Dear reader,
Welcome to the new edition of Publyon’s EU Energy and Climate Policy Update. In this update, Publyon provides you with the latest insights on the ‘Fit for 55’ 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.
As the ‘Fit for 55’ package approaches the end of its legislative journey, our EU Energy and Climate Policy Update will move to a bi-weekly frequency to ensure that we provide you with a more comprehensive energy and climate update. This means that you will receive our next update on 4 May.
The spotlight
Pollute more, pay more: the EU’s Emissions Trading System reform and its Impact on your company
“The polluters pay principle” is one of the most commonly heard concepts in the EU bubble – and with the reform of the EU’s Emissions Trading System (EU ETS), businesses are further subject to the EU’s mantra of “the more you pollute, the more you pay”. The green light by the European Parliament on 18 April brings the new rules one step closer to reality.
But what exactly is the ‘cornerstone of EU climate policy’ about and what will specifically change for businesses with the reform? Let us guide you through the revamped EU ETS.
What is EU’s Emissions Trading System?
The EU ETS is the world’s first international carbon market. The system works on a ‘cap and trade’ principle. A cap is set on the total amount of certain greenhouse gas (GHG) that can be emitted, while companies must acquire carbon allowances to emit these GHG. Some permits are allocated for free for those sectors at risk of carbon leakage. This cap is then reduced every year so emissions will fall over time. Smart right?
The EU expands the scope of the EU ETS
Although the system is already reducing emissions over time, the EU has agreed to further cement the carbon market to meet the heightened climate objectives. More concretely, the EU ETS reform will:
- Further decrease the number of allowances available to cut emissions by 62% by 2030;
- Phase out of free allowances by 2034;
- Include emissions from maritime transport from 2026 (gradual inclusion from 2024) and emissions from municipal waste incineration installations from 2024;
- Create a separate ETS for commercial buildings and road transport as of 2027;
- Phase out free allowances for the aviation sector by 2026.
How will the EU ETS affect your company?
The revision of the EU ETS will affect companies that are already in the scope of the scheme (energy-intensive industry sectors such as refineries or producers of oil, steel, aluminium, iron, cement or glass), as they will have to further accelerate the decarbonization of their industrial plants.
Moreover, the inclusion of maritime, building and road transport means the EU puts a price on the emissions from those sectors. This will notably affect companies relying on fossil fuels and emissions intensive transport operations, for instance logistics providers and deep-sea ships.
The reform means that businesses will need to adjust their operations in the EU towards a business model that relies less on fossil fuels and more on clean and net-zero technologies. Companies that are already front-runners in decarbonizing their operations are already a step ahead compared to their competitors.
What’s next?
Pending final approval by the EU Member States in the coming weeks, the revamped EU ETS will be applicable as of 1 January 2024.
Viktoria Vajnai
Want to know more about EU ETS and the impact it can have on your organisation? Reach out to our expert Viktoria Vajnai.
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Policy update
Commission taken to court over labelling gas and nuclear ‘green’
Last year, the European Commission made the controversial move to give natural gas and nuclear energy a ‘sustainable’ label under the EU Taxonomy. Now, several NGOs are ramping up their efforts against this decision.
In September, ClientEarth, WWF, Transport & Environment and Bund started legal action against the Commission. The groups argued that the Taxonomy’s Complementary Delegated Act, which came into force on 1 January 2023, violates the European Climate Law and the Paris Agreement. The Commission in February rejected a request to review why the technology made the list.
Following these initial actions, on 18 April, the NGOs announced they have now filed a lawsuit related to the inclusion of natural gas in the Taxonomy with the Court of Justice of the EU.
On the same day, Greenpeace filed a separate case about nuclear energy in the Taxonomy. The Court is expected to hear the cases somewhere next year.
Carbon leakage no more? Parliament’s green light for carbon shield
Get ready for a revolutionary new climate policy. On 18 April, the European Parliament formally adopted the new law on Carbon Border Adjustment Mechanism (CBAM).
This ground-breaking initiative aims to encourage non-EU countries to step up their climate game. How? By ensuring that the EU’s own climate efforts are not compromised by the relocation of production to countries with less ambitious policies, the so-called carbon leakage effect.
Under CBAM, certain goods such as iron, steel, hydrogen, cement, and fertilisers, as well as indirect emissions, will be subject to carbon pricing. This means that importers of these goods will have to pay the difference between the carbon price paid in the country of production and the price of carbon allowances in the EU Emissions Trading System (ETS).
The CBAM will be gradually introduced from 2026 to 2034, at the same pace as the phasing out of free allowances in the EU ETS.
A Social Climate Fund to combat energy poverty
Climate transition can be pricey, especially for the most vulnerable consumers and small businesses. Hence, the EU needs to prevent that the green transition leads to energy poverty. This is the reasoning behind the establishment of the Social Climate Fund, formally adopted by the European Parliament on 18 April.
How does it work? Member States will set up a fund in 2026 to ensure that the most vulnerable households are less affected by the increasing energy, mainly heating fuel, and road transport prices. The budget of the Fund, approximately , will derive from the EU ETS revenues (€65 billion) and national resources.
MEPs weigh in on new Communication on Carbon Cycles – what’s the verdict?
During this week’s Plenary session, the European Parliament adopted a resolution on sustainable carbon cycles, but the vote showed that MEPs are not fully fond of carbon removals. Why? According to most elected officials, the EU should not rely too heavily on future carbon removals to meet its climate goals.
The Parliament is a bit more restrained than the Commission, urging the EU to prioritise “rapid and predictable” emission reduction measures. Rapporteur Alexander Bernhuber (EPP, Austria) also said that carbon farming should be on a voluntary basis without administrative burdens.
The Communication on Sustainable Carbon Cycles contains an action plan for developing sustainable solutions to remove more carbon from the atmosphere.
G7 ministers speed up renewable energy development
In Japan, G7 energy ministers decided to set important new targets for solar power and offshore wind, agreeing to quicker let go fossil fuels. Moreover, they agreed to a concrete timeline phasing out coal power generation to decarbonise the power sector by 2035.
However, they left the door open for continued investment in gas. They stated that the sector can help addressing potential energy shortfalls, and therefore, secure stability in energy prices.
Besides that, they focus on innovative carbon capture technologies to accelerate the decarbonisation pathway and recognising nuclear energy as ‘good’ energy source.
Have you heard? European gas reserves filling up quickly
Good news! Bloomberg reported that the EU is well ahead of its usual pace in replenishing gas reserves. Current storage levels are 11 weeks ahead of 2021. About 56% of EU reserves are filled, far more than usual for this time of year.
With European and Asian gas prices taking a dip from their record-breaking highs last year, one would assume that the energy market is on a downward trend. However, prices still remain well above the average of the past decade.
As we enter the summer months, all eyes are on the weather, as potential heat waves and droughts could trigger a surge in gas consumption as consumers turn on their air conditioning and gas power plants must compensate for reduced hydroelectric production.
For now, however, Europe’s gas reserves are plentiful.
What’s next?
- 24 April: First Trilogue Meeting on TEN-T
- 25 April: Next Trilogue meeting on ReFuelEU Aviation (co-legislators aim to strike a final agreement).
Blog
Critical Raw Materials Act: boosting the twin green and digital transition
On 16 March, the European Commission published the Critical Raw Materials Act (CRMA), which aims to ensure the EU has access to raw materials needed to meet its target of moving to net-zero greenhouse gas emissions by 2050. The legislation is also meant as an effort to curtail the dependence the EU has on countries like China, which supplies about 95% of the EU’s rare earths. You can find out how the CRMA could impact your business in our article.
READ ARTICLE
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Where can you run into our team?
During the event on Zero-emission freight transport along the TEN-T network: how to ensure energy grid capacity and supply?, you might be standing next to our transport experts, Lennert and Martijn.
Sara Orcalli
Hi, my name is Sara and I am curating the Energy & Climate Policy Update to bring you, every week, the latest news on ‘Fit for 55’ as well as energy and climate insights. Do not hesitate to reach out should you have any questions or if you want to know how EU energy and climate policies might impact your business.
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