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
EUROSTAT PUBLISHES ENERGY PRODUCTION STATISTICS FOR 2021: On 3 April, Eurostat, the European Commission’s statistical agency, published statistics on energy production in the EU in 2021. The figures thus paint a clear picture of the EU’s energy situation prior to the Russian invasion of Ukraine. Renewable energy in 2021 was the largest contributing source to primary energy production in the EU (41% of total production). Nuclear energy (31%) was the second largest source, followed by solid fuels (18%), natural gas (6%) and crude oil (3%). Energy production corresponded to only 42% of the EU’s energy consumption in 2021; the rest was imported from non-EU countries.
EUROPEAN PARLIAMENT PUBLISHES STUDY ON SUSTAINABLE FUELS IN TRANSPORT: On 31 March, the Directorate-General for Internal Policies of the European Parliament published a study on the potential of sustainable fuels in transport. The study finds that the decoupling of economic activity from total energy demand reduces the overall pressure on primary energy and resource needs. This provides an increasing availability of sustainable transport fuels. Energy demand in the transport sector can also be reduced by electrifying transport modes wherever feasible. On the one hand, the study finds that biofuels have a promising cost profile, especially in the short-term. However, they face challenges regarding the availability of sustainable feedstocks, an issue that will hamper their scale up. On the other hand, renewable fuels of non-biological origin (RFNBOs), such as hydrogen, face significant technical challenges, high costs, and dedicated infrastructure requirements when it comes to their transport, storage and distribution. Furthermore, e-liquids are still too expensive, the technology is not fully developed, and their energy efficiency needs further improvement. These issues limit the capacity of e-liquids to contribute at scale to the green transition of the transport sector in the short-term. The study also underlines how the production of all RFNBOs (hydrogen, e-liquids, methanol, ammonia) should rely only on renewable electricity to ensure a long-term decarbonisation.
EU energy crisis updates
COMMISSION UPDATES STATE AID TEMPLATES TO SUPPORT THE GREEN TRANSITION: On 4 April, the European Commission updated its State Aid guiding templates which will assist Member States in designing State Aid measures. These new templates are especially aimed towards helping Member States in designing their Recovery and Resilience Plans and thereby help with the implementation of the European Green Deal. The Recovery and Resilience Facility is a key instrument at the heart of the €800 billion NextGenerationEU recovery plan for Europe. The plan is aimed at mitigating the economic and social impact of the Covid-19 pandemic and make European economies and societies more sustainable, resilient and better prepared for the challenges and opportunities of the green and digital transitions.
JOINT STATEMENT ON THE 10TH EU-US ENERGY COUNCIL: On 4 April, the EU-US Energy Council met in Brussels chaired by EU High Representative/Vice President Joseph Borrell Fontelles, European Commissioner for Energy Kadri Simson, US Secretary of State Antony Blinken and US Deputy Secretary of Energy David M. Turk. The EU-US Energy Council is a primary platform for transatlantic coordination on strategic energy issues at political and technical levels. During the meeting both partners acknowledged the EU-US exceptional level of cooperation, coordination, and exchanges in the context of Russia’s aggression against Ukraine. It also recognized the Joint Energy Security Task Force established in March 2022 by President of the European Commission von der Leyen and US President Biden, aiming to support the rapid reduction of the EU’s dependence from Russian fossil fuels. The task force plans to achieve this by diversifying natural gas supplies, minimizing the sector’s climate impact, and reducing overall natural gas demand. Besides, they discussed adequate responses to the Russian threats to the global energy security, specifically regarding Ukraine and Moldova. Finally, they discussed how to accelerate the energy transition through energy policy, innovation, technology and multilateral cooperation.
OPEC+ LOWERS DELIVERY CAPACITY OF OIL TO INCREASE ITS PRICE: On 2 April, the Organization of the Petroleum Exporting Countries (OPEC+) announced a reduction of over 1 million barrels of oil per day – forcing the price up by as much as 8% –, which has stoked fears of a knock-on effect on the EU economy as a whole. The announcement comes at a time when inflation is only just starting to slow after reaching record rates in the eurozone since the summer. It will take about two months for the OPEC+ decision to trickle down to the real economy, as current crude prices make their way to oil products. The move – aggravated by Russia’s invasion of Ukraine and the West’s response to it – heaps more pressure on European governments at a time when rising costs of energy, food and transport have sown discontent. Higher inflation may also encourage the European Central Bank to continue tightening the money supply by putting up interest rates, and this in turn could have consequences for growth in the eurozone. The OPEC+ decision was led by Saudi Arabia, its most powerful member, and is seen by analysts as a deliberate attempt by the group’s largest countries to push the price of oil higher. Non-OPEC countries, including the U.S. and those of the EU, can do little to counter the effect, given historically low levels of crude oil reserves.
ENERGY COUNCIL FORMALLY ADOPTS EXTENSION ON EUROPEAN GAS REDUCTION TARGETS: On 30 March, the Energy Council, led by the Swedish Presidency, adopted the extension of the Regulation on a European gas reduction target. This sets a voluntary target for Member States to reduce their natural gas consumption by 15% between 1 April 2023 and 31 March 2024, compared to consumption in the period between 1 April 2017 and 31 March 2023. Member States are free to decide which measures to implement at the national level to achieve this target. In addition, the reporting rules have changed, and Member States are required to report data on savings achieved at least on a bimonthly basis. Swedish Energy Minister Ebba Busch stressed that gas savings are crucial to achieving the winter 2023-2024 targets. The extension took effect 1 April 2023.
UPCOMING SPANISH PRESIDENCY DEEPENS AMBITION ON ELECTRICITY MARKET REFORM: Teresa Ribera, Spain’s Minister for Ecological Transition, stated on 28 March that Spain will seek a deal on the EU’s proposed power market reform during its six-month Council of the EU’s Presidency (1 July – 31 December 2023). This constitutes a longer timeline than the one proposed by the European Commission, which is pushing for a rapid approval of the reform by the European Parliament and Member States. European Commissioner for Energy Kadri Simson revealed that the Commission’s objective is to have the new rules in place before the winter, adding that she expected a General Approach in the Council of the EU by the end of the Swedish Presidency (by 30 June 2023). However, Ribera said Spain would seek a deeper reform than the one proposed by the Commission, meaning this would require more time to reach a political agreement during Trilogue negotiations. She added that the EU also needs a better coordinated approach when it comes to protecting vulnerable consumers in times of crisis, noting that Member States do not all have the budgetary capacity to do this.
Climate policy updates
EUROPEAN COMMISSION CALLS FOR ADVISE ON THE IMPLEMENTATION OF THE REVISED EU EMMISSION TRADING SYSTEM: On 5 April, the European Commission launched a call for applications to select experts on the implementation of the Emissions Trading System for buildings and road transport (EU ETS II). These will become additional members of the Commission’s expert group on climate change policy. The expert group will support the Commission in preparing secondary legislation under the ETS directive and exchange views on additional issues related to EU ETS II implementation. The call for application will remain open until 2 May 2023 and the results will be announced in the same month as the selected experts will start working in June 2023.
COMMISSION LAUNCHES CONSULTATION ON CLIMATE TARGET FOR 2040: On 31 March, the European Commission launched a public consultation on what greenhouse gas (GHG) emissions reduction target it should set for 2040 and how best to achieve it. The consultation sets out options ranging from a 65% reduction — which it describes as a “very low ambition” in the context of its current target of a 55% net reduction in GHG emissions by 2030, compared with 1990 levels — to a “very high ambition” of more than 90%. The document asks respondents to indicate the importance of various challenges arising from the transition and associated actions, including, but not limited to, new technologies and R&D, green finance, carbon removals, energy efficiency, faster renewables rollout, and state legislation. The consultation also seeks views on a number of specific policies, including EU Emission Trading System (ETS) post-2030. Finally, the potential importance of the role of carbon removals in meeting the target is also covered in the document, as well as how much of a reliance should be placed on nature-based solutions in the land sector compared with industrial solutions such as direct air capture (DAC) or bioenergy with carbon capture and storage (Beccs). The consultation closes on 23 June 2023.
PARLIAMENT MOVES TO RESTRICT F-GASES: In a plenary vote on 30 March, the European Parliament adopted its negotiating position on the Regulation on Fluorinated Greenhouse Gases. These gases, also called F-gases, are used in many industrial applications, for example in heat pumps. Emissions of F-gases have increased since the 1990s, when they were used to replace ozone-depleting substances. Although F-gases are ozone-friendly, they do contribute significantly to global warming. The report by Rapporteur Bas Eickhout (Greens, The Netherlands) calls for a steeper phase-down of a specific type of F-gas, hydrofluorocarbons (HFC), on the EU market from 2039, with the aim of full HFC phaseout by 2050. On 30 March, MEPs also adopted their position on the Regulation Addressing Ozone-depleting Substances (ODS). Negotiations with the Council of the EU on both files are set to begin soon, as the Council of Permanent Representatives (COREPER) on 5 April agreed on the Council’s negotiating mandate. Ministers will have to formally approve the COREPER agreement before Trilogue negotiations could begin.
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.
On 18 and 19 April, an Informal Meeting of the EU Environment Ministers will be in Sweden.
On 25 April, the next Trilogue meeting on ReFuelEU Aviation is planned to take place, when co-legislators aim to strike a final agreement.