Dear reader,
Welcome to the first EU Energy and Climate Policy Update of 2024. As we switch to a monthly newsletter, you will notice that the format of our Policy Update has been slightly revamped. Based on your feedback, we have incorporated a new section that focuses on the business impact of EU energy and climate policy now that we move towards the implementation phase of most of the Fit for 55 policies.
We look forward to providing you with insightful policy updates in 2024! Do you have feedback? We love to hear from you.
Before you move on…
Undoubtedly, 2024 is a time of political shift. The upcoming European and Belgian elections taking place in June, are a unique moment for businesses as they provide an exceptional chance to proactively shape the political dialogues and decisions that will influence the forthcoming term in Belgium and the broader EU.
Publyon is proud to introduce you to our Beyond the Ballot series of webinars and reports that will help your organisation to be well-informed about the political developments in Brussels and provide you with guidance on how to effectively take advantage of opportunities stemming from the elections.
Sign up to our free webinars here below!
For more information, visit our dedicated page.
The spotlight
A new era for clean trucks and buses? Agreement on HDV standards
On 18 January, the European Parliament and the Council of the EU on 18 January reached an agreement on the revision of the CO₂ emission standards for new heavy-duty vehicles (HDVs). Trucks, buses and coaches account for more than 25% of EU road transport emissions and more than 6% of total EU greenhouse gas emissions, meaning that standards are a crucial part of decarbonisation.
What is new?
The scope now covers almost all new HDVs, from smaller trucks to urban buses and trailers. Manufacturers of some smaller vehicles used in areas such as mining, forestry and agriculture are exempted from the standards. The same goes for trucks used by the military, fire brigades, civil protection and medical care.
The new targets require manufacturers to reduce average emissions from new trucks by 45% by 2030, 65% by 2035 and 90% by 2040. This means that sales of new diesel trucks should be almost eliminated by 2040. There is no date for a complete phaseout yet, however.
Urban buses should be 100% zero-emission by 2035, with an interim target of 90% for 2030. Intercity buses fall under the general targets for trucks and coaches and are exempted from more specific targets.
Reactions
Responses to the new HDV regulation are a mixed bag. Rapporteur Bas Eickhout (Greens/EFA, The Netherlands) sees the deal as crucial for climate and health, and highlights the extended scope. Despite challenges, S&D’s Christel Schaldemose called the agreement a good deal in the current political climate.
However, EPP’s Jens Gieseke criticised the outcome, calling it a “bad compromise” for European industry. The EPP would have liked to see more space for hydrogen-derived e-fuels in the text. Road transport organisation IRU called the agreement “disappointing”, arguing that the targets are “idealistic” because the infrastructure is not yet in place.
Next steps
The agreed text will now first have to be formally approved by the European Parliament and the Council of the EU, expected in the coming months. Once that hurdle has been taken, the new standards can become law.
Policy update
Commission to propose ambitious CCUS targets
On 6 February, the European Commission is expected to present its industrial carbon management strategy, which should lay out how the EU expects to fulfill its ambitions on carbon capture, usage, and storage (CCUS). In the meantime, a leaked draft has already been making the rounds.
The biggest news: the Commission aims for the EU to capture up to 450 million tonnes of CO2 annually by 2050. This target presents a significant challenge, as CCUS projects usually take a long time to materialise and the technology is not fully mature yet. The Commission foresees three routes for industrial carbon management: atmospheric removal, capture for storage, and capture for use in synthetic products or fuels. The strategy also calls for more ambitious and coordinated policies at the national level and upgrading of strategic infrastructure at the EU level.
Commission to shore up economic security with new initiatives
On 24 January, the European Commission presented a new European Economic Security Package containing five initiatives to bolster the EU’s economic security, aiming to maintain control over Europe’s critical industries and to prevent their acquisition by foreign entities. The package follows the European Economic Security Strategy presented by the Commission in June.
The package includes a proposal for a new Regulation on the screening of foreign direct investments (FDI) in the EU. The Regulation should ensure that all EU Member States have a screening mechanism in place, and that national rules are harmonised to make sure the procedure is efficient. Based on several criteria, Member States and the Commission will need to determine whether an investment is likely to negatively affect security. TEN-E projects and several energy technologies (among others net-zero technologies, energy storage, and hydrogen) are covered by the legislation.
Want to know more about the package? Read our LinkedIn post!
Aftershocks of energy crisis continue to affect European industry
The European Commission has warned Eurozone finance ministers that, despite a dip from their 2022 peak, gas and electricity prices in the EU won’t revert to pre-pandemic levels anytime soon. Despite efforts and funds to protect industries (both EU-wide under REPowerEU and by individual Member States), energy companies in economically challenged member states remain exposed to energy shocks.
Geopolitical developments such as the continuing war in Ukraine and the conflict in the Middle East risk inflating energy prices once again. Experts predict energy prices to stay elevated until 2025, after which the energy prices are expected to drop due to a surge in renewable energy capacity. In the meantime, the EU aims to reduce exposure through coordination, diversifying energy sources, and boosting renewables, said Irish Minister of Finance Paschal Donohoe.
New report: EU not doing enough to reach climate ambitions
The EU’s Scientific Advisory Board on Climate Change urges Europe to accelerate its climate efforts if it aims to be climate-neutral by 2050. The new report highlights concerns over insufficient efforts to address pollution from sectors like agriculture.
The panel of climate experts who authored the report criticises the European Commission for a lack of urgency in key climate initiatives, specifically naming the stalled revision of the Energy Taxation Directive and delays in implementation of climate regulations. The report suggests the EU must act on climate policy: among others, it suggests a crackdown on agricultural emissions by introducing pricing instruments, reducing the energy demand and focusing on carbon removal and renewables technology.
Next month, the European Commission is expected to call on the member states to slash their greenhouse gas emissions by 90% by 2040. This target is in line with what the report suggests.
The Council takes the next STEP in critical technology investments
On 10 January, EU Member States reached an agreement on a partial negotiation mandate with the Parliament on the proposed Strategic Technologies for Europe Platform (STEP). The new platform should support important investments in critical technologies necessary for the green and digital transition. By investing in technological developments, the EU hopes to decrease its dependency on technology from non-EU states.
The Council only reached a preliminary agreement, since additional financial support for STEP is still dependent on the ongoing negotiations on the mid-term review of the 2021-2027 Multiannual Financial Framework (MFF). Still, it provides the basis for negotiations with Parliament.
Business impact
What does the Emissions Trading System (EU ETS) and the reduction of emission allowances mean for the maritime sector?
Under the EU ETS, energy-intensive industries are subject to an EU-wide emissions cap: CO2 levels in these sectors are required to drop by 62% by 2030 and 100% by 2039 compared to 2005 levels. The covered industries can purchase free allowances to cover their emissions.
Under the revised EU ETS, the maximum number of free allowances will be gradually reduced by 4.3% per year between 2024 and 2027 and by 4.4% between 2028 and 2030. In addition, there will be a one-off reduction in allowances of 90 million in 2024 and 27 million in 2026. With the continued phasing out of 4.4% after 2030, no more emission allowances should be available in 2039.
The reduction in allowances means that the price of CO2 emissions will gradually rise. This should provide an incentive for targeted sectors to switch to cleaner alternatives, such as green hydrogen. The importance of EU ETS cannot be overstated: with full implementation, the EU should already reach 57% CO2 reduction by 2030.
From 1 January this year, the EU ETS also applies to CO2 emissions from large ships of at least 5,000 gross tonnes calling at European ports. Cargo and passenger ships will have to buy emission allowances for 100% of emissions generated between two EU ports, and for 50% of emissions for voyages that start or end at a port outside the EU, leaving it to third countries to decide whether and how to tax the remaining emissions. The ETS covers CO2 (carbon dioxide), CH4 (methane) and N2O (nitrous oxide) emissions, but the latter two will only apply from 2026 onwards.
To ensure a smooth transition, shipping companies only have to surrender allowances for a portion of their emissions during an initial phase-in period:
- 2025: for 40% of their emissions reported in 2024;
- 2026: for 70% of their emissions reported in 2025;
- 2027 onwards: for 100% of their reported emissions.
What will be the effect?
The introduction of the EU ETS in the maritime sector means that shipowners will have to start paying for their emissions starting this year, putting a price on their carbon footprint. In the longer term, the inclusion should drive the sector to further decarbonise. The legislation thus goes hand in hand with other Green Deal initiatives such as FuelEU Maritime.
A potential consequence of the carbon pricing for maritime is a relocation of shipping routes to non-EU-countries, which could in turn lead to carbon leakage. The European Commission will monitor to which extent this will be the case and act if required.
Want to know more about which impact EU ETS and other EU climate measures specifically have on your organisation, please do not hesitate to reach out!
Blog
European elections 2024: predictions and implications for European businesses
Election season is coming closer! Between 6 and 9 June 2024, citizens across the continent will exercise their democratic rights and shape the future of the European Union. As parties are compiling their candidate lists for the European Parliament, we have updated our blog post on the elections. We also look at the dynamics of recent national elections held in EU Member States. What can they tell us about the European elections?
READ ARTICLE
Martijn Meijer
Hi, my name is Martijn and I am curating the Energy & Climate Policy Update, aiming to bring you insightful updates straight from Brussels. At Publyon, I work mainly on transport and energy files. Do you have any questions on EU energy and climate policies or how these might impact your organisation? Feel free to reach out!
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