Cleantech for energy independence, sustainable products and climate risk disclosures - March Policy Update

Our Policy Update shares key news from the past month in Brussels – and their potential impact on EU cleantech. This month, we look into the EU’s action plan to get to energy independence, and how it should rely on clean technologies. We also touch into the latest on carbon pricing, the EU’s efforts to make products more circular and EU’s banks failures on climate disclosures.

The road to EU energy independence runs through cleantech

The EU’s political response to Russia’s invasion of Ukraine is unprecedented in both speed and scope. But EU leaders are reluctant to stop imports of Russian oil and gas, as Member States depend on those for 40% of their gas consumption. If Europe had acted more decisively when President Putin first invaded Crimea and south-eastern Ukraine in 2014, we would be far less dependent on imported fossil fuels today.

The EU is taking more decisive action this time around: the European Commission put forward a comprehensive master plan, REPowerEU, aiming to reduce (1) EU demand for Russian gas by two thirds and (2) EU’s dependency on fossil fuels more promptly.

Key proposals include insulating buildings, replacing gas boilers with heat pumps, installing windmills and solar panels and ramping up renewable hydrogen production.

Impact on cleantech:
We believe REPowerEU is an opportunity to prepare for our medium and long-term energy independence, by investing in the next tech frontier now. This should include massive investments in the scale-up of technologies solving three key challenges:

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1. Reduce and electrify as much of our energy demand as possible, by electrifying heat and heavy-duty transport, accelerating the uptake of renewable hydrogen (and derivatives) in industry, aviation and shipping and deploying energy efficiency technologies massively.
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2. Modernise our energy supply and storage to make it ready for a 100% clean energy world, by investing in innovative renewables, deploying renewable hydrogen production and focusing on the scale-up long-duration energy storage.
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3. Build the required infrastructure to succeed, by deploying better grid mapping and optimisation, deploying a massive charging network for electric transport, and repurposing our gas networks to enable hydrogen and renewable methane transport.

As we tackle these challenges, we should look at the entire value/supply chain for the energy transition, and attention should be paid to:

• Increasing European manufacturing capacity for these technologies.
• Securing raw materials supply with a well-diversified geographical approach to reduce dependencies.
• Building as much circularity in the approach as possible with recycling of spent components (e.g., wind, PV, car batteries) to reduce dependency on imports (and related energy / mining activities).

_{Read more:  https://institutdelors.eu/wp-content/uploads/2022/03/Innovation-Hub-joint-letter-_-to-REPowerEU-we-must-REPower-Cleantech_fv-with-logos.pdf
https://www.bruegel.org/2022/03/how-to-wean-europe-off-russian-gas-as-swiftly-as-possible/}

Member States CBAM agreement leaves out the phase-out of free allowances

The EU’s Economy and Finance ministers came to an agreement on the proposed carbon border adjustment mechanism (CBAM). CBAM is the carbon price that third country importers will have to pay for carbon-intensive products such as iron and steel, cement, fertilizers, aluminum and electricity. The ministers found consensus as regards the in-scope CBAM products and the CBAM’s authority central governance, while welcoming the idea of establishing a climate club for enhanced international cooperation. But they left out key issues such as the phase out of free carbon permits to the EU’s heavy industry (so-called free allowances) and the use of the non-allocated to EU budget CBAM revenues. The European Parliament’s Committee in charge of trade also failed to put forward a unified position on the topic.

Impact on cleantech:
A faster phase out of free allowances along with a fully-fledged CBAM with more product sectors under its remit will lead to a more rapid deployment of low-carbon technologies and installations.

_{Read more: https://www.consilium.europa.eu/en/press/press-releases/2022/03/15/carbon-border-adjustment-mechanism-cbam-council-agrees-its-negotiating-mandate/
https://www.euractiv.com/section/energy-environment/news/eu-countries-agree-worlds-first-carbon-tariff-but-leave-out-controversial-issues/}

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Making circularity the norm

The European Commission presented the Sustainable Products Initiative (SPI) with the aim to make products in the EU market resource and energy efficient. The SPI introduces changes to make product design and production processes more sustainable, and provide consumers with access to products’ environmental data through the introduction of digital product passports. The in-scope SPI products will be defined at a later stage and will most likely include furniture, mattresses, tyres, detergents, paints, iron, steel and aluminum. The new rules should create a significant boost for circular business models, and the European Commission plans to launch a European Circular Business Hub to direct more funding to this space. The SPI proposals echo the European Parliament’s report on the Circular Economy Action Plan which puts at its core the establishment of common life cycle assessment methodologies and improved data collection for products placed in the EU market.

Impact on cleantech:
The SPI has the potential to make the EU a global clean product standard setter for sustainability in the EU and exclude the most unsustainable products from the EU market.

_{Read more: https://www.euractiv.com/section/digital/news/meps-try-to-gain-first-mover-advantage-on-right-to-repair/}

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EU set to make construction products sustainable

With 75% of the EU’s building stock being energy inefficient, the European Commission is aiming to greening the construction sector. In this regard, the European Commission launched a proposal to revise the Construction Products Regulation (CPR),setting new rules to enhance the environmental performance of products such as cement, windows, doors, roof tiles and steel beams. Going forward, manufacturers will not only have to design circular construction products but also demonstrate the products’ sustainability and disclose data on embodied carbon on a lifecycle assessment basis. Many of the proposed new rules are inspired by the European Parliament’s report on the topic, which urges for the integration of environmental performance and sustainability criteria throughout the life cycle of construction products.

Impact on cleantech:
The revised CPR can create a demand shock for green construction products covering the entire construction value chain from manufacturing to their reuse and recycling in construction works.

_{Read more: https://www.euractiv.com/section/energy-environment/opinion/the-construction-products-regulation-cpr-the-right-tool-for-connecting-a-products-environmental-performance-to-the-eus-evolving-building-requirements/}

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Regulating for sustainable fashion

EU textile products generated 121 million tonnes of CO2 in 2020, and the industry has shown no strong commitment to adopting more sustainable practices. With 5.8 million tonnes of textiles discarded every year in the EU, the European Commission presented a textiles strategy to address the environmental footprint of fashion. Although not legally binding, the strategy sets the direction that the fashion industry will have to follow to go circular at every stage of the design and production process. The strategy includes measures to improve textile waste collection and tackle microplastics. Acknowledging the costs associated with this transition, the European Commission will launch bespoke Horizon Europe  calls to support cleantech in fashion recycling. Member States have already called the European Commission to step up its sustainable textiles ambition, calling for the introduction of a mandatory percentage of recyclable content for garments.

Impact on cleantech:
As the strategy envisions for the development of a Transition Pathway for the Textiles Ecosystem, cleantech can speed up the transition, including on improving the traceability of raw materials and helping recyclers source fashion waste.

_{Read more: https://www.bbc.co.uk/news/science-environment-60913226}

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EU banks fail on climate risk disclosures

A recent European Central Bank’s(ECB) report shows that banks in the EU are failing short on disclosing climate and environmental risks. Banks are required by EU law to publish material information and key metrics on climate-related and environmental risks. The ECB attributes EU banks’ poor performance to a “disconnect” between banks’ perception of the importance of these risks and what they disclose in practice. Frank Elderson, Member of the Executive Board of the ECB, acknowledged this discrepancy, pointing out that banks are trying to hide this situation by publishing a plethora of information around green topics. As for next steps, the ECB will be following closely banks’ action on the field and will be starting work to add climate risks to the legal framework for setting capital requirements.

Impact on cleantech:
The pressure put by ECB on banks to disclose their climate exposure and subsequent actions to tackle climate risks could incentivize banks to invest more the transition. It will also increase the demand for climate risk measurement technologies.

_{Read more: https://think.ing.com/articles/bank-pulse-ecb-findings-show-banks-should-take-further-action-on-their-climate-risk-disclosures/#a8}