Newsletter 2.2022
Dear reader,
Welcome to the second EUROFUEL newsletter of this year! This edition looks closely at the unprecedented events unfolding in Ukraine, with an eye on the potential impact the crisis will have for the European Energy market, and how it will inevitably influence the EU’s energy agenda, including some of the key proposals under the Fit for 55 Package, which are now progressing at full speed.
It is certainly very hard at this stage to predict and evaluate the full magnitude of the consequences that Russia’s actions and the subsequent western sanctions will have. Nevertheless, the new EC Communication on energy prices, now renamed REPowerEU, published on March 8 clearly gives an indication of the road the EU wishes to take moving forward; With a new focus on reducing the EU dependency on Russian fossil fuels, the Communications puts on the table a list of measures ranging from increasing storage levels to temporary price limits, all while speeding up the roll-out of renewable gases and replace gas in heating and power generation.
These “wartime” measures, as some have called them, are very ambitious, and will require a collective effort to be successful. So much so that in presenting the communication, Commission Vice President Frans Timmermans called upon EU citizens directly to do their part by lowering their heating by one degree. A move that could cut gas consumption by 10 billion cubic metres over the coming year.
However, this doesn’t seem to stop the EU debate at this stage. How to decarbonise buildings is a very controversial debate in Brussels, with numerous economic and social considerations impacting fundamental files such as the new ETS for transport and buildings and the Social Climate Fund, while the exchange on the RED2 review are progressing and the debate on the European Performance of Building Directive is just starting.
In such an evolving and challenging environment, it is crucial for our industry to remain pro-active, while having in mind the geopolitical context. The liquid heating fuel industry must be committed to take up the challenge and actively engage on all the relevant files currently being debated to ensure that the contribution of low carbon fuels towards a more sustainable and reliable energy system is fully recognised.
Yours,
Dr Ernst-Moritz Bellingen
Energy Prices Spikes and crisis in Ukraine are affecting the transition agenda
In the midst of the ongoing legislative process on the numerous files of the EU ’Fit for 55’ package, a reality check is once again putting an emphasis on the social implications of the energy transition and forces to ask questions on how Europe could deliver on its ambition of at least 55% greenhouse gas (GHG) emissions reductions by 2030.
Recent events in Ukraine are driving the already high energy prices to new hights (natural gas in Europe now costs as much as €150 per megawatt hour (MWh), compared with an average of €49/MWh last year), directly threatening economic growth, consumers and companies all over Europe.
To deal with this unprecedented situation, the European Commission decided to repurpose the expected Communication on energy prices in order to adapt its strategy and identify the appropriate actions to take to alleviate the crisis and set a clear path “to make Europe independent from Russian fossil fuels well before 2030”. Published on 8 March, the Communication aims at reducing the use of natural gas in absolute terms, while building up renewable energy capacity, implementing energy savings and providing support for affected households and businesses.
Some of the proposed actions include:
- Boosting LNG supplies, coordinating with global purchaser to avoid price spikes.
- A “New Energy Compact” to front-load the EU’s targeted renewables output as a percentage of its overall energy mix, which is expected to reduce reliance on gas by 23%.
- Stepping up energy efficiency and demand response with the implementation of EED and EPBD, which would lead to a reduction in gas demand worth 17bn m3 by 2030.
- Deployment of an Hydrogen Accelerator to support production and transport of renewable hydrogen, including advocating for converting natural gas projects to renewable hydrogen projects.
- Bring 35bn m3 of biogas online by 2030, to be produced using organic waste materials. (For reference, in 2018 the EU produced about 2.3bn m3, so this would be a significant jump).
- Ensure an EU average level of gas storage filling of at least 80% by 30 September
In addition, ad hoc measures are considered to support businesses and citizens in coping with the rising energy prices, such as a review of state aid rules and even potential price limits.
How those ambitious goals will be reached is still uncertain. What it is clear however, is that the energy transition is now more difficult to achieve, and more urgent. With little hope for improvement in the short term. As of now, renewable energy production is not yet enough to replace both gas and coal, which means the decline in coal will likely be slowing down to allow the scarce renewables available to be used to replace Russian gas. In addition, further price increases (fuelled by an ETS, energy taxation and geopolitical crisis) will also likely erode public support for climate measures if there is an impression that they lead to higher prices. Thus, slowing down investments in cleaner alternatives.
The current situation perfectly shows how the whole energy system is interlinked. This is true for prices. This is also true when weighting the options for the decarbonisation of the heating sector: the trend to ban fossil fuels in heating, pushes the policymakers’ favoured alternative option, which is electrification, to decarbonise even faster as the demands grow.
For this reason, while some advocates that this demonstrates the need to accelerate the energy transition toward renewables, several stakeholders, including Eurofuel, are concerned that an over-dependence on clean but expensive electricity will exacerbate fuel poverty. As CLER, an energy transition association based in Paris, put it: “we need to make sure that electric heating is not the only solution. Electric heating is expensive and can induce a lot of energy poverty”.
A clear and strong message that we fully support.
Fit for 55 files are picking up speed
Both Parliament and Council are getting busy with the different files from the Fit for 55 Package. Most of the files have been assigned to relevant Committees and MEPs in the European Parliament, positions staked, and, under the push of the French Presidency, decision-makers and stakeholders are bracing for at least six months of amendments, negotiations and votes.
Significant progress is being made in particular on some of the most sensitive files for our industry, such as the new ETS for buildings and transport - and the related proposal for the establishment of a Social Climate Fund and the REDII review.
Of note are the recent developments on the ETS proposal, where in his Draft report the ENVI rapporteur, Peter Liese (Germany, EPP), suggested extending the scope of the new mechanism to all fuels “to ensure a level playing field and close gaps between the existing and new ETS (notably process heating in smaller installations)”.
All the while, MEPs with whom Eurofuel had meetings pushed for a better recognition of low carbon fuels in heating, in addition to renewable electricity in their Amendments to the Draft opinion of the ITRE committee.
Nevertheless, strong disagreements still persist on the very nature of an ETS for buildings and road transport, with several policymakers, including influent MEP Pascal Canfin (RE, France), warning against social unrest if it went through, and others declaring that it would “put a disproportionate burden on citizens” while “its impact on climate protection would be limited.”
Those disagreements are also affecting the debate on the Social Climate Fund, with some calling for a decoupling of the Fund from the ETS altogether.
On the recast of the Renewable Energy Directive instead, the draft report for the leading committee ITRE was published on February 14. Although it is only a first take, Eurofuel appreciates the rapporteur willingness to have a level-playing field, indicating that “the same fossil fuel comparator should be applied for the calculation of GHG savings for both renewable electricity and renewable fuels. Otherwise, it would result in unequal treatment. The Commission proposes a GHG calculation methodology that would lead to disproportionality high GHG savings for renewable electricity in transport”. Quite significant is also the request to provide requirements for technical, functional, and economic feasibility assessment for buildings.
On the other hand, work is finally about to start on a impactful file for the heating sector: the Energy Performance of Buildings Directive (EPBD). On 14 February the European Parliament appointed Ciarán Cuffe (Green, Ireland), a former architect and urban planner, as rapporteur for the file. To have an idea of his opening position, it is worth mentioning that while his previous work on the Report on maximising the energy efficiency potential of the EU building stock in 2020 clearly indicates his support for scrapping schemes for fossil fuel heating devices, during the Commission’s presentation of the EBPD in the Parliament Mr Cuffe also pointed out the importance to encourage deep renovations prioritising low-income households to address energy poverty.
All in all, a challenging time that will see Eurofuel push hard to make the voice of our industry heard to advocate for the role of liquid fuels in heating.
3rd Bioheatingoil Conference of Swissoil
After the last bioheatingoil conference could only take place virtually, Swissoil and Avenergy Suisse were very happy that their this year’s 3rd Bioheatingoil conference for their members could take place in hybrid form with an audience on site on March 8. The 45 participants on site, and the about 100 online participants showed that there is a great interest in the topic of biofuels in Switzerland.
After some presentations about the field tests and the political situation of biofuels in Switzerland, the focus of the further presentations was the international situation of bioheatingoil. Reports from Germany, Austria and France showed that liquid fuels have different challenges to solve in each country. An interview with John Huber, former president of NORA, on biofuel in the USA, and an overview of the EU "Fit for 55 Package" by Sandrine Devos, further enriched the event with a more global perspective.