24 May 2024, 11:50
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EU

CLEW Guide – How the European Union is trying to legislate a path to net-zero

The European Union announced itself as a potential early climate champion in 2018 by pledging to reach climate-neutrality by 2050. Yet, rules and regulations are needed to bring emissions down sufficiently to make ‘climate neutrality’ a feasible reality. A lot of work has been done but much is still on the agenda. Politics clashes with policy, continuing to influence what degree of legislative ambition can be pursued. [UPDATES throughout]
Photo shows a corn field shared with wind turbines in Belgium. Source: European Union.
Renewables are key to the EU's move to climate neutrality, but the bloc has much to do still to transition in all sectors, including agriculture. Photo: European Union.

With its “CLEW Guide” series, the Clean Energy Wire newsroom and contributors from across Europe are providing journalists with a bird's-eye view of the climate-friendly transition from key countries and the bloc as a whole. You can also sign up to the weekly newsletter here to receive our "Dispatch from..." – weekly updates from Germany, France, Italy, Croatia, Poland and the EU on the need-to-know about the continent’s move to climate neutrality.

 

With contributions by Kira Taylor.

 

Content:

  1. Key background
  2. Major transition stories
  3. Sector overview

Key background

  • The EU aims to be ‘climate neutral’ by 2050 and has enshrined that target into its Climate Law. That means that greenhouse gases will have to drop to a net-zero level by mid-century, through reductions and removals;
  • A landmark set of policies, rules and legislation packaged under the ‘European Green Deal’ aim to align the EU with a climate-neutral trajectory, by reducing and eliminating emissions across all polluting sectors, while at the same time preserving economic growth and social cohesion;
  • Emissions must be reduced by a net 55 percent compared with 1990 levels by 2030. New rules governing clean energy, energy efficiency and transport, among others, have been introduced to meet this target. If implementation is successful, the current set of policies would reduce emissions by roughly 57 percent;
  • Climate regulation is a shared competence between the EU and its member countries, meaning that Brussels sets binding targets in areas where progress must be made in order to meet common objectives. National governments can set their own legally-binding targets in areas where the EU has not decided to exercise its powers; at the EU level, the legislative process starts with a proposal by the European Commission, which is then amended and negotiated by the European Parliament and the member state representatives in the Council;
  • EU surveys show that a vast majority of EU citizens support climate action policies, consider climate change a major threat and believe that efforts should be sped up rather than curtailed;
  • At a global level, the EU is an important power-broker in climate diplomacy and financing. The European Commission and European Investment Bank have both committed more than €2.5 billion each in annual climate finance for developing countries. The EU also acts as an important enabler for climate financing and action efforts by enhancing and aggregating the individual efforts of its member countries and its partners.
Graph shows EU-27's greenhouse gas emissions by sector from 1990-2021. Graph: CLEW/Narawad.
Graph: CLEW/Narawad.

Major transition stories

  • The EU is close to finalising the laws and regulations that will determine the climate and energy policy agenda until to 2030 – the so-called “Fit for 55” package. An important period of implementation is now looming as the governments of the 27-country bloc will be required to start meeting the objectives set down by the new rules, as well as adapting a whole host of standards and rules to their own specific national socio-economic situations;
  • EU-wide elections will be held in mid-2024. While often dominated by national topics, these polls will also be a litmus test of sorts for Brussels’ policies, delivering a political outcome that will determine whether even more ambitious rules can be rolled out in the next legislative cycle, which will run from 2024 to 2029;
  • How the tail end of the 30s and the beginning of the 40s are regulated will be a key story in the coming months and years. The European Commission suggested a 90 percent net reduction of greenhouse gases by 2040 in February, but this is non-binding and it is still to be seen whether this becomes law;

  • How Europe’s regions will transition toward the green economy will also be crucial as significant disparities still endure. Programmes like the Just Transition Fund, and other well-established financial assistance in the form of cohesion funding will aim to help bridge the gap. How regions spend that money will be crucial;
  • Europe’s place in the global energy transition will also be tested. With stated ambitions to be a rule maker and global player in important areas like green technology, climate standards and investment criteria, the EU will struggle to face up to the likes of China and the United States. Whether Brussels can rely on its regulatory clout to fight the financial firepower of its rivals will also be an important story to follow.

Sector overview

Graph shows EU-27's energy consumption by source 1990-2022. Graph: CLEW/Narawad.
Graph: CLEW/Narawad.

Energy

  • The energy sector is responsible for around 25 percent of the EU’s greenhouse emissions, making it the most polluting part of the bloc’s economy. Emissions have, however, fallen more than 40 percent since 1990;
  • In 2023, renewables reached a record 44% share of the EU's electricity mix. In overall electricity generation, nuclear held the top spot, producing 22.9%, and wind overtook gas for the first time to produce 17.6%;

  • Wind and solar combined enjoyed a record-setting year in 2022, overtaking fossil gas as the EU’s top source of electricity generation for the first time;
  • The EU’s new 2030 renewable energy target stipulates a renewables share of 42.5 percent of gross final energy consumption. The initial benchmark written into law in 2018 was just 32 percent but a 2021 proposal aimed to increase that to 40 percent. In 2022, as part of a sector-wide strategy to reduce the EU’s dependence on Russian energy imports, a 45-percent target was proposed. Governments and members of the European Parliament eventually settled on a 42.5 percent compromise in March 2023;
  • In 2021, the EU derived 22 percent of its energy from renewable sources, achieving its 20-percent 2020 target. Oil and petroleum products remained top of the ranking for final energy consumption;
  • EU countries vary greatly in terms of how much of their energy is sourced from renewables: Sweden and Finland lead the rankings, while Malta and Luxembourg lag the furthest behind;
  • Progress in this sector, particularly power generation, will hinge on developments in electricity grids across the Union, as lack of advanced infrastructure will limit the amount of clean energy that can be distributed. Renewable power associations urged governments and the EU in August to address the risk of curtailment – when clean energy generation is switched off due to lack of grid capacity – by improving grid resilience, developing 100 percent renewables scenarios and stepping up permitting and construction. The European Commission released an action plan in November 2023 to help improve the situation;
  • Following Russia’s invasion of Ukraine in 2022, EU energy policy has shifted in order to reduce dependencies on Russian hydrocarbons. This has meant fine-tuning existing policies as part of the REPowerEU strategy and other measures, such as joint gas purchasing and mandatory targets for gas storage. Energy imports from non-EU countries have decreased nearly 10 percent in early 2023 compared with 2021-2022 as a result.

Next big thing:

Forty-two point five percent renewables is a joint target that the EU must achieve as a whole, which means that all 27 member countries must make a significant-enough contribution to that effort. Each government must submit updated energy and climate plans (NECP) to detail exactly how they will meet all the new 2030 targets, including the renewables benchmark. These plans are still being drafted and the European Commission will work with governments in the coming months to improve their plans before finalising them in June 2024. This is an aspect of EU policymaking that often flies under the radar at national level.

Industry

  • Industry accounts for about 20 percent of total EU emissions and that contribution is gradually decreasing as manufacturers slowly adopt pollution-busting measures such as electrification and switching to hydrogen feedstock, which can produce zero-emissions if manufactured using clean energy;
  • The EU’s emission trading system (ETS) has been updated again in order to include more industrial sectors and maintain a high carbon price. But while pollution permits traded near the €100 mark in 2023 and the new reforms are expected to gradually push this price higher, the price has struggled in 2024, hitting a low of close to €50 in February. It has slowly recovered since;

  • Free permits that have previously been allocated to industrial sectors that are exposed to the carbon price will gradually be phased out between 2026 and 2034;
  • To assist industry and prevent carbon leakage – a phenomenon where businesses relocate to outside of a regulatory area to escape costs – the EU will impose a form of carbon border tax known as the carbon border adjustment mechanism (CBAM). Starting a transition phase in October 2023, CBAM imposes levies on certain imports that do not satisfy sustainability criteria. The initial list includes aluminium, cement, fertilisers, hydrogen, iron, steel and electricity imports;
  • A Net-Zero Industry Act was published in 2023 as a response to the United States’ Inflation Reduction Act — a federal law that offers tax credits and other financial perks for clean energy production across sectors — and aims to support industrial transition to a greener economy. Its final form is still to be determined but includes a priority list of technologies that should be given preferential treatment by regulators and self-sufficiency targets that mean the EU should meet 40 percent of its own deployment needs by 2030;
  • According to EU law, countries must increase the share of renewable energy by 1.6 percent per year, reaching at least 42 percent of hydrogen used in industrial processes like steel smelting should be sourced using clean power. That must increase to 60 percent by 2035;
  • Carbon capture, utilisation and storage (CCUS) is touted as a solution for hard to decarbonise industrial sectors such as the cement sector. The European Commission presented an industrial carbon management plan in February 2024, looking at how to develop the sector.

Next big thing:

EU industrial competitiveness has become a major topic recently and is likely to remain important as the EU competes with big markets, like the U.S. and China on clean tech manufacturing. The Net Zero Industry Act is seen as a response to the U.S.' green subsidy drive, but there are still fears that the EU may fall behind in the clean tech race.

Buildings

  • Forty percent of EU energy demand stems from the building sector and around 13 percent of emissions are produced by it, thanks largely to heating and cooling, as well as lighting;
  • Badly insulated buildings are the root cause of the sector’s immense energy and climate impact but annual renovation rates in the EU barely scrape above 1 percent. The EU’s main strategy, the Renovation Wave, aims to at least double those rates by 2030;
  • Two main pieces of legislation govern the buildings sector in the EU: the energy performance of buildings directive (EPBD) and the energy efficiency directive (EED). Both have been revised under the Green Deal;
  • According to the new EED, total combined energy savings of 11.7 percent must be met by 2030 and unlike previous iterations, that target is mandatory rather than voluntary. Annual savings of at least 1.5 percent must be met by EU countries;
  • Under the REPowerEU plan, an additional 10 million heat pump installations are to be installed by 2027 as part of a push to reduce the energy impact of heating and cooling buildings. A push to phase out ‘stand alone’ boilers that do not have any hybrid elements by 2029 should mean that number could top 30 million, according to the European Commission;
  • Buildings will also for the first time be subject to emissions trading as part of a separate carbon market – the ETS II (See Transport section below for details). A new instrument known as the Social Climate Fund was established to help cushion households from extra financial burdens caused by the addition of carbon pricing. The fund should provide more than €60 billion between 2026 and 2032.

Mobility

Next big thing:

Engine standards mean new sales of cars powered by internal combustion engines will not be allowed after 2035. Germany’s ongoing push to get exemptions for synthetic e-fuels and allow the continued sale of new ICE cars after that date is still being considered by the European Commission. The President of the European Commission Ursula von der Leyen, who is a member of the German Conservatives (CDU), agreed with senior representatives of her party that the ban on combustion engines scheduled for 2035 should be reviewed immediately after the European election in June, according to German Table Media citing sources from the German conservative party.

Agriculture & land use

  • Agricultural emissions account for about 11 percent of the EU’s total greenhouse gases and are largely comprised of methane and nitrogen. CO2 and other polluting gases make up a comparatively small proportion of the total;
  • Sector emissions have remained relatively stable in recent years, and only a 2 percent decrease by 2030 compared to 2005 levels is projected under current policies. Government plans across the EU could increase that figure to 6 percent if implemented;
  • Agriculture emissions are governed by the Effort Sharing Regulation (ESR), which aims to reduce emissions in covered sectors by 30 percent by 2030 compared to 2005. Given that little progress is expected in agriculture, bigger cuts will have to be made in other sectors such as waste, buildings and road transport;
  • Agriculture is also subject to the Land use, land-use change and forestry (LULUCF) regulation, which governs how EU land use contributes to climate goals. By 2030, land-based net removals of CO2 by carbon sinks should reach 310 million tonnes, a 15 percent increase on current levels. This means that governments will have to make provisions for agriculture’s role in their Common Agriculture Policy (CAP) planning;
  • When the ETS was revised most recently, policymakers decided to keep the sector out of the carbon market, meaning CO2 emissions from agricultural equipment – predominantly diesel – are not subject to pollution pricing.

Next big thing:

European Commission president Ursula von der Leyen used her speech to the European Parliament on 6 February to announce that the EU Commission was withdrawing the proposal for the SUR Regulation, which aims to halve the use of pesticides by 2030. The Commission is to develop a "new, much more mature proposal", she said. However, this will not come before the European elections on 6-9 June. The withdrawal of the SUR is one of the concessions made in the wake of the farmers' protests that have recently characterised the agricultural policy debate in Brussels and Strasbourg.

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