The new energy Package, or the Fit for 55's logical sequel
This week, the European Commission published a set of legislative and policy initiatives as to follow-up on July’s Fit for 55 Package, which aims to achieve a 55% emission reduction target on 1990 levels by 2030. This new Package takes forward the ambition of the European Climate Law for Europe to be climate-neutral by 2050, which received political agreement earlier this year.
The energy proposals include:
Separately, the Commission published several transport proposals, that will among other things boost pan-European rail connections or provide a toolbox for cities to develop urban mobility plans that offer alternatives to cars.
These two sets of proposals will profoundly impact Europe's decarbonization pathway. In light of current energy price spikes, the proposals also include language allowing Member States to adjust natural gas prices for vulnerable households.
In detail, what’s in the Package?
Reducing methane emissions in the energy sector: This new legislative proposal for a Regulation on methane emissions reduction in the energy sector builds on the EU's 2020 methane strategy. It is a move to implement the Global Methane Pledge given at COP26 in Glasgow, whereby the EU and the US committed to reducing global methane emissions by 30% by 2030. The proposed Regulation combines horizontal measures with sector-specific actions (energy, waste and agriculture). It includes, for example, the establishment of a "digital carbon navigator" by 2022 to calculate greenhouse gas emissions and their removal from the atmosphere through sequestration methods, such as carbon farming; compulsory measurement, reporting, and verification (MRV) of methane emissions and an obligation to improve leak detection and swift repair of leaks; mitigation and strict limitation of routine venting and flaring in the energy sector. One of the most important provisions of this Regulation is the new obligation for transparency and monitoring of emission reduction efforts for importers from outside the EU, after critics emanated from within the bloc regarding non-EU methane importers.
The revision of the third energy Package for gas: The Commission acknowledges that increasing hydrogen demand will require dedicated hydrogen infrastructure. While accepting that future hydrogen pipeline networks may be subsidized using revenues from natural gas networks for a limited time, the Commission wants to create a dedicated hydrogen network by 2030. It should be fully unbundled, meaning that natural gas and hydrogen network operators will separate. The Commission will also establish a European Network of Network Operators for Hydrogen (ENNOH). By 2024, the EU will roll out a certification system for renewable and low-carbon gases based on a life-cycle assessment of the fuels' emissions. Eligible gases will then benefit from preferential tariffs to support their access to infrastructure. To further bolster energy security, the Commission proposes improving the gas system's resilience and strengthening the existing security of supply provisions. A new framework will ensure solidarity across borders through pre-defined arrangements and clarifications on controls and compensations within the internal energy market. The proposal also enables voluntary joint procurement by Member States to build strategic energy stocks.
Sustainable carbon cycles communication: The Communication outlines a three-pillar strategy to achieve climate neutrality in the EU, which comprises namely (i) the drastic reduction of reliance on carbon in a bio-economy (ii) the uptake of carbon recycling from available sources in an increasingly circular economy (iii) the upscaling of carbon removal solutions that capture CO2 and store it long term either in ecosystems or through industrial solutions. The Commission set out key actions to support each of these pillars, including introducing carbon farming credits for the land management sector or plans to establish a market for industrial carbon capture, storage and use (CCUS). The EU's ambition is to report on any ton of CO2 captured, transported, used and stored by 2028 and to have 20% of the carbon used in the plastic and chemical industries coming from non-fossil sources by 2030. A forthcoming legislative proposal by the end of 2022 will create a certification system to allow trading of carbon removal credits. The EU’s strategy is to first focus on the certification of EU-based removals so as to create a reliable benchmark before opening the trade of carbon removal credits to global solutions.
To be (ambitious), or not to be, that is the question.
The European Commission had soft-launched the Package over the last weeks, and the final proposals contained no significant surprises. However, recent concerns from policymakers and civil society over soaring energy costs led to the inclusion of additional consumer protection measures in this Package.
Some will criticise the Package for lack of ambition, such as the absence of a ban of fossil fuel boilers in new buildings or missing obligations for third country importers to fully comply with EU methane reduction efforts. Overall, however, the Package puts the EU on track to become a pioneer in several areas, such as a clear policy on methane reductions, the weaning off from unabated fossil fuel imports by 2049, or creating a framework for low-carbon gases and a market for carbon removals. Several of these measures will have substantial operational and/or cost impacts on EU companies. The Commission proposes to strengthen or create a number of funding programs to help implement the transition.
Discussions in the Council will be challenging, especially on methane reductions and the decarbonisation of the gas sector. Ongoing discussions of the FF55 proposals (in particular the RED, ETD, ETS, and EED proposals) and the nuclear/gas taxonomy dispute demonstrate that Member State governments will take their positions in the Council based on a detailed, national assessment of costs and opportunities for their local industries. Agreeing and implementing these proposals will take time, and the final rules could look very different from what we see now.
Corentin Lescroart is a Consultant at Flint. He wrote this piece with input from Flint Partner Daniel Brinkwerth. To find out more about how Flint can help you navigate these developments’ risks and opportunities, get in touch.
