EU Energy & Climate Policy Update | No. 52

Dear reader,

Welcome to the monthly Energy and Climate Policy Update. After a brief summer break, Brussels will soon be buzzing again with energy and climate discussions as policymakers return to the fray. While the pace may have slowed, the urgency of addressing the climate crisis remains constant. Let’s dive into the key issues that will shape the political agenda in the coming months.

The spotlight

Industrial Emissions Directive enters into force

On 4 August, the revised Industrial Emissions Directive (IED) officially entered into force, introducing significant changes aimed at reducing environmental pollution and enhancing public health across the EU. The updated directive is projected to cut key air pollutants by up to 40% by 2050 compared to 2020 levels, marking a major step forward in the EU’s commitment to environmental protection.

What’s new? 

The revision includes several key improvements. Emission limits have been tightened to ensure a more substantial reduction in pollutants, and the permitting process for industrial activities has been streamlined to improve efficiency and compliance. The directive now covers a broader range of sectors, including metal mining and large-scale battery manufacturing, which were previously not covered. Moreover, new provisions have also been introduced for intensive pig and poultry farms, which are known to contribute significantly to ammonia and methane emissions.

Additionally, the IED promotes circular economy practices and resource efficiency, mandates the use of less toxic alternatives to hazardous substances, and introduces the right to compensation for individuals affected by health damage due to illegal pollution. This provision empowers citizens and holds polluters accountable.

Finally, a new industrial emissions portal will be established to enhance transparency, track compliance, and foster innovation in green technology.

Next steps

Member States have 22 months to implement the directive into national law. The industrial emissions portal is scheduled to be launched in 2028.

Policy update

EU reaches 90% gas storage well in advance

The EU has reached 90% gas storage capacity well before the winter season, as part of its ongoing efforts to reduce dependence on Russian energy. By hitting this target three months ahead of winter, the EU demonstrates its readiness to face the winter of 2024 without energy shortages and protects itself from severe price fluctuations.

The storage facilities typically provide 25-30% of gas consumed in the EU in winter. Europe’s energy markets benefited significantly from last winter’s mild temperatures. Reduced demand allowed for a robust reservoir filling season, mitigating potential supply shortages and stabilising energy prices.

E-fuels face regulatory hurdles

Tobias Bock, Chief Strategy Officer at eFuel Alliance, stated that the development of e-fuels, synthetic fuels produced using renewable electricity and captured carbon dioxide, has encountered some setbacks recently.

The development of e-fuels is impeded by several factors. Limited quotas for aviation and maritime transport by 2030 and the impending ban on internal combustion engines restrict demand. The EU’s Renewable Energy Directive sets stringent hydrogen production criteria, potentially increasing costs. Moreover, the absence of a standardised certification scheme for hydrogen and e-fuels adds up to the uncertainty among investors.

Therefore, the future of e-fuels in the EU remains uncertain. Challenges related to demand, regulations, and investment uncertainty need to be addressed during the upcoming mandate, particularly as industries such as the German automotive sector are keenly interested in utilising e-fuels.

Commission green-lights EU state aid for renewable hydrogen investments

The European Commission has approved several state aid schemes to support investments in renewable hydrogen production. The Commission determined that the measures proposed by various Member States are necessary and appropriate, with their positive environmental and economic impacts outweighing any potential market distortions.

The Netherlands received approval for a €998 million scheme to enhance the country’s electrolysis capacity and support renewable hydrogen production. This initiative aims to increase the Netherlands’ electrolysis capacity by at least 200 MW, contributing to the country’s goal of achieving 500 MW of electrolyser capacity by 2025 and 3-4 GW by 2030. As a result, the scheme is expected to avoid approximately 55 kilotons of CO2 emissions annually until 2030.

Spain also received approval for a €1.2 billion scheme to stimulate renewable hydrogen production with an installed capacity of at least 100 MW. The investments supported by this scheme may cover the production of renewable hydrogen-derived fuels, renewable hydrogen storage, and the production of renewable electricity.

German government to reform support for biomass electricity generation

The German government is set to introduce a new “comprehensive biomass package” aimed at reforming state support for biomass electricity generation. This move comes as the country seeks to maintain the role of biomass in its future energy system, particularly during periods of low wind and solar energy production.

The government has set a target of 80% renewable electricity consumption by 2030, and biomass is expected to continue playing a significant part in achieving this goal.

Business impact

Europe’s green energy dilemma – negative prices

A growing trend of negative energy prices is emerging across Europe, primarily driven by the surge in solar and wind power generation. In recent months, power prices in several European markets have dipped below zero, indicating a surplus of electricity supply.

Negative electricity prices often result from grid imbalances caused by surges in intermittent renewable energy. As the share of solar and wind power increases, the grid struggles to accommodate excess supply due to insufficient storage. This can lead to higher grid balancing costs, dampened energy prices, and a less favourable investment climate for renewables. To address these challenges, advancements in grid management and energy storage are needed to ensure a smooth transition to a cleaner energy future.

As the EU shifts toward renewable energy sources, managing the inherent intermittency of these sources will be essential. The significant price fluctuations observed during periods of high or low renewable energy generation indicate a need for market adjustments to ensure a stable and efficient energy system.

How does this affect your organisation?

While increased renewables can lower overall prices, it may jeopardise the economic viability of solar and wind projects, particularly in regions with high penetration. The EU’s electricity market reform aims to balance renewable energy expansion with market stability and social fairness.

One way to mitigate this and what the reform foresees is the introduction of two-sided Contracts for Difference (CfDs) or similar mechanisms to provide long-term investment certainty for renewable and low-carbon generation. Additionally, capacity mechanisms are considered as a potential structural element to ensure system reliability.

Overall, the reform aims to create a more stable electricity market, attracting investment in resources that balance the system and reduce reliance on fossil fuels. While the reform offers promising impacts, careful implementation is crucial to ensure its success for companies in the EU.

Blog

What’s next?

The end of August marks the conclusion of the summer recess for the Members of the European Parliament. Simultaneously, Member States have until the end of August to submit their commissioners-designate. President of the European Commission Ursula von der Leyen is expected to announce the allocation of portfolios at the beginning of September, together with their respective mission letters, outlining their tasks and responsibilities.

Throughout September and October, the commissioners-designate will undergo thorough scrutiny by the respective parliamentary committees to ensure they are qualified for their respective roles. The new College of Commissioners is expected to be subject to a final vote in plenary, anticipated to take place in November at the earliest.

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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