In a series of articles, Dr2 Consultants will analyze the impact of EU policies on four key areas of companies’ operations: the product (pre-)development, the introduction to market, the end-of-life, and strategy and reporting. In this first part, we will dive into sustainability in product (pre-)development (conception, design, sourcing and production).

Designing sustainable products

One of the key building blocks of the European Green Deal is the Circular Economy Action Plan (CEAP), adopted in March 2020. The CEAP aims at reducing the pressure on natural resources by making sustainable products the norm, reducing waste and developing new low-emissions technologies and services. The key to ensuring circularity of the economy is to have products that are meant to be durable, reusable, repairable and recyclable. To that end, the European Commission presented on 30 March a proposal on the Ecodesign for Sustainable Products Regulation (ESPR), previously called the Sustainable Products Initiative.

The ESPR will be key for delivering on the ambitions of the Green Deal and ensuring that all products put on the EU market are sustainable. The regulation extends the existing Ecodesign Directive, which sets certain design requirements for the sustainability of energy-related products (e.g. washing machines) to all physical goods (except from feed, food and medicines). Under the ESPR, ecodesign requirements will be set for specific product groups to improve their circularity, energy performance and information provided to consumers.

Categories of products will be targeted in several waves, with the first workplan to be defined at the end of the year. The European Commission will open public consultations to determine which categories should first be addressed, but on the long-term, all products are planned to be included in the scope. The Commission has already announced it considers textiles, furniture, mattresses, tires, detergents, paints, lubricants, as well as intermediate products like iron, steel and aluminum to have high environmental impact and strong potential for improvement and may thus be suitable candidates for the first workplan of ESPR.

Sustainability requirements laid out by the ESPR will need to be taken into account in the entire product (pre-)development phase: from the moment the concept of the product is developed, and then during the product’s design phase. Indeed, they include performance requirements for products such as durability, reusability, recyclability and repairability of the product, but will also prohibit use of substances that inhibit circularity as well as set some minimum targets for inclusion of recycled content.  

Making companies accountable

The ESPR also plans for the sustainability and environmental footprint of products to be monitored and accounted for in a newly created Digital Product Passport (DPP), which will also include information on the traceability and durability of the product. The DPP will make technical data about the product’s environmental impact and overall sustainability public and easily available to consumers. This will enable businesses and consumers to make informed choices about the products they use, as well as to be more aware of the hazardousness of the chemicals contained in the products, to which the regulation also draws special attention.

Therefore, the sustainability of products needs to be considered in the product (pre-)development phase not only from a regulatory perspective, but also to gain an advantage compared to competitors. Indeed, studies have found that that EU citizens place the environment and climate change among the most important issues their countries and themselves face. As such, the attention paid by consumers to the environmental impact of their purchases is increasing.

Promoting sustainable sourcing and due diligence

The sourcing of materials used to make the product is also increasingly being regulated at EU level, with the aim to drive more sustainability in the second phase of product (pre-)development. First and foremost, the Commission aims at addressing the high environmental impact of imported raw materials associated with deforestation and forest degradation, such as soy, beef, palm oil, wood, cocoa, coffee, but also leather and furniture, through the Deforestation-Free Imports Regulation. The Regulation will introduce mandatory due diligence rules for companies placing such commodities on the EU market, which would need to track geographically the origin of the commodity and be able to show proof that is does not originate from areas subject to deforestation. The European Parliament ambitions to go even further, with Members of European Parliament suggesting to also include raw materials such as rubber, gold and iron, or wooden furniture in the scope.

This comes in the context of a larger ambition from the Commission to increase corporate responsibility over the environmental and social impact of their activities. As such, the Commission proposed to introduce due diligence requirements in the Corporate Sustainability Due Diligence Directive, presented on 23 February 2022. Under the new rules, companies will be required to look for, identify and, where necessary, prevent, end or mitigate adverse impacts of their activities on human rights or the environment, for example pollution and biodiversity loss.

These new due diligence requirements will drive more sustainability in the (pre-)development of a product, as they will apply to companies’ entire supply chains, including procurement and sourcing. Companies will need to ensure that their activities but also their suppliers’ do not have negative social or environmental impacts.

Global trends for responsible production

Internationally the United Nation’s Sustainable Development Goals (SDGs) of 2015, also known as the 2030 Agenda for Sustainable Development, contain a universal call to action to end poverty, protect the planet and ensure that by 2030 all people enjoy peace and prosperity. While the SDGs provide a non-binding framework, nation-states and supra-national organizations, such as the EU, use it as basis for developing binding policies. Conversely, the EU also played a major role in developing the seventeen goals, each of which are integrated in EU policies, recognizing that action in one area will affect outcomes in others and that development must balance social, economic and environmental sustainability.

The goals of “Responsible consumption and production”, “Climate action”, “Industry, innovation and infrastructure” and “Partnerships for goals” create a framework that companies can use as basis to establish long-term, ambitious sustainability strategic goals when it comes sustainable production.

Reducing CO2 emissions in production processes

The production process itself will be impacted by a series of more stringent environmental rules presented in July 2021 as part of the Fit for 55 package, another key building block of the European Green Deal. Companies will have interest in increasing the share of renewable energy in their energy mix as the revision of the Energy Taxation Directive will increase taxation rates on fossil fuels while ensuring an advantageous rate for renewables and low-carbon fuels. For industries falling under the scope of the EU Emission Trading System, reducing their emissions is even more important as the number of carbon allowances delivered yearly within this carbon market are bound to decrease, in turn leading to an increase in carbon price.

Member States will also have to take action to reach their new, increased, emissions reduction targets under the Energy Efficiency Directive, leading to measures that will disfavor energy-intensive practices. This could however also make it easier for companies to reach their sustainability goals as Member States will support making available energy-efficient technologies and solutions and promote the use of renewables. Other opportunities in support of sustainability goals as regards the production process can also be found in the revision of the Renewable Energy Directive, which aims to make providing renewable energy easier for energy operators, and therefore cheaper for consumers.

Companies will therefore have to look at the environmental impact of their production activities to evaluate the extent of the impact of new EU energy and climate legislation. On this basis, companies will need to evaluate whether their activities will need adaptation. However, for companies looking to enhance the sustainability of their production processes, many opportunities will arise from these new legislations.

Conclusion

The new European environmental rules will have strong implications on future products, driving more sustainability in their (pre-)development, from the earliest phases of their conception and production. New legislation is setting a trend for more sustainable design, choice of materials, sourcing as well as for production processes that are environmentally friendly and respectful of human rights.

Next to the design, conception and production of the product, EU legislation is also aiming at making the activities related to introducing a product on the market more sustainable, notably by reducing the environmental impact of logistical activities and of packaging. Dr2 Consultants will analyze this legislation in our next article of the “Sustainability in the lifecycle of a product” series.

Curious about how EU environmental legislation applies to your company’s activities? Dr2 Consultants’ European Green Deal Impact Scan provides you with a comprehensive overview of how EU legislation will affect your business, identifying the opportunities and challenges and highlighting moments to positively influence the policies and legislation or compare the EU policy perspective to your company’s strategic goals. Want to know more? Don’t hesitate to contact us!

Fit for 55 package: carbon pricing in the transport sector

The European Green Deal aspires to reduce the transport sector’s dependence on fossil fuels. In that context, the Commission presented the ‘Fit for 55 Package’ on 14 July 2021. This legislative package aligns the EU’s legislation with the 55% emission reduction target to be achieved by 2030. In order for the transport industry to play its part, the EU is increasing its efforts to put a price on COemissions. Dr2 Consultants will demystify the Commission’s greening efforts within the ‘Fit for 55 Package’ through three illustrative examples of increased carbon pricing across different transport modalities.

1. Eurovignette and CO2 emission standards to decarbonize road transport

The use of road infrastructure by heavy-duty vehicles is regulated through the Eurovignette Directive. The revision of this file, first tabled in 2017 by the Commission, was officially adopted on 24 February 2022, and is not part of the Fit for 55 Package. Member States now have two years to transpose the Directive in national legislation. The revision will phase out the time-based vignette-system for heavy goods vehicles across the core trans-European transport network (TEN-T) from 2030. This will be replaced by distance-based charges resulting in a user-pays and polluter-pays system across the core TEN-T network, where most international transit of commercial vehicles takes place. Road haulers using clean trucks would benefit from the revised legislation, which is expected to half their road tolls by May 2023.

With regards to passenger cars and light-duty vehicles, which are responsible for 75% of EU road transport CO2 emissions, the European Commission tabled, as part of the Fit for 55 Package, the revision of the Regulation setting CO2 emission performance standards for cars and vans. The CO2 reduction target for cars, currently set at 15% for 2025 and 37,5% for 2030 compared to 2021 levels, will be raised in order to ensure that all cars registered as of 2035 will be zero-emission. The new targets require average emissions of new cars to be reduced by 55% from 2030 and 100% from 2035, compared to 2021 levels. 

In his draft report, the Rapporteur in the Environment Committee, MEP Jan Huitema (the Netherlands, Renew), called for even stricter CO2 targets for cars (-75% by 2030) and vans (-70% by 2030) towards 2035. However, these higher targets have not been supported by all other political groups in the European Parliament. Jens Gieseke (Germany, EPP) and Kateřina Konečná (Czech Republic, The Left) considered the draft report too ambitious and believed that the targets could not be achieved by the car manufacturers and some of the Member States. Furthermore, it remains to be seen if MEP Huitema’s proposal will be supported by his own political group.

The Council of the EU has not yet adopted a position on the revised targets, as negotiations are ongoing on some key issues. For instance, a group of Member States supports the increased ambition of the new targets, while others express concerns about the price of electric vehicles and the availability of affordable cars in the future. The Environment Ministers are expected to discuss the file during their upcoming meeting on 28 June.

Dr2 Consultants expects that the various Fit for 55 carbon pricing measures in the road transport sector will stimulate the market demand for zero- and low emission vehicles, both for passenger and freight transport. Later this year, the European Commission is expected to table a legislative proposal with updated CO2 emission performance standards for heavy-duty vehicles and trucks.

2. Extending the EU ETS to the maritime sector and road transport

The EU Emissions Trading System (EU ETS), the EU’s instrument to measure and price carbon emissions per unit, is also being revised as part of the Fit for 55 Package. The revised proposal does not only increase its ambition to reduce the number of EU-wide annual allowances at a quicker pace (which will significantly drive up the price for CO2 per ton by cutting supply of emissions permits), but it also extends its scope towards other sectors, including emissions from maritime transport. As a reasoning behind the inclusion of maritime transport in the EU ETS, the European Commission states that maritime transport emissions are currently higher than in 1990 and these are expected to grow further in a business-as-usual scenario. The extension of the EU ETS to maritime transport applies in respect of emissions from incoming voyages (i.e. emissions from ships arriving at an EU port from a port outside the EU, as well as intra-EU voyages) and emissions occurring at berth in an EU port. 

Fit for 55 services

The revision’s plans for the obligation to surrender allowances is to be gradually phased-in over the period between 2023 to 2025. Investments to support the decarbonization of the maritime transport sector will be supported by the Innovation Fund.

Rapporteur MEP Peter Liese (Germany, EPP), in his draft report of the Committee on Environment, Public Health and Food Safety (ENVI) (the lead committee on the topic) welcomed the Commission’s proposal and said that the revenues can be used to support new technologies. He is of the view that the commercial operator of a ship should be responsible for the payments of the EU ETS price, which requires authorities to trace down these commercial operators. There is much support in ENVI for the inclusion of maritime sector to the EU ETS and the additions proposed in the draft report. In the draft opinion of the Committee on Transport and Tourism (TRAN), Rapporteur Andrey Novakov (Bulgaria, EPP) is also in favor of the inclusion of the maritime sector, but emphasizes that the EU needs to ensure the EU maritime sector will remain competitive throughout the implementation. Therefore, he states that equal treatment of intra-EU and extra-EU maritime routes is crucial.

The European Commission has proposed to apply emissions trading also to road transport. However, this system will be separate from the existing EU ETS, as road transport will influence a large sum of small users. Therefore, this revised EU ETS will regulate fuel suppliers rather than car drivers in order to prevent a system that is too complex. Fuel suppliers will be responsible to incorporate the carbon cost into the price for their consumers. This separate EU ETS is planned to be operational in 2025, with the cap on emissions set from 2026. Most of the Member States have not yet adopted a position on the introduction of this new EU ETS, but the Council of the EU is expected to be divided on the proposal. Rapporteur for the TRAN opinion, Andrey Novakov, expresses concerns about the negative effect the new EU ETS would have on end-consumers and notes that the European Social Climate Fund will not have enough financial resources to help the households that are most affected by the higher prices of transport.

3. Revising energy taxation: end fossil fuel subsidies and incentivize green alternatives

The third example of increased carbon pricing in the context of the Fit for 55 package is the Energy Taxation Directive (ETD) which sets the rules for the taxation of energy products such as motor fuels or electricity. The Commission also proposed a revision as part of the Fit for 55 Package. The aim is to align the taxation of energy products with EU energy and climate policies and end outdated tax exemptions and incentives for the use of fossil fuels. The revision of the ETD will tax fuels based on their energy content and environmental performance rather than their volume. Also, the exemption for fuels in the aviation and maritime transport sectors will end. The aim of the revision is to incentivize the transition towards a higher uptake of sustainable fuels and to level the playing field between the different modes of transport.

On 28 February, the Rapporteur John van Overtveldt (Belgium, ECR) in the Committee on Economic and Monetary Affairs published his draft report on ETD. He warns about the potential negative impact for businesses working on a global scale, which would cause carbon- and business leakage. In September 2022, the European Parliament is expected to adopt its formal position during its Plenary session, which serves as a non-binding opinion to the Council of the EU, as it relates to tax matters, which is a core competency of the Member States. The Council of the EU is currently discussing the technical aspects of the Directive. As Member States will have to agree unanimously, a common position is still out of sight.

Is your business Fit for 55?

The Fit for 55 Package will shape the legislative landscape for the upcoming decade, trigger the public debate and impact businesses across the different transport modalities. The revised and updated COemission standards might radically impact your day-to-day business operations. More than ever, making your voice heard is crucial.

Over the last years, Dr2 Consultants has built up a track record in advising a broad range of transport clients in navigating the EU ecosystem. Would you like to know more about what the ‘Fit for 55 Package’ means for your organization? Feel free to reach out to us or visit our Fit for 55 webpage.

You can also sign up for our Fit for 55 policy updates here.

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The future of the EU transport sector (2021-2024) – four trends

European energy crisis: the security, affordability and sustainability dilemma

The EU is currently in the middle of a historical energy crisis, mostly driven by high gas prices. Already before the Russian invasion of Ukraine, the rise of energy prices and market turmoil drastically increased power bills on the continent and caused severed repercussion for people and companies. The Russian invasion of Ukraine has aggravated this situation, underlining the EU’s dependence on imports for 90% of its gas, 40% of which arrives from Russia. The transition towards a low-carbon economy, the post-COVID recovery curve combined with geopolitical conflicts created the perfect storm. With this blog post, Dr2 Consultants aims to shed light on how the EU is addressing the energy crisis.

In response to the energy crisis, on 8 March, the European Commission published REPowerEU: Joint European Action for more affordable, secure and sustainable energy. The Communication presents actions that would make the EU more resilient by accelerating the deployment of renewable energy as well as ensuring the security of energy supply. Following the Russian invasion of Ukraine, the Communication has a strong focus on decreasing Europe’s energy dependency on gas imported from Russia. The Commission thus proposes measures to diversify supplies away from Russian pipeline gas towards liquified natural gas (LNG) and other natural gas suppliers.

Moreover, to avoid low gas storage in the future, the Commission will propose by April an EU-level gas storage policy that would put forward legal requirements for Member States to ensure a minimum level of gas storage of at least 90% by 1 October each year. To reduce the EU dependency on fossil fuels, the Commission sets out measures to unlock the solar, wind energy and heat pumps potential. Notably, the Commission invites also the European Parliament and the Council of the EU to boost the Fit for 55 legislative proposals with higher or earlier targets for renewable energy and energy efficiency. One of the other goals of REPowerEU is to decarbonize the industry by accelerating the deployment of innovative hydrogen-based solutions and cost-competitive renewable electricity in industrial sectors. In addition, the Commission announces a recommendation on fast permitting for renewable energy projects. The Communication aims to promote the rollout of renewable and low carbon gas production with a focus on hydrogen and biomethane. In this regard, the draft suggests an ambition to produce 35 billion cubic meters of biogas by 2030 and to import 10 million tons of renewable hydrogen by 2030.  Other actions set out measures to support Member States in regulating energy prices in the electricity market and provide short-term relief to heavily exposed companies (e.g., in the form of state aid).

Sustainable goals will help address the European energy crisis

The EU’s ambitious climate agenda to phase out coal and the stricter rules of the EU ETS was one of the elements that led to an increase in carbon prices reaching a record peak of €88/ton on 8 December 2021. At the same time, the low gas storage in Europe and the increasing demand for gas worldwide drove both gas and coal prices further up and exert strong inflation pressures on the cost of electricity. In addition, the low wind power generation in the past year, the higher demand of energy due to weather conditions and the closure of nuclear plants in countries like Spain, France, Germany and Belgium exacerbated the tightness in the energy market in Europe.

Nevertheless, the European Commission underlines that the way out of the energy crisis is the acceleration of the implementation of the European Green Deal, including a faster deployment of renewable energy and the rollout of low-carbon gases. Indeed, during his speech at the European Parliament, European Commission Executive Vice-President Frans Timmermans pointed at the transition to renewable energy resources as a solution to the energy crisis. As part of the climate ambition, in the Taxonomy Complementary Climate Delegated Act, the European Commission indicated that gas and nuclear energy would play a pivotal role in accelerating the shift from coal towards a climate-neutral economy.

How does the EU respond to the crisis?

On 1 March, the European Parliament held an extraordinary Plenary session to discuss the EU’s response to Russian invasion of Ukraine. In the adopted resolution, MEPs call for a significant reduction of energy dependence on Russian gas, oil and coal. The resolution stresses the importance of diversifying energy sources, increasing energy efficiency and speeding up the clean energy transition.

Fit for 55 services

In parallel, MEPs responsible for the negotiations on Fit for 55 legislative package on energy, proposed solutions to address the current crisis. On the one hand, Rapporteur on EU ETS, MEP Peter Liese, suggested to lower the threshold to issue more permits at times of rapid price rises. The proposal entails the use of Article 29a of EU ETS according to which the European Commission should release 100 million CO2 allowances into the market from its market stability reserve over a period of six months if, for more than six months, the average permit price is more than two times the average price in the two preceding years. On the other hand, MEP Markus Pieper, who is the Rapporteur on the revised Renewable Energy Directive (RED III), aims to increase the renewable energy targets to 45% by 2030 to reduce the EU’s dependency on Russian gas. He said, “The Russian war against Ukraine is now forcing us to focus even more on our strategic autonomy, apart from climate change”.  Dr2 Consultants is constantly following the developments in the European Parliament and the Council of the EU on the proposed reform of EU ETS and RED III in light of the vote on the initial positions expected in June 2022.

Moreover, on 7 February, during the 9th EU-US Energy Council, the EU and US representatives addressed the issue of energy security within the EU and its neighborhood countries. In this light, the EU and the United States reaffirmed their cooperation to focus on avoiding energy and resources supply disruptions and improving diversification of energy suppliers (e.g., via global LNG markets).

The importance of diversification of energy sources

The EU measures to address the crisis and ensure the security of supply have one common denominator: the diversification of energy sources. Following the conflict on the Russia-Ukraine border, Russia, who is the largest supplier of gas in the EU (40%), decided to cut back on gas shipments across Ukraine, which counts for a third of gas flow. This had a significant impact on the import of gas to the EU. Notably, in 2021, the EU imported an average of over 380 million cubic metres (mcm) per day of gas by pipeline from Russia, or around 140 billion cubic metres (bcm) for the year as a whole. In addition, around 15 bcm was delivered in the form of liquefied natural gas (LNG). The total 155 bcm imported from Russia accounted for around 45% of the EU’s gas imports in 2021 and almost 40% of its total gas consumption. With reduced deliveries, the gas reserves in EU countries have been much lower than usual. Moreover, Europe suffered from the competition with Asia for supplies of LNG, where many countries boosted their consumption in the post-COVID-19 recovery, thus diverting LNG cargo away from European markets. Notably, China became the largest LNG importer at the beginning of 2021.

Dr2 Consultants continuously monitors the developments of the discussion on the new EU rules for the energy sector and supports its clients on these matters accordingly. If you would like to know more about this regulation or the overall legislation that the Commission will publish on the energy policies, please contact Dr2 Consultants to learn more about our services.