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The REPowerEU Plan – The EU Commission’s response to the energy market disruptions

May 24, 2022

On 18 May 2022, the EU Commission presented the REPowerEU Plan in response to the current world-wide energy market disruptions which have been caused by Russia’s invasion of Ukraine.

The aim of the plan, which builds on the ‘Fit for 55’ package of proposals from last year, is to transform the energy system within Europe by ending the EU’s dependence on Russian fossil fuels as well as to tackle the climate crisis. The plan proposes various measures on energy savings, diversification of energy supplies and the accelerated roll-out of renewable energy to replace fossil fuels.

The Recovery and Resilience Facility (RRF) - the EU recovery instrument aiming to mitigate the economic and social impact of the coronavirus pandemic - will be the main instrument under the REPowerEU Plan and will be used to support planning and financing of cross-border and national infrastructure, energy projects and reforms. The Commission proposes to make amendments to the RRF Regulation to integrate specific REPowerEU chapters in Member States’ existing recovery and resilience plans (RRPs). The Commission will also feed the country specific recommendations in the 2022 European Semester cycle into the process.

The REPowerEU Plan focuses on the following measures:

  • Saving energy

The Commission proposes to increase the long-term energy efficiency measures, such as an increase of the EU’s energy efficiency target for 2030 from 9% to 13% under the ‘Fit for 55’ package of the European Green Deal. On the same day as it published the REPowerEU plan, the Commission also published an  ‘EU Save Energy’ communication, where short-term measures are proposed which could cut gas and oil demand by 5 % and in which Member states are encouraged to start specific communication campaigns targeting households and industry to implement those measures. Member States will be further encouraged to use fiscal measures, such as reduced VAT rates on e.g. energy efficient heating systems, in order to encourage energy savings.

  • Diversifying supplies by working together with international partners

A newly established EU Energy Platform is meant to enable voluntary common purchase of gas, LNG and hydrogen by pooling demand. The Commission will also, as a next step, consider the developing of a ‘joint purchasing mechanism’ which will negotiate and contract gas purchases on the behalf of participating Member States, duplicating the common vaccine purchasing programme.

The EU External Energy Strategy, also adopted by the Commission on 18 May 2022, will facilitate energy diversification and strengthening long-term partnerships with suppliers, including cooperation on hydrogen or other green technologies. The Strategy prioritises the global green and just energy transition, increasing energy savings and efficiency to reduce the pressure on prices, boosting the development of renewables and hydrogen, and stepping up energy diplomacy.

  • The rollout of renewable energy will be accelerated

The Commission proposes to increase the 2030 target for renewable energy from 40% to 45% under the ‘Fit for 55’ package in order to accelerate EU’s energy independence and reduce prices. The Commission’s idea is that this should set the framework for other initiatives, such as

  • an EU Solar Strategy to double solar photovoltaic capacity by 2025 and install 600GW by 2030,
  • a Solar Rooftop Initiative with a phased-in legal obligation to install solar panels on new public and commercial buildings and new residential buildings
  • Doubling of the rate of deployment of heat pumps, and measures to integrate geothermal and solar thermal energy in modernised district and communal heating systems.
  • a Commission Recommendation on how to tackle slow and complex permitting for major renewable projects and an amendment to the Renewable Energy Directive (RED II) in which renewable energy will be recognised as an overriding public interest.
  • Setting a target of 10 million tonnes of domestic renewable hydrogen production and 10 million tonnes of imports by 2030, to replace natural gas, coal and oil in hard-to-decarbonise industries and transport sectors – the Commission will also publish two delegated acts on the definition and production of renewable hydrogen.
  • A Biomethane Action Plan sets out tools including a new biomethane industrial partnership and financial incentives to increase production to 35bcm by 2030, including through the Common Agricultural Policy.

 

  • Fossil fuel consumption in industry and transport will be reduced

The Commission will introduce carbon contracts for difference to encourage the uptake of green hydrogen by industry and also make specific financing available under the Innovation Fund – the EU funding programmes for the demonstration of innovative low-carbon technologies, using emission trading revenues to decrease the dependency on Russian fossil fuels. The Commission will also give guidance on renewable energy and power purchase agreements. The Commission further proposes to establish an EU Solar Industry Alliance and a large-scale skills partnership. Moreover, the Commission plans to present a ‘Greening of Freight Package’, with the aim to increase energy efficiency in the transport sector and will also consider a legislative initiative to increase the share of zero emission vehicles in public and corporate car fleets.

  • Additional funding will be made available

The Commission estimates the additional investment necessary under the REPowerEU Plan until 2027 to 210 billion euro. To support the plan, the Commission points to 225 billion euro already being available in loans under the RRF and on the day of publication of the Plan it also published legislation and guidance to Member States on how to modify and complement their RRPs in the context of REPowerEU. In addition, the Commission proposes to increase the budget of the RRF with 20 billion euros in grants from the sale of EU Emission Trading System allowances (ETS allowances), which are currently held in the Market Stability Reserve. The Commission further indicates that an additional 26.9 billion euros from cohesion funds could be made available in voluntary transfers to the RRF and that a further 7.5 billion euros from the Common Agricultural Policy is made available through voluntary transfers to the RRF.

  • The way forward

The Commission is calling for a speedy adoption of the proposals under the plan in order to rapidly phase out the EU’s dependency on Russian fossil fuels. The proposals must now be approved by the European Parliament and the Council. It is, however, unlikely that the Plan will be approved by the Parliament as it stands today. Two days before the REPower EU Plan was published, the European Parliament's environment committee published a proposal which would drastically reduce the ETS allowances – not increase them by allowing the sale of 20 billion euros worth of allowances, as proposed by the Commission under the EU Plan. Environmental groups have also voiced concerns over the speedy acceleration of the proposals under the REPower EU Plan as it risks a roll-back of environmental legislation and to undermine the objectives of the European Green Deal – for example, the proposal to make renewable energy an overriding ‘public interest’ which would allow for faster permitting processes for e.g. wind farms, could potentially undermine nature protection and exclude local authorities, citizens and experts from participating in the permitting processes. Another point that has been made is that the proposal to replace Russian gas with LNG could prove to be problematic as LNG is very costly and highly attractive on the global markets.

The path towards an energy market free of Russian gas is not without obstacles, requiring the redesigning of energy infrastructure and ensuring that industries and households have access to energy, while mitigating climate risk, high energy prices and diversifying suppliers to ensure a secure, and environmentally friendly, access to energy.

Please find the REPowerEU Plan in full version here>>>

 

 

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