Cleantech becomes part of the EU’s energy independence strategy, carbon pricing and Davos - May Policy Update

Our Policy key news from the past month in Brussels – and their potential impact on EU cleantech. This month, we explore the REPowerEU plan, the ENVI vote on carbon pricing, a new Commission proposal for a debt-equity bias reduction allowance and the latest updates on the First Movers Coalition and the US-EU Trade and Technology Council.

Cleantech for energy security

The European Commission published its REPowerEU plan to wean off Russian energy imports and keep prices under control. The REPowerEUplan recognises cleantech as a strategic priority for the EU and sets forth measures to ramping-up energy savings, boosting renewables and diversifying European supplies of oil and gas.

Positives of the plan:

• 96% of REPowerEU investments by 2030 are foreseen to be for non-fossil fuel infrastructure
• Electrification and energy efficiency are recognised as key drivers  
• Fast-track permitting of renewable projects
• EU-wide scheme of carbon contracts for difference to support renewable hydrogen
• Reference to several key cleantechs to support the transition – including energy storage, hydrogen pathways for industry, geothermal

However, the plan is still heavily reliant on fossil fuels:

•  Increased purchases of gas
• Large investments in LNG infrastructure
• Using allowances from the ETS Market Stability Reserve to fund gas infrastructure
•  Lack of operational strategies to deploy cleantech solutions
• Lack of funding to kick-start renovations

The Commission also unveiled bespoke strategies for solar energy, energy savings and fostering long-term relations with new energy partners to support the main objectives of the REPowerEU plan.

_{Read more: European Commission | REPowerEU Communication}

ENVI voted for an ambitious carbon market reform

The European Parliament’s Committee in charge of environmental affairs (ENVI) adopted its position on carbon pricing (the Emissions Trading System, along with a Carbon Border Adjustment Mechanism for imports, or CBAM). On both files, MEPs endorsed ambitious legislative amendments to incentivise heavy industries to reduce their emissions faster and invest in cleaner technologies.

On the EU ETS, they agreed to:

•  Phase out  free allowances by 2030
• Revise the free carbon permits allocation rules to include cleantech innovators
• Earmark all carbon pricing revenues to climate action
• Repurpose the Innovation Fund’s and increase its firepower to be able to fund existing technologies

On CBAM, they agreed to:

• Extend its scope to cover additional products such as organic chemicals, plastics, hydrogen and ammonia
• Allocate  a portion of its revenues toward the decarbonisation of least developed countries

Next, the European Parliament plenary vote on its final position on 7 June. As many of the amendments both on EU ETS and CBAM were adopted with a slim majority in the ENVI committee, it will be an uphill battle to keep them as ambitious in the final version.

Impact on cleantech:
If ENVI’s position ends up being adopted by the European Parliament plenary, it means that in 2030 we can have an effective carbon price, which will be a significant boon for the wide deployment of technologies to produce green steel production, cement and chemicals, renewable hydrogen and many more. In case the plenary diverges from ENVI’s stance, this would result in the delay of industrial decarbonisation.

_{Read more: Euractiv | No Done Deal on EU Carbon Market Reform}

New proposal to mitigate the debt/equity bias in taxation

The European Commission unveiled a proposal for the reduction of debt-equity bias (DEBRA). Tax debt-equity bias arises from the preferential Tax treatment of debt vis-à-vis equity financing costs. DEBRA’s objective is to fix this discrepancy and hence reduce EU companies’ reliance on debt funding. It provides that increases in a company’s equity from one tax year to the next should be deductible from its taxable base as is currently the case with debt funding. As this is a tax file, the European Council will play the key role in this process. Once the proposal is adopted by the Council, it should be transposed into Member States’ national law by 31 December 2023 and enter into force as of 1 January 2024.

Impact on cleantech:
As equity financing is the prevalent form of funding for cleantech ventures, an  equal tax treatment of debt and equity financing could alleviate the investment gaps associated with the scaling up of cleantech.

_{Read more: Euractiv | EU Commission proposes tax cut to incentivise equity investments}

Cleantech announcements in Davos

This year’s World Economic Forum Annual Meeting featured predominantly the importance of  joint public and private sector efforts to deploy clean technologies more widely in the context of energy security. The First Movers Coalition is a public-private partnership launched at COP26 aiming at creating early markets for critical clean technologies to decarbonise various sectors ranging from heavy industry to long-distance transport. At Davos, the US Presidential Climate Envoy John Kerry announced the expansion of the First Movers Coalition to include 55 large companies and nine government partners committed to buying zero carbon technologies in sectors including steel, aluminum, shipping, trucking and aviation and carbon dioxide removal solutions. Underlining the urgency to transition to cleantech, John Kerry warned that if we want to get to net zero by 2050, ‘we have to deploy renewables six times faster than we are now.. and adopt electric vehicles 22 times faster.’

Impact on cleantech:
The fact that this commitment comes jointly from the private and public sector sends a transatlantic market demand signal, which might accelerate the adoption of clean technologies.

_{Read more: NYT | Corporations Pledge to Buy ‘Green’ at Davos Gathering}

A new transatlantic partnership for cleantech?

Following the second Ministerial Meeting of the US-EU Trade and Technology Council (TTC) in Paris, the Members issued a joint statement announcing among other things their intention to work toward a joint EU-US initiative incorporating sustainability considerations in public procurement. They also indicated that they have begun expert level discussions on methodologies for measuring carbon footprint of selected products. They also indicated that they are developing a list of critical and emerging technologies that they will prioritise in their coordination on technology standards. These technologies include additive manufacturing ,megawatt charging systems for heavy-duty recharging points, recycling of materials, digital identity and Internet of Things.

Impact on cleantech:
The TTC presents an opportunity to set transatlantic standards for clean technologies, providing larger markets for innovative products.

_{Read more:‍ WSJ | Russian Invasion Intensifies Role of New U.S.-EU Tech Council}

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