The EU continues intense climate and energy negotiations – September Policy Update
October 6, 2022
Our Policy Update shares key news from the past month in Brussels, as well as their potential impact on EU cleantech. In this update, we dive into:
In May 2022, the European Commission launched REPowerEU, its flagship strategy to cut dependency from Russian fossil fuels through energy savings, diversification of energy supplies, and accelerated roll-out of renewable energy. To pay for the significant costs of this plan, the EU is considering three options, including two that would be very damaging to decarbonisation and clean technologies. One is to sell carbon allowances from the ETS the Market Stability Reserve (MSR), which could tank the price of carbon. Another is to take money from the Innovation Fund, a key tool to scale clean technologies. From an innovation standpoint this would mean that less breakthrough innovation in cleantech will be financed in the coming years, reducing the EU’s chances of accomplishing REPowerEU’s main objective. In this regard, along with leading cleantech investors and civil society, we sent a letter to the EU institutions to expand the budget of the Innovation Fund and ensure that it continues to support first of a kind projects.
On 14 September, the President of the European Commission delivered her third State of the Union address focusing on the war in Ukraine and safeguarding the EU’s energy security. In her speech, she outlined two key measures to secure the EU’s energy autonomy. First, she pledged that the Commission will launch a Critical Raw Materials Act focused on access to lithium and rare earth elements, which are critical for the EU’s green hydrogen infrastructure. This measure could also be crucial in alleviating concerns from the investor community on the shortage of metals which are indispensable to supply chains of cleantech manufacturing production (ie. heatpumps, EV batteries). Second, she announced the creation of a European Hydrogen Bank by using resources from the Innovation Fund, which would secure €3 billion investment in the sector on top of the accelerated roll-out of renewable energy and the carbon contracts for difference to support the uptake of green hydrogen. This proposal comes as a response to the increasing competition on green hydrogen from other countries. For instance, a Bloomberg study indicates that by the mid-2020s Chinese electrolysers are likely to become more popular in Europe.
Besides the commitment to hydrogen, we did not find any concrete investment measures for innovative renewables and energy storage, upgrading our electricity grids or electrifying all industries. Furthermore, although the President acknowledged ‘a new reality of higher public debt’ in the context of the EU’s energy transition, there was no mention of operational strategies on how to spur market financing and tap into the potential of blended finance. Given the short time frame until the end of her mandate and the turbulent geopolitical climate, it remains to be seen if these ambitions will be translated into tangible policies fit for net zero.
On 13 September, the European Parliament’s adopted its position on the revamp of the Renewable Energy Directive (RED III) and the Energy Efficiency Directive (EED). On both RED III and EED, lawmakers strengthened the Commission’s proposals and put forward new measures to reach the 2030 climate targets.
On RED III, the European Parliament: (i) endorsed the raised share of renewables in the EU's final energy consumption to 45% by 2030; (ii) set an indicative target for Member States of innovative renewable energy technology of at least 5% of newly installed renewable energy capacity; and (iii) put forward a definition of renewable district heating and cooling systems based solely on renewable energies.
On EED, the European Parliament raised the energy savings targets to 40% in final energy consumption and proposed binding national energy efficiency targets, a measure we have advocated for repeatedly. As for next steps, the European Parliament is now ready get into negotiations with the Council and the Commission on the final shape of the RED III and EED legal texts.
By late October, Italy is set to have its first female Prime Minister, Giorgia Meloni. Ms. Meloni is known for her anti-EU rhetoric and rejection of the European Green Deal as climate fundamentalism. Although in her campaign there were no explicit mentions on her climate policy agenda apart from pledges of support to citizens for the rising energy costs, documents from her party in the context of the election shed some light on the incoming Prime Minister’s climate views. These include a focus on nuclear power, domestic natural gas extraction and a sharp criticism on the EU’s plan to ban diesel cars from 2035.
Impact on cleantech: Italy as the third biggest economy in the EU has a prominent role to play in the ongoing negotiations on Fit for 55 and the energy crisis interventions. There is ground to believe that the new government will not derail the EU’s climate agenda. The generous EU funding that Italy received in the context of the Recovery and Resilience Facility devotes 37% of total expenditure on measures that support climate objectives. In other words, this funding would not be accessible in case climate investments are not made.
