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EU Energy & Climate Policy Update

No. 23 | 16 March 2023

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Dear reader,                                            

Welcome to the new edition of Dr2 Consultants’ EU Energy and Climate Policy Update. In this weekly update, Dr2 Consultants provides you with the latest insights on the ‘Fit for 55’ interinstitutional negotiations as well as updates on the energy transition, the energy crisis and the EU’s response, including other relevant news on the EU’s climate and emissions reduction policies.

On 16 March, the European Commission will present its proposals for a Net-Zero Industry Act and a Critical Raw Materials Act. Both proposals aim to incentivize green industries needed to decarbonize the economy and diversify the EU’s supply of raw materials. Moreover, Dr2 Consultants got you covered on the new strategy for the EU long-term competitiveness. Be sure to follow our social media channels to receive more information on these initiatives.

Energy policy updates

EUROPEAN PARLIAMENT ADOPTS POSITION ON THE GAS & HYDROGEN PACKAGE: On 15 March, the European Parliament voted in favor of the directive and the regulation on gas and hydrogen markets. The proposals aim to facilitate the uptake of renewable and low-carbon gases (including hydrogen and biomethane) in the EU gas market. In line with REPowerEU, MEPs want the directive to ensure that hydrogen corridors cross-borders are supported by investments and adequate infrastructure. Moreover, the regulation provides that Member States should ensure collectively at least 35 billion cubic meters of sustainable biomethane by 2030. MEPs also propose to reform the European Network of Transmission System Operators for Gas (ENTSOG) to cover Hydrogen Network Operators. The proposed regulation includes the mechanism for Member States to coordinate gas purchase, a measure that was originally set up under an emergency procedure. Now, the European Parliament is ready to enter into interinstitutional negotiations with the Council of the EU, which is planning to vote on its General Approach on 28 March.

MEPS ADOPT THEIR POSITION ON THE ENERGY PERFORMANCE OF BUILDINGS DIRECTIVE: On 14 March, the European Parliament adopted its position on the revision of the Energy Performance of Buildings Directive (EPBD). The report by Rapporteur Ciarán Cuffe (Greens/EFA, Ireland) proposes that all new private buildings should be zero-emission and be equipped with solar technologies from 2028, while for new public buildings the deadline is anticipated to 2026. Residential buildings have until 2032 to undergo major renovation to increase their energy performance and energy class (e.g., at least class E by 2030 and D by 2033). Non-residential and public buildings will have to achieve energy performance class E by 2027 and D by 2030. MEPs agreed that Member States’ renovation plans will establish the measures needed to achieve these targets and they should include support schemes to access grants and funding opportunities. Member States could exclude monuments, protected buildings (e.g., for historical merit), technical buildings, places of worship (e.g., churches), and public social housing (if the rent increase is not compensated by savings on energy bills). Following the vote in plenary, the European Parliament is ready to enter Trilogue negotiations with the Council of the EU.

CO-LEGISLATORS REACH A POLITICAL AGREEMENT ON ENERGY EFFICIENCY DIRECTIVE: On 10 March, the European Parliament and the Council of the EU reached a political agreement regarding the revision of the Energy Efficiency Directive (EED). The agreement provides that the EU should collectively reduce its final energy consumption by 11.7% in 2030 (energy consumed by end-users), compared with the energy consumption forecasts for 2030 made in 2020. Notably, the 11.7% target is higher than the original Council of the EU’s General Approach (9%), but lower than the European Parliament’s position and REPowerEU plan (13%). The final energy consumption target will be binding for Member States collectively, while primary energy consumption targets will be indicative (energy used for the production and supply of energy). Member States will have to set indicative national contributions and trajectories to achieve the EU-level target in their integrated national energy and climate plans. The annual savings target for final energy consumption will be gradually increased from 2024 to 2030, and Member States should ensure new annual savings of 1.5% on average during this period. Specifically, the public sector will have to reduce is consumption by 1.9% each year and at least 3% of public buildings will have to be renovated each year. The provisional agreement will now be subject to formal adoption in the European Parliament and Council of the EU before it can be published in the EU’s Official Journal and enter into force.

LIMITED PROGRESS DURING TRILOGUE NEGOTIATIONS ON RENEWABLE ENERGY DIRECTIVE: On 9 March, Rapporteur Markus Pieper (EPP, Germany) provided an update on the status of the Trilogue negotiations on the revision of the Renewable Energy Directive (RED). During the last meeting on 6 March, the co-legislators discussed about the ‘go-to-area’ principle to reduce permitting processes and agreed on the acceleration of biomass and hydropower installations. However, several items remain open for discussion, such as the provisions of RED regarding the transport sector and the inclusion of biomass in the scope. Moreover, co-legislators need to still work on the sustainability and environmental provisions regarding ‘go-to-areas’ and ‘acceleration zones’. Rapporteur Pieper criticized the proposal of the Council of the EU to extend deadlines in RED and reduce the ambition of the proposal. The next Trilogue meeting is planned on 21 March, when co-legislators will discuss the RED issues related to the transport sector.


COMMISSION PRESIDENT VON DER LEYEN PRESENTS THE MAIN ELEMENTS OF THE GREEN DEAL INDUSTRIAL PLAN: On 15 March, European Commission President Ursula von der Leyen presented the main elements of the Green Deal Industrial Plan before the European Parliament. She underlined how the centerpieces of the plan are the Net-Zero Industry Act and the Critical Raw Materials Act, both to be presented on 16 March. With the Net-Zero Industry Act, the European Commission is setting the ambition to produce at least 40% of clean tech in the EU providing a regulatory framework that simplifies procedures to manufacturing clean tech and increase funding opportunities. The Critical Raw Materials Act focuses on securing the supply for critical materials which are needed for the digital and green transition and avoid the EU dependency on third countries, like China. The EU wants to boost its processing capacity to at least 40% of annual consumption of critical raw materials. To boost the EU competitiveness and exploit the Single Market, President von der Leyen mentioned also that the Commission will propose to increase EU target for research spending, and it will bring forward a proposal to simplify reporting requirements for EU businesses and ease their bureaucratic burdens.

NEW PROPOSAL TO REVISE THE EU ELECTRICITY MARKET: On 14 March, the European Commission published its revised EU electricity market design proposal. By easing access to long-term and fixed price contracts and better protection from future price spikes and potential market manipulation, the European Commission hopes to ensure that all European consumers and industry can benefit from cheap renewable electricity. Moreover, more stable long-term contracts such as Power Purchase Agreements (PPA’s), need to ensure that the EU industry can benefit from more stable prices while simultaneously enhance its competitiveness. Under the new rules, all public support for new investments in infra-marginal and must-run renewable and non-fossil electricity generation will have to be in the form of two-way Contracts for Difference (CfDs), under which Member States are obliged to channel excess revenues to consumers. To improve the flexibility of the power system, Member States will be required to assess their needs, establish objectives to increase non-fossil flexibility, and will have the possibility to introduce new support schemes especially for demand response and storage. The reform also enables system operators to procure demand reduction at peak hours.

EUROPEAN COMMISSION ENLARGES SUBSIDY RULES ONCE MORE: On 9 March, the European Commission adopted a new Temporary Crisis and Transition Framework to allow European governments to subsidize sustainable technologies and compete with a U.S. clean tech subsidy package that could take away European industry’s green investments. Member States are now allowed to subsidize a percentage of the investment costs until 2025 in carbon capture technologies, batteries, solar panels, heat pumps, wind turbines, electrolysis, and the production and recycling capacities for critical raw materials. The framework also includes a clause which would allow EU governments to give the same level of support for companies that they could get abroad. In December, the Netherlands, Ireland, Denmark, Finland, and seven other countries criticized the loosening of state aid rules.

1.5C DEGREES WARMING TARGET OF THE PARIS AGREEMENT IN DANGER: Mohamed Nasr, the lead negotiator of last year’s COP27 climate summit in Egypt, warned that the 1.5C degrees warming target of the Paris Agreement cannot be attained unless the necessary instruments are put in place. A UN report released in October came with the same results and showed that combined commitments from nearly 200 nations is putting the planet on track to warm by around 2.5C compared to pre-industrial levels by the century’s end. Notwithstanding the need to phase out fossil fuels, recent concerns about energy prices and availability meant that no stronger measures were taken to reduce dependence on oil and gas. Nasr argues that the whole ecosystem around fossil fuels needs to be reconsidered in the transition.

COMMISSIONER BRETON DENOUNCES JOINT BORROWING: On 13 March, Internal Market Commissioner Thierry Breton stated that he rules out the option to have EU joint debt to finance the green investments under the upcoming Net-Zero Industry Act. Breton envisions that it would be easier to have a political agreement as part of the revision of the Multiannual Financial Framework (MFF) in July. Previously, the European Commission talked about launching a European Sovereignty Fund to finance critical green transition projects. Talks are currently underway on how to finance critical green projects. It looks like joint borrowing is not the preferred option anymore. Most likely the revision of the MFF needs to be considered.

EUROPEAN COMMISSION PRESIDENT URSULA VON DER LEYEN IN WASHINGTON TO TALK WITH U.S. PRESIDENT JOE BIDEN: On 10 March, European Commission President Ursula von der Leyen and U.S. President Joe Biden issued a joint statement after their meeting.  The two leaders want to launch a dialogue (Clean Energy Incentives Dialogue) to better coordinate the subsidies both are providing for clean tech industries under Inflation Reduction Act (IRA) and the EU’s Green Deal Industrial Plan. Moreover, they agreed to intensify their cooperation on diversifying critical mineral and battery supply chains. The agreements would be a “free trade agreement” under IRA, allowing batteries made in Europe to qualify for some of the tax breaks that legislation provides. Lastly, President Biden and President von der Leyen discussed their shared economic and national security challenges.

Climate policy updates

EUROPEAN PARLIAMENT OFFICIALLY ADOPTS TRILOGUE AGREEMENTS ON ESR, LULUCF AND MSR: On 14 March, the European Parliament voted in favor of the political agreement reached during Trilogue negotiations on the Effort Sharing Regulation (ESR), the Regulation on land use, land use change and forestry sector (LULUCF) and the Market Stability Reserve (MSR). Regarding ESR, MEPs voted to set binding targets for GHG emissions reduction for road transport, heating and building, agriculture, small industrial installations and waste management for each Member State. The revised ESR will increase the 2030 GHG reduction target to 40% at EU level. The revision of the LULUCF Regulation sets 2030 GHG removals target at 310 million tons CO2 equivalent (15% more than today). Member States will have nationally binding 2030 targets for removals and emissions from LULUCF and they will need to ensure that emissions do not exceed the amount removed until 2025. From 2026, Member States will have a four-year budget for 2026-2029 instead of binding annual targets. The European Parliament has also adopted the revision of the MSR for the EU Emissions Trading System (ETS).  The temporary adjustments in the MSR are extended until the end 2030, meaning that at least 24% of the market surplus should be put in the MSR and a minimum of 200 million allowances until 31 December 2030. From 1 January 2031, onwards the intake rate would fall to 12% and the minimum number of allowances to 100 million. The texts now also must be formally endorsed by the Council of the EU before they can be published in the EU Official Journal and enter into force.

MEMBER STATES DISAGREE OVER THE VOTE ON CO2 EMISSION STANDARDS FOR CARS AND VANS: On 13 March, following a meeting of transport ministers, a group of Member States (Germany, Italy, Czech Republic, Poland and Bulgaria) reiterated their negative position on the revised rules on CO2 emission standards for cars and vans and called for a change in the text to cover e-fuels. Last week, Germany criticized a proposal from the European Commission to strengthen the recital to include non-binding provisions for e-fuel. According to Czech transport minister Kupka, a deal with the Commission could be reached in the coming days that would include legally binding exemption for e-fuels. However, not all Member States agree with the position taken by the group. France, Spain, Belgium, Sweden, Denmark, Ireland and the Netherlands have been critical about the German last-minute decision to refrain the support for the 2035 electric vehicles’ target, and they oppose changes to the text agreed during Trilogue negotiations. Notably, France is already supporting the switch to electric cars with substantial subsidy programs and the growth of French battery industry. Spain is also investing into the domestic production of batteries for vehicles.

EU MEMBER STATES WANT LESS STRINGENT INDUSTRIAL EMISSION RULES: The latest compromise text on the Industrial Emissions Directive (IED) by the Swedish Presidency presented on 10 March before Coreper exempts the rearing of cattle or pigs in installations operating under extensive production regimes. The document shows that Member States agree with the inclusion of extraction and treatment of minerals in the scope of the IED, with a threshold of 500 tons for industrial minerals. The compromise text also increases flexibility for Member States’ different systems as regards penalties and compensation and processing infringements in the field of industrial emissions. The IED is the most important EU instrument regulating the pollutant emissions of the industry sector. The European Commission proposed revising the IED, so that it would cover more farms in the EU. On 16 March, Environment ministers aim to agree their position on the revision of the rules.

What’s next?

On 21 March, the co-legislators will hold a Trilogue meeting on RED, while on 22 March, the next Trilogue on FuelEU Maritime is scheduled to take place.

On 23 and 24 March, the European Council will convey once again to discuss concrete actions to deliver on the Green Deal Industrial Plan and the EU long-term competitiveness strategy.

On 27 March, the next round of negotiations on the Alternative Fuels Infrastructure Regulation (AFIR) is planned, the aim is to have a final agreement.

The Plenary vote on Deforestation Regulation is provisionally planned on 17 April.

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