EU at a Crossroads on Climate and Energy Policy – June Policy Update

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:

  • The European Parliament’s and Council’s position on carbon pricing
  • The idea of a carbon price floor
  • The ENVI & ECON joint committee vote on the Taxonomy Complementary Delegated Act
  • The Commission’s proposal on streamlining permitting for renewables
  • The effort to make Horizon Europe fit for energy independence
  • The latest on the G7 summit

Toward a revised EU carbon price

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:

  • Revising benchmarks to enable sustainable front-runners to compete at a level playing field with incumbents
  • Phasing out free allowances by 2032, ending the regime of free permits to pollute for industry
  • Implementing CBAM on the emissions resulting from the production of imported products in 2032
  • Providing export rebates for the most efficient EU installations – this in the form of free allowances for any goods exported to countries without a carbon pricing mechanism
  •  Increasing the budget of the Innovation Fund, which will be renamed as Climate Investment Fund, to also provide support to mature clean technologies

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.

Impact on cleantech:
Putting a price on carbon is the most cost-effective way of curbing the negative externalities of emissions, and a key way to harness market forces and drive cleantech innovation. Today, the carbon price exists in name only for heavy industry, as installations receive free allowances to offset the price of carbon they should be paying. An ambitious reform would mean a level-playing field for clean technologies, especially for renewable hydrogen, green steel, low-clinker cement and green chemistry.

Read more here.

Making the case for a minimum carbon price in the EU

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.

Impact on cleantech:
A carbon price floor would make a number of clean technologies bankable.
To offer one example - the case of producing green steel: Columbia University estimates the current marginal CO2 abatement being at €325/ton. Implementing a rising floor price of €30 in 2022, €70 in 2025 and €120 in 2030 would mean that green steel could be cost-competitive by 2030 if the technology went down the cost curve from €325/ton today to €120/ton in 2030. The rest of the costs will be covered by the carbon floor price.

Read more here.

Member States reach agreement on Fit for 55 files

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.

Impact on cleantech:
The final form of the Fit for 55 will define whether Europe will be a global leader in the creation and deployment of cleantech or not. Boosting energy efficiency, offering faster access to renewable energy,  emboldening car manufacturers to invest in electrification as well as higher funding support are key elements for making the EU fit for clean industrial leadership.

Read more here.

Accelerating renewables permitting

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.

Impact on cleantech:
Addressing the permitting bottlenecks that are preventing the expansion of renewable projects such as in wind and solar power could act as a springboard for renewable hydrogen and industrial decarbonisation at large.

Read more here.

Green-stamping gas?

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.

Impact on cleantech:
Labelling gas as green will undermine the credibility of the Taxonomy as the gold standard for sustainable investment. It would also aggravate the current energy crisis by diverting investments from sustainable solutions.

Read more here.

France at a turning point on climate policy

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.

Impact on cleantech:
France has a key role to play in the negotiations of the Fit for 55 proposals in the course of2022 and 2023 which can unlock the uptake of cleantech. At the same time, the fate of the France 2030 plan will also be decided by the alignment between the French National Assembly and the Presidency.

Read more here.

Making Horizon Europe fit for energy independence

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.

Impact on cleantech:
Including more innovative clean technologies in the Horizon Europe Work Programme would help develop a pipeline of technologies for the next stages of decarbonization, beyond 2030.

Read more here.

G7 reversing global climate trajectory?

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.

Impact on cleantech:
The development of an International Climate Club could mean that member countries will agree on common more ambitious climate policies to stimulate the uptake of cleantech.

Read more here.

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