EU Energy and Climate Policy Update

Dear reader,

Welcome to the new edition of Publyon’s EU Energy and Climate Policy Update. In this weekly update, Publyon 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.

Energy policy updates

COUNCIL AND PARLIAMENT STRIKE POLITICAL AGREEMENT ON RED III: On 30 March, negotiators of the Council of the EU and the European Parliament reached a political agreement on the revision of the Renewable Energy Directive (RED III). The co-legislators agreed on a mandatory target for the share of renewable energy in the EU’s energy mix of 42.5% by 2030, with a 45% voluntary target. The Council’s starting position advocated for a target of 40%, while the European Parliament supported a more ambitious 45% mandatory target. Regarding transport, negotiators agreed to give the possibility for Member States to choose between two binding targets for 2030: a 14.5% reduction of greenhouse gas intensity or a share of at least 29% for renewables in the transport sector’s final energy consumption. The use of “pink” hydrogen (hydrogen generated through nuclear energy) proved divisive, but the Council of the EU and the European Parliament eventually agreed on a provision which allows countries to reduce their targets for renewable hydrogen by 20% as long as the share of hydrogen from fossil fuels in its total share of hydrogen is less than 23%. This is a win for France, which led a bloc of nine Member States arguing for pink hydrogen to be covered by RED III. The political agreement will now have to be formally approved by the Council of the EU and the European Parliament before the revised Directive can enter into force.

CO-LEGISLATORS REACH POLITICAL AGREEMENT ON AFIR: On 28 March, the European Parliament and the Council of the EU reached a political agreement on the Alternative Fuels Infrastructure Regulation (AFIR). The deal sets a minimum mandatory national target for the deployment of alternative fuels infrastructure and requires Member States to present their plans on how to achieve them. The minimum targets require charging stations for cars with a minimum of 400 kW output to be deployed at least every 60 kilometres along the core Trans-European Transport Network by 2026, with an increase to 600 kW chargers by 2028. For trucks and buses, the requirement is to have a charging station every 120 kilometres installed on half of main EU roads by 2028, with a 1400kW to 2800 kW power output depending on the road. A last requirement will be to have two charging stations for trucks in safe and secure parking places as of 2028. The agreement also plans for users of alternative fuel vehicles to have easier and more convenient payment option at recharging and refuelling points in the EU. Renew Europe reacted to the political agreement of AFIR by stating that the AFIR is an important step towards a future-prof transport sector while the European People’s Party said that this sends a clear message to consumers and industry that the EU are making mobility climate-friendly for EU citizens. The informal deal on AFIR still needs to be formally adopted by the Council of the EU and European Parliament before it enters into force.

COUNCIL ADOPTS GENERAL APPROACH ON GAS AND HYDROGEN PACKAGE: On 28 March, the Council of the EU adopted its position on the gas and hydrogen Regulation and Directive. In its position on the regulation, the Council of the EU differentiates between tariff discounts for renewable (100%) and low-carbon gases (75%) in the natural gas system. The adopted text also introduces a 100% discount to capacity-based transmission and distribution tariffs to underground gas storage facilities and LNG facilities. Furthermore, it allows for the blending of hydrogen into the natural gas system of up to 2% by volume (instead of 5%) in order to ensure a harmonised quality of gas. In its position on the directive, the Council of the EU adds reference to the fossil fuel comparator set in the Renewable Energy Directive (RED) to the ‘low-carbon’ definitions to ensure a level playing field in assessing the full greenhouse gas emissions footprint of different gases. While keeping the strong ambition for customer protection, the Council of the EU made various changes to the consumer-related provisions, allowing Member States to have more flexibility regarding the deployment of smart metering systems. Furthermore, the adopted text extends the transition phase for implementing detailed rules for hydrogen until 2035. Lastly, the text adds the possibility for public intervention in price setting in case of an emergency situation, mirroring provisions in the proposal for the electricity market design review currently under discussion. Now that the Council of the EU has reached General Approaches on the proposals, Trilogue negotiations with the European Parliament will kick off soon.

COMMISSION PRESIDENT VON DER LEYEN SETS LIMITS FOR NUCLEAR POWER IN NET-ZERO INDUSTRY ACT: On 23 March, Commission President Ursula von der Leyen stated that limits have to be outlined regarding EU backing for nuclear power under the bloc’s Net-Zero Industry Act, which seeks to support home-made production of clean technologies like batteries and solar panels. Nuclear power does not appear in a separate annex to the regulation, which defines “Strategic Net-Zero technologies” that will receive support via fast-track permitting procedures and are subject to a 40% domestic production benchmark to promote Europe’s domestic industry. Moreover, nuclear is not mentioned in the European Commission’s working paper on strategic green industries. France is leading a push to win greater recognition for nuclear in Europe’s drive to reach net-zero emissions by 2050. In February, Paris launched an 11-country alliance to promote nuclear as a low-carbon source of electricity and work on common industrial projects. But providing EU funding for nuclear projects would be a step too far for countries like Germany, Austria or Luxembourg, which are opposed to nuclear energy.

EU energy crisis updates

COMMISSION PRESENTS ELECTRICITY MARKET REFORM IN PARLIAMENT: On 27 March, Energy Commissioner Kadri Simson presented the Commission’s proposal to reform the electricity market, adopted by the Commission on 14 March, to the Parliamentary Committee on Industry, Research and Energy. Simson stated that the reform could be the last major initiative in the field of energy during the Commission’s current mandate. Therefore, she urged the European Parliament to prioritise the file and to conclude negotiations before the European Parliament election in 2024. Simson stressed that the main aim of the reform is to decouple energy bills for EU consumers and companies from the short-term market price of electricity. This should help to prevent skyrocketing costs such as happened after the Russian invasion of Ukraine. MEPs largely responded positively to the Commission’s more moderate reform and focus on the long-term market ahead of the day-ahead market, but Christian Ehler (EPP, Germany) questioned the Commission’s decision to introduce mandatory hedging obligations for energy suppliers. Nicolas Gonzáles Casares (Spain, S&D) called for more far-reaching measures to reduce price volatility.

EUROPEAN COMMISSION PUBLISHES RESULTS OF 2023 CONSUMER CONDITIONS SCOREBOARD: On 27 March, the European Commission published a report on the impact of the energy crisis on consumption habits. The data shows that almost half of consumers (48%) were worried about being able to pay their bills while the vast majority (71%) took measures to reduce their energy consumption at home. Moreover, the study reveals that EU citizens used their savings and experienced mortgages increases due to variable interest rates by 37% and 10% respectively. Finally, most respondents stated that they should do more to contribute to the green transition and tackling climate change.

Climate policy updates

COUNCIL AGREES ON CO2 STANDARDS FOR CARS AND VANS: On 28 March, the Council of the EU formally approved the Trilogue political agreement on the new CO2 emission standards for cars and vans. This means that the agreement, which requires all new cars and vans to be zero-emission from 2035, will now become law after publication in the EU’s Official Journal. The Council of the EU’s approval had originally been planned shortly after the European Parliament approved the agreement on 14 February, but was postponed after Germany led a bloc of Member States pushing for an exemption to the 2035 zero-emission target for e-fuels (synthetic fossil fuels). Under the terms agreed to by the Council of the EU, the European Commission will introduce technical legislation later this year to allow the use of synthetic e-fuels in combustion engines even after 2035. The S&D group noted with satisfaction that the Council had in the end kept most of the text intact, while the EPP group, which had been critical of the agreement since the beginning, criticised Germany for creating chaos without achieving results.

COUNCIL FORMALLY ADOPTS FINAL TEXT ON SEVERAL FIT FOR 55 FILES: On 28 March, the Council of the EU formally adopted the Effort Sharing Regulation (ESR) and the Regulation on the land use, land use change and forestry (LULUCF) sector. Regarding the ESR, the revised regulation assigns each Member State an increased national target and adjusts the way member states can use existing flexibilities to meet their targets. With regard to the Regulation on the LULUCF sector, the new rules set an overall EU-level objective of 310 Mt CO2 equivalent of net removals in the LULUCF sector in 2030. For the period from 2026-2030, each Member State will have a binding national target for 2030 for the increase of net greenhouse gas removals, which together will deliver the collective EU target of 310 Mt. The regulations will now be signed and published in the Official Journal before entering into force. On the same day, the Council adopted a separate decision on the Market Stability Reserve (MSR), which aims to address the surplus of emission allowances that has built up in the EU emission trading system (EU ETS) since 2009 and to improve the system’s resilience to major shocks by adjusting the supply of allowances to be auctioned. The decision prolongs beyond 2023 the increased annual intake rate of allowances (24%). In addition, further changes to the market stability reserve will be adopted as part of the revision of the EU ETS expected to be adopted before summer.

What’s next?

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

On 17 April, the European Parliament is expected to formally approve the political agreement on the revision of the EU Emissions Trading System (EU ETS). Parliament is also expected to vote on the agreement on the Carbon Border Adjustment Mechanism, the Social Climate Fund and the EU ETS for aviation on that date.