EU at a Crossroads on Climate and Energy Policy – June Policy Update
July 5, 2022
Our Policy Update shares key news from the past month in Brussels, as well as their potential impact on EU cleantech. This month, we dive into the blow-by-blow negotiations on key climate files:
On 22 June, the European Parliament successfully adopted its new cross-party compromise position on EU Emissions Trading System (EU ETS) and carbon border adjustment mechanism (CBAM). Key provisions of the Parliament’s position include:
The European Council also reached its final position on the topic – in a much less progressive stance than the European Parliament. It called, among other things, for the phasing out of free allowances and the full implementation of CBAM by 2035. On the Innovation Fund front, the Council proposed a weakened budget. Next, expect negotiations between the European Commission, Parliament and Council to align on the final version of the text.
On a related topic, Cleantech for Europe, alongside EPICO Klima Innovation and Jacques Delors Institute, published a blueprint outlining how the EU could implement a carbon price floor. This would offer greater certainty to investors and companies, ensuring them that it investing in clean technologies pays off.
A carbon price floor is currently absent from the EU’s carbon market reform. Nevertheless, the idea of a carbon price floor has existed for some time in Member States such as Germany, Denmark and the Netherlands. Recently, the concept gained traction among MEPs in the European Parliament. Green MEPs Toussaint and Lamberts co-authored a report earlier in the year arguing that a carbon floor price would contribute to a strong and stable carbon price signal.
The last days of the French Presidency of the Council were busy with EU Ministers reaching agreement on key files of the Commission’s Fit for 55 legislative package. Among others, these proposals included:
1) An agreement that by 2035 all new cars and vans would need to be 100%emissions-free, in effect banning new petrol cars and pushing the car industry to reinvent itself in the next decade. In this regard, they also proposed an intermediate emissions target of 55% for cars and 50% for vans for 2030.
2) On the Renewable Energy Directive, the Council agreed on a 40% renewable energy target by 2030,which falls short of the 45% target that the Commission proposed as part of its REPowerEU plan to cut dependence from Russian fossil energy imports.
3) On the Energy Efficiency Directive, Member States failed to agree on a binding primary energy consumption target (i.e. how much energy goes into the energy production, conversion and transmission process).
Now, the Council and the European Parliament will have to find compromises on these files. Meanwhile, Austria, Germany, Denmark, Spain, Finland, Ireland, Luxembourg, the Netherlands, Sweden, and Slovenia issued a joint statement, cautioning both their Council counterparts and the European Parliament not to water down the climate ambition in the Fit for 55, which could derail Europe’s zero carbon future.
As part of the EU’s plan to wean off Russian energy imports, the European Commission wants to drastically speed up permitting processes for renewable energy – and is currently seeking input on its proposal. The Commission’s proposal recognises renewable energy as an overriding public interest. This means that the build-out of renewables can be prioritised in the current energy crisis on a case-by-case basis. The Commission proposes the development of renewable “go-to” areas that Member States need to set up and provides for the approval of permits for the “go-to” areas within one year. Alongside the draft law on permitting, the Commission also published detailed guidance for Member States on how they can simplify their permitting rules and procedures. Both Member States and the European Parliament are aligned with the swifter permitting for renewables, which means that the adoption of the final legislation is unlikely to face any major roadblocks.
On 14 June, the European Parliament Committees in charge of economic affairs (ECON) and environmental affairs (ENVI) objected against the qualification of gas investments as green under the EU’s green investments’ classification list, commonly known as the “Taxonomy”, by voting to reject a Complementary Delegated Act on the matter. Labelling gas as green would mean cleantech investments would compete with gas in the sustainable finance market. This comes at the worst possible time, when we need to wean ourselves off Russian energy imports and prioritise truly sustainable solutions. On 6 July, the European Parliament will give its final verdict in a plenary session. In case the Parliament decides against its inclusion, the Commission will then have to either withdraw or amend its proposal.
Following his reelection as President two months ago, Emmanuel Macron is now facing an unprecedented situation, having lost control of the French National Assembly. While Macron’s party secured 245 seats out of a total of 577, it fell short of the 289 seats needed for the absolute majority it received five years ago. The far-right National Rally is now the second-largest party in the French National Assembly, which means that cobbling together enough lawmakers to pass Mr. Macron’s agenda will not be an easy task.
Amélie de Montchalin, chosen by Macron to be in charge of his energy transition portfolio was defeated in the election. Christophe Béchu, mayor of the Loire city of Angers, took over the energy transition portfolio. Mr. Béchu has not previously been involved in energy policy. On 29 June, the French High Council on Climate warned that France is not doing enough to address climate change and reach its 2030 objectives.
On 9 June, Cleantech for Europe, together with 16 leading investors and climate organisations, sent a letter urging the European Commission to prioritise the development and deployment of the clean technologies we need to reach energy independence in Horizon Europe. In line with the REPowerEU plan, the letter puts forward a list of key technologies which are either missing or underrepresented in the Horizon Europe Work Programme, and are crucial to the EU’s energy security. These technologies range from direct air capture, green steel, low-clinker cement to energy efficiency innovations.
On 26-28June, the G7 leaders met in Germany to discuss, among other things, energy security and the low-carbon transition of their economies. Two developments stand out from this meeting:
1. The commitment to stop financing international fossil fuel projects by the end of 2022, but with the caveat that investment in gas is a necessary temporary response to the current energy crisis.
2. The creation of an international Climate Club by the end of 2022, an idea spearheaded by Germany. The proposed climate club will focus on: greening heavy industry, expanding markets for green industrial products and coordinating on climate policies.
