Dear reader,
Welcome to a new edition of the monthly Energy and Climate Policy Update. Over the past month, we got a glimpse into the EU’s policy direction for the next years. Of course, Mario Draghi presented his report with clear recommendations on how to improve the EU’s long-term competitiveness. Ursula von der Leyen presented her candidates for the new European Commission. In their mission letters, the Commissioners-designate have all received an outline of what they will have to achieve during their upcoming mandate. Information on these and other developments you will find below.
The spotlight
The Spotlight: The Draghi report
Amidst ever-increasing competition from China and the US, the competitiveness of European industry in a changing world has arguably become the most salient issue in EU politics over the last year or two. Back in 2023, the European Commission and the Council of the EU asked Mario Draghi, former President of the European Central Bank and former Prime Minister of Italy, to draft a report outlining a vision for Europe’s economic future.
Brussels had been waiting some time for the report – at first, it was supposed to be out in June. The deadline then seemed to be postponed until late September, but already on the 12th of September the report was there. The Draghi report – its official title being ‘The Future of European Competitiveness’ – outlines a strategic roadmap for enhancing the European industry’s resilience. Broadly, Draghi states that, for Europe to stay competitive, the EU should (1) bridge the innovation gap, (2) develop a unified strategy that both decarbonises the economy and strengthens competitiveness, and (3) become more self-sufficient and resilient.
To achieve these goals, Member States should improve their coordination, and the EU’s governance framework must be adapted to better align policies, simplify regulations, and create a more business-friendly environment. And, of course, public and private investments must be increased to drive innovation, advance green technologies, and strengthen the EU’s security infrastructure.
Draghi also gives targeted proposals per sector. Let’s dive into what he says about energy and climate.
Draghi’s proposals on energy and climate
One of the main points in the report is quite a drastic one, as Draghi states that “achieving the EU’s climate objectives hinges on Europe’s ability to rapidly deploy robust investments in clean technologies”. Not only reaching climate neutrality, but also the state of Europe’s competitiveness depends on accelerated efforts and increased investments in areas like renewable energy, waste recycling, and mining. To meet the objectives laid down in his report, the EU should invest annually a minimum of €750 to €800 billion.
Regarding energy, Draghi comes with some important recommendations. Firstly, he argues that the EU needs to revise the governance of the Single Market for energy and decouple the prices of renewable and nuclear energy from higher and more volatile fossil fuel prices. Secondly, it is necessary that more investments are made in grid infrastructure and system integration, storage and demand flexibility, while promoting the local production of electricity. Thirdly, permitting processes need to be accelerated for low-carbon projects. Fourthly, there should be an increase in the use of long-term contracts like Public Private Agreements (PPAs) and two-way Contracts for Difference (CfDs).
Regarding critical raw materials, Draghi urges the EU to implement the Critical Raw Materials Act (CRMA) and to complement it with a comprehensive strategy covering all stages of the supply chain. It should also create a Critical Raw Material Platform to leverage Europe’s market power by aggregating demand for joint purchase of CRM and coordinating the negotiations with producer countries.
Investing and funding all these objectives, most importantly clean technologies, will not only be needed to reach climate neutrality, but also to ensure economic growth. However, this will only be possible if policies align, Draghi concludes.
Next steps
The Draghi report will play an important role in shaping the new European Commission’s ambitions. It is already referenced multiple times in the mission letters for the Commissioners-designate (see below), highlighting its influence on the EU’s future priorities. For businesses, the report offers valuable insights to adjust their strategies in response to the shifting geopolitical landscape, providing a strategic roadmap for navigating these uncertain times.
At Publyon, we offer expert guidance to help organisations understand and capitalise on emerging opportunities while mitigating risks. Our tailored solutions are designed to support your organisation in achieving its objectives within a complex and evolving global environment. By leveraging Publyon’s expertise, organisations can enhance their resilience and seize new opportunities following the EU’s strategic direction.
Policy update
Mission letters for climate and energy portfolios published, outlining future Priorities of the Commissioners-designate
On 17 September, President of the European Commission President Ursula von der Leyen introduced her new College of Commissioners-designate. Publyon has highlighted key names to watch in climate and energy portfolios. Keep an eye on these Commissioners-designate (we have highlighted the roles von der Leyen has proposed for them; they will of course need to be confirmed by the European Parliament before taking on these roles):
- Teresa Ribera (Spain/S&D), Executive Vice-President-designate for Clean, Just and Competitive Transition. Among other responsibilities, von der Leyen has assigned her a coordinating role in the development of the Clean Industrial Deal by developing a new State aid framework. Moreover, Ribera will be responsible for a new EU emission-reduction architecture beyond 2030 enabling the EU to reach net-zero by 2050. Besides, she needs to address the EU’s high energy prices and dependencies on fossil fuels. Lastly, she will support the implementation of the future European Competitiveness Fund.
- Wopke Hoekstra (The Netherlands/EPP), Commissioner for Climate, Net-Zero and Clean Growth. Hoekstra will be responsible for leading the EU towards 2030 and 2050 climate targets while assuring this transition fair for all. Specifically, he will put forward a target in the European Climate Law to reduce emissions by 90% by 2040 and prioritise the Industrial Decarbonisation Accelerator Act, aiming at encouraging investments in clean technologies. In addition, Hoekstra will work on creating a Single Market for CO2, further reducing and phasing out fossil fuel subsidies and revising the Energy Taxation Directive.
- Dan Jørgensen (Denmark/S&D), Commissioner-designate for Energy and Housing. Von der Leyen assigned him to complete a robust European Energy Union and stabilise energy prices. Concretely, Jørgensen will put forward an Action Plan for Affordable Energy Prices, an Electrification Action Plan for EU clean electricity and incentivise clean energy investments, including cross-border, transport -and storage infrastructure. Besides, he is expected to advance energy system integration and the deployment of carbon capture and storage technologies.
- Apostolos Tzitzikostas (Greece/EPP), Commissioner-designate for Sustainable Transport and Tourism. Tzitzikostas will be tasked with accelerating the electrification of road transport, with a particular focus on expanding charging infrastructure. Additionally, he will work on developing a comprehensive EU port strategy and strengthening international transport connections to ensure the competitiveness of European industry.
European Commission publishes 2024 state of the Energy Union report
On 11 September, the European Commission published the 2024 state of the Energy Union report, highlighting the EU’s progress towards its Energy Union targets. The report confirms the EU’s resilience in securing energy supply, stabilising markets, and advancing the transition to climate neutrality. In the first half of 2024, renewables generated half of the EU’s electricity, with wind power surpassing gas as the second largest source behind nuclear. Russian gas imports dropped from 45% in 2021 to 18% by June 2024.
The report also highlights the importance of industry partnerships to accelerate net-zero technologies to cope with growing competition, with the Innovation Fund playing a key role.
Nevertheless, key challenges must be tackled, including the current ambition gap in renewable energy and energy efficiency targets, the rise in energy poverty, and the energy price gap compared to global competitors.
Hungarian Presidency of the Council of the EU proposes controversial compromise on revision of the Energy Taxation Directive (ETD)
Hungary has proposed a 20-year exemption from fuel taxes for the aviation and shipping sectors in the revision of the Energy Taxation Directive (ETD). This exemption is framed as a transitional period, after which Member States would apply standard taxation fees to aviation and minimum levels of taxation, lower than those applicable to general combustion engine fuel use, to shipping. Hungary argues that due to current international agreements, it is not feasible to apply uniform taxation to aviation as there is a current scarcity of sustainable alternative fuels (SAF) on the market, creating a competitive disadvantage.
In a previous compromise proposal presented by the Belgian Presidency, a seven-year transition period was suggested before EU countries would introduce minimum levels of taxation on heating, motor, aviation, and maritime fuels.
European Commission adopts a package of guidelines for Member States on the implementation of energy and energy efficiency legislation
On 2 September, the European Commission adopted four guiding documents on the transposition and implementation regarding the revised Directives on renewable energy (RED) and energy efficiency (EED).
The RED guidelines address three key areas where progress must be accelerated; heating and cooling, energy system integration and renewable fuels of non-biological origin (RFNBOs).
- Heating and cooling guideline provides further details on how to interpret the definition of waste heat within the RED framework.
- For energy system integration, it clarifies new obligations for electricity operatos to supply near real-time data on the share of renewable energy and the associated emissions with the electricity delivered to end-users. It also details technical requirements for enabling smart, bi-directional charging and how decentralised energy sources (e.g. stationary batteries) may participate in the electricity markets.
- For RFNBOs, the guideline elaborates on consumption targets for industry and transport while providing technical calculation details.
The guiding document on heating and cooling provisions in the revised EED clarifies how Member States may set up efficient district heating and cooling systems and how heat available from large energy facilities, such as data centres may be efficiently be used.
Business impact
The EU ETS-2
The EU’s Emissions Trading System (EU ETS) has long been a driving force behind decarbonisation efforts in the energy and industrial sectors by placing a cost on CO2 emissions. However, for many years, the system was viewed as ineffective for climate action due to persistently low CO2 allowance prices, which provided little motivation for businesses to reduce emissions.
That changed with recent reforms. As part of the 2023 revisions to the ETS Directive, a new system – ETS-2 – was introduced, operating independently from the original EU ETS. ETS-2 is designed to regulate CO2 emissions from fuel combustion in buildings, road transport, and additional sectors, including smaller industries that were previously not covered by the original system. These reforms should create stronger incentives for companies in additional sectors to lower their fossil fuel consumption.
So, what exactly is ETS and its revision ETS-2, and how could it impact your business or government? And be aware that ETS-2 will introduce requirements for businesses starting this year! Let’s explore its potential implications and help you to be prepared.
What is EU ETS?
The EU ETS legislation established a ‘cap and trade’ system for emissions, setting a limit by issuing a fixed number of annual permits, each allowing one ton of pollutants. These allowances are allocated through government-run auctions. The original EU ETS addresses emissions from electricity and heat generation, energy-intensive industries, aviation within the European Economic Area, and maritime transport. But what is changing with ETS-2?
What is EU ETS-2?
ETS-2 will focus on CO2 emissions from fuel combustion in buildings, road transport, and additional sectors, primarily smaller industries not included in the existing EU ETS. Essentially, it establishes a new ‘cap and trade’ system to encompass these additional sectors.
ETS-2 will distribute emission allowances exclusively through auctions starting in 2027, with a price ceiling of EUR 45 until the end of 2029 to keep the transition affordable. A portion of the ETS-2 revenues will support vulnerable households and micro-enterprises through a Social Climate Fund (SCF), which was introduced to help citizens and businesses struggling or expected to struggle with paying their energy bills or the costs of sustainability due to the implementation of ETS-2. The remaining revenues from ETS-2 must be used by member states for climate and social measures.
The SCF aims to mobilise at least EUR 86.7 billion from 2026 to 2032, distributing this funding among EU Member States. Member States with fewer resources will receive a larger share of the funds.
ETS-2 requirements for fuel suppliers
Fuel suppliers will be responsible for complying with the ETS-2 requirements, including annual monitoring and reporting obligations starting in 2025. Before this, permit applications and monitoring plans must be approved by national governments. Through ETS-2, fuel suppliers in EU Member States have the following obligations:
- To apply for a permit for supplying fuels that fall under the new ETS-2.
- To develop a monitoring plan that describes how emissions will be monitored.
- To report annual CO2 emissions associated with the consumption of the supplied fuels and have these verified.
- Starting in 2027, submit annual emission allowances for the reported number of emissions.
What is the impact on businesses?
While end-users are excluded from ETS-2, households and businesses will mainly feel the effects of the new emissions scheme through higher fuel prices, as companies will pass on the additional costs. If sustainable technologies (e.g. electric vehicles) remain more expensive, low-income groups will be particularly impacted. Proactive intervention by national governments, in collaboration with local authorities, is essential to mitigate extra transition costs for vulnerable populations.
To address this, the European Commission introduced the Social Climate Fund (SCF), which provides financial support to consumers and businesses facing increased energy prices due to ETS-2. This creates a funding opportunity for local or regional governments aiming to mitigate the financial impact of the energy transition on end-users.
If you’d like to learn more about ETS-2 and how to prepare for its implementation, feel free to reach out us at eu@publyon.com.
Blog
Critical Raw Materials Act: boosting the twin green and digital transition
Critical raw materials is a hot topic in the EU: Draghi’s report, for example, refers to the importance of gaining better access to these materials through an increase in mining and recycling. Forgot what the EU Critical Raw Materials Act entails?
READ MORE
What’s next?
Following President Ursula von der Leyen’s presentation of her new College of Commissioners, the nominees will undergo hearings in the European Parliament. During these sessions, MEPs will assess the Commissioners-designate by questioning them on their suitability for the roles and responsibilities detailed in their mission letters. Hereby a provisional timeline on the hearings:
- Until 18 October: preparation of the Parliamentary hearings, such as writing Parliamentary questions, assess declarations of conflicts of interests, etc.
- 21-24 October: Strasbourg plenary session
- 4-12 November: Hearings of the Commissioners-designate
- 25-28 November: Plenary week, approval of the College of Commissioners
- 1 December: College takes office
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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