EU Energy & Climate Policy Update | No. 33

Dear reader,

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

The spotlight

Trying to balance between openness and protection of the EU

The past years have been marked by several crises, amongst which the COVID-19 pandemic and Russia’s war of aggression against Ukraine, which have affected European trade flows. These crises have been a wake-up call for the EU to pursue strategic autonomy and reduce its dependency on third countries, like Russia and China.

To respond to increasing geopolitical tensions and rapid technological changes while preserving openness, the European Commission has recently released a Joint Communication presenting the European Economic Security Strategy. As first of its kind, the Strategy comes after the G7 summit in Japan, where countries decided to have a coordinated effort towards ‘greater economic resilience and economic security’.

De-risking: A key EU concept

The Strategy aims to address the risks resulting from current and future crises, specifically addressing dependency problems in critical sectors – among them the energy sector but think also of transport and artificial intelligence. To do so, the Commission proposes to identify key categories of risk related to:

• Durability of supply chains, affecting energy security;
• Physical and cyber security of critical infrastructure;
• Technology security and technology leakage;
• Weaponisation of economic dependencies or the use of economic coercion.

How to ‘de-risk’? The Commission proposes a set of actions, amongst which enhanced cooperation on export controls, particularly regarding weapons or espionage software to hostile countries, the review of inbound investment screening, and outbound investment screening. The latter risk mitigation mechanism is the most controversial. It would prevent European companies to move their supply chains, particularly in the field of technology, to potentially problematic countries.

Autocracies? Read China 

Although the Strategy does not target any country explicitly, it is clearly responding to China’s powerful role in the supply of critical raw materials and technologies. These materials and technologies are of crucial importance for the European digital and green transitions.

The Strategy stands in line with the recent call from the Commission to Member States to protect their critical infrastructure by removing high-risk vendors’ presence (read: Chinese telecom giants Huawei and ZTE).

The Chinese Prime Minister Li Qiang responded to the Strategy in Paris last week, stating that dependency should not be fought but embraced, as a feature of a highly globalised world. He underlined that China is equally dependent on Europe’s air control and train technologies.

What’s next?

Member States will discuss the Strategy in the European Council on 29-30 June (agenda). Consensus must not be taken for granted as the proposal touches on areas of national competencies (export licences) and some Member States still have strong economic relationships with China.

Policy update

New deal on international taxation should finance climate efforts, says Macron

On 23 June, French President Emmanuel Macron for a renewed effort to overhaul the global taxation system as a means to fund climate initiatives. Speaking at the Summit for a New Global Financing Pact in Paris, Macron emphasised the need for international cooperation and consensus on various forms of international taxation, including financial transactions and maritime transport, to effectively address climate-related challenges.

In his closing remarks, he proposed using the Organisation for Economic Co-operation and Development (OECD) club as a platform for negotiations, highlighting the success of previous agreements reached through the OECD, such as the reform of global taxation for large multinational companies.

A (small) STEP towards a European Sovereignty Fund

In Brussels corridors, economic security has lately been a focal point of discussion. Initiatives such as the Net-Zero Industry Act and the Critical Raw Materials Act should protect crucial sectors and reduce the EU’s dependency on third countries while enhancing the bloc’s industrial competitiveness.

On 20 June, together with the European Economic Security Strategy, the Commission also published a Strategic Technologies for Europe Platform (STEP), which should unlock €10 billion in funding to targeted EU programmes, focusing on three key sectors, namely deep tech, clean tech and biotech. Despite initial expectations for the announced European Sovereignty Fund, the STEP does not provide new financial fire power and it does not match the budget necessary to compete with the US Inflation Reduction Act. Several MEPs and stakeholders have indeed criticised the proposal for its lack of ambition.

Idealism versus realism in the heavy-duty vehicles debate

On 20 June, Member States engaged in a heated debate during a meeting of Environment Council about the proposed revision of the CO₂ emission targets on heavy-duty vehicles Regulation. The proposal outlines a progressive approach, with targets set to increase every five years. By 2030, a 45% reduction compared to 2019 levels is targeted, scaling up to 65% by 2035 and an ambitious 90% reduction by 2040.

Diverging positions were brought to the table. On the one hand, German Environment Minister Steffi Lemke praised the Commission for not ruling out the use of synthetic fuels. Austria, The Netherlands, and Denmark advocated for higher intermediate targets in 2030 and 2035 with a 100% target by 2040. On the other hand, several Member States such as Poland and Czech Republic raised concerns about the targets, deemed as excessively ambitious. Italy acknowledged that achieving the 2030 target would pose significant challenges and emphasised the necessity of incorporating complementary technologies alongside zero-emission vehicles.

The Council is expected to adopt a General Approach on the file before the end of the year.

Nature Restoration Law: Council gives an Aye, Parliament a Njiet

The Swedish Presidency of the Council of the EU reached a General Approach on the Nature Restoration Law proposal, on 20 June. The proposal seeks to implement binding recovery measures and obligations that will restore EU ecosystems by a minimum of 20% by 2030, along with restoring all ecosystems in need by 2050. The Council agreed that Member States would put in place restoration measures that bring at least 30% of EU ecosystems into good condition by 2030 while ensuring significant eco-deterioration does not occur anywhere within EU borders.

Meanwhile, the Parliamentary Environment Committee (ENVI) rejected the proposed law. Chairman of the EPP fraction Manfred Weber campaigned to pause the implementation of the law as it risks higher food prices and threatens farmers’ livelihoods and global food supplies in times of war. The European Parliament’s Plenary will have the last call about the law during its Plenary vote on 11-13 July in Strasbourg. Following the vote in ENVI, the vote will either reject the Commission’s proposal or amend it. For now, there is no clear majority to support the proposal nor to reject it. Centrists MEPs from Renew Europe and EPP dissenters will be the tiebreaker.

Member States still in disagreement over electricity market reform

During the Energy Council on 19 June, EU energy ministers had hoped to agree to a common position on reforming the EU electricity market. But it was not to be – or at least, not fully. Swedish Energy Minister Ebba Busch, who chaired the meeting, announced afterwards that Member States agreed on 2/3 of the electricity market design reform.

Why could ministers not agree? There are several blocking minorities on different issues, which makes finding a compromise a lot harder. For example, the Swedish Presidency introduced a derogation for coal subsidies in the text, seen as a way to appease Poland. But this aroused opposition from other Member States, such as Luxembourg who criticised the move as it would undermine the EU climate ambition.

The reform will now again be discussed by Member States’ ambassadors in Coreper, who will hope to eventually reach a position that can assuage all national concerns. The Spanish Presidency will take over the negotiations on the file from 1 July.

What’s next?

• On 29 and 30 June, the EU leaders will gather in Brussels for the European Council, where they will discuss the European Economic Security Strategy.
• On 1 July, the Spanish Presidency of the Council of the EU will kick of its mandate for the next six months.
• Between 10 and 13 July, the MEPs will gather in Strasbourg for the last Plenary session before summer recess. In the agenda, votes on the Nature Restauration Law and final vote on several Fit for 55 files (AFIR, FuelEU Maritime, Energy Efficiency Directive).
• On 11 July, the European Commission expects to present a Greening Transport Package, which will aim to further decarbonise freight and road transport.

Blog

EU elections 2024: which way is the wind blowing?

Exactly in a year from now, citizens across the continent will exercise their democratic rights to shape the future of the European Union. The European Parliament elections to be held between 6 and 9 June 2024, will play a significant role as the new Members of the European Parliament will play a crucial role in formulating policies, legislation, and the overall direction of the European Union for the coming years. This presents an opportunity to proactively share your ideas and solutions!

READ ARTICLE

Events update

Sara Orcalli

Hi, my name is Sara and I am curating the Energy & Climate Policy Update to bring you 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.

Contact