Eurofuel newsletter #4
Dear reader,
Welcome to the fourth edition of the Eurofuel newsletter of 2023. In this edition, we delve into several significant topics, including the ongoing discussions on ecodesign and energy labelling rules and the trialogue negotiations on the Energy Performance of Buildings Directive.
One of the notable highlights in recent news is the compromise reached among EU Member States to accommodate French interests in nuclear energy within the revision of the Renewable Energy Directive, a crucial component of the Fit for 55 package and the broader Green Deal Plan. On the other hand, despite trilogue negotiations on the Energy Performance of Buildings Directive, another key part of the Green Deal puzzle, rumors have emerged that a deal may not be reached before the end of the European Parliament’s mandate in June 2024.
Meanwhile, discussions on ecodesign and energy labelling rules for space heaters are underway, with proposed revisions that could potentially impact the use of stand-alone boilers using gaseous and liquid fuels being criticized by a number of EU Member States.
Finally, we explore the growing interest of policy makers in heat pumps as a means of achieving decarbonized heating and the European Commission’s proposal to introduce a Heat Pump Action Plan to promote their deployment and tackle existing bottlenecks.
Nevertheless, we cannot sit idle. In March in fact, the European Commission has finally published for consultation the long-awaited draft implementing act setting new ecodesign and energy related requirements for space heaters. The proposed draft rules represent a significant threat to the very existence of our sector and could very well signify the nail in the coffin of the much-taunted technology neutrality principle claimed by the European Commission.
Even though this is an up-heal battle, we remain steadfast in the conviction that while electrification and heat-pumps can be considered as a solution to decarbonise the heating sector, they are not the only one, low carbon and renewable liquid fuels have a key role to play! We are thus work closely with our allies to ensure that this unavoidable reality is recognised in the upcoming legislative acts.
Yours,
Dr Ernst-Moritz Bellingen
EU countries concede to France on the Renewables Energy Directive revision
On 16 June, EU Member States agreed on a compromise that accommodates French interests in nuclear energy without reopening negotiations on the revision of the Renewable Energy Directive (RED III), a crucial component of the Fit for 55 Package.
Despite EU countries and the European Parliament having reached a tentative political agreement on the file on 30 March, the formal adoption of the provisional agreement has faced delays due to last minute objections by France who has been asking for further guarantees on producing low-carbon hydrogen derived from nuclear power. Another sticking point for France was related to guarantees offered to ammonia plants that commit to decarbonization investments.
On nuclear, the European Commission conceded and, in a declaration, stated that it “acknowledges that other sources of fossil-free energy than renewable energy contribute to reaching climate neutrality by 2050 for Member States who decide to rely on such sources of energy.” Without mentioning it, the EU executive, therefore, acknowledged the role of nuclear power in achieving Europe’s decarbonisation objectives.
Moreover, to fully satisfy French demands, the Swedish Council Presidency introduced an amendment to the legal text that recognizes the challenges faced by ammonia facilities in transitioning away from fossil hydrogen. This amendment allows certain existing plants that are actively working to move away from fossil-based hydrogen to be exempted from meeting specific 2030 green hydrogen targets.
The delay caused by France’s opposition to the provisional agreement on RED III is reminiscent of Germany’s earlier move to block the final approval of EU legislation banning the sale of new CO2-emitting cars from 2035. It seems that Paris has employed a similar tactic to secure a favourable outcome.
Parliament’s Environment Committee adopts its position on the new Ecodesign rules
On 15 June, the Committee on the Environment, Public Health and Food Safety (ENVI) adopted its position on the European Commisssion’s proposal for a Regulation to establish a comprehensive framework for ecodesign requirements, aiming to promote sustainable products and replace existing rules focused solely on energy-related products (ESPR). The report endorsed measures to combat premature obsolescence, requiring manufacturers to design products without limiting their lifespan and ensuring availability of software updates, consumables, spare parts, and repair guidelines. The proposal also introduced the concept of a “product passport” to provide accurate and updates information, enabling informed consumer choices, facilitating repairs and recycling, and enhancing transparency regarding environmental impact.
Updates on the proposed revision of ecodesign requirements for space heaters
Back in 27 April, the Ecodesign and Energy Labelling Forum was organized by the European Commission. As a reminder, in advance of this Forum, the Commission published for consultation back in March, the draft acts for the revision of the ecodesign and energy labelling requirements for space heaters. The new rules, openly aim to phase out sales of stand-alone fuel and electric resistance boilers by 1st September 2029.
In response to stakeholder feedback on the draft acts, the European Commission acknowledged the existence of situations where no technical solution might replace stand-alone boilers with available alternatives meeting the second efficiency tier of 115%. Moreover, it asked experts from Market surveillance authorities and Member States for technical and legal advice to identify such situations and consider whether targeted exemptions on technical grounds could be relevant and defined in a way that nevertheless allows robust implementation in the revised ecodesign requirements for space heaters. Member States had until 23 June to provide their written comments, which were discussed during an ad hoc meeting on 12 June. Eurofuel attended the meeting and put forward its position. The 12 June debate showed that Member States have polarised views.
Eurofuel, together with ECFD, FuelsEurope and UPEI, and supporting EHI’s position, are finalising a position that advocates for a technology neutral approach. Other stakeholders are also very opposed to such a ban (eg. the gas industry).
An article featuring an interview with S. Devos, Secretary General, was published on the topic: After ICE controversy, now EU’s gas boiler ban may be killed (energymonitor.ai) and shows the different views - Note that the journalist is NOT being neutral....
Trialogue negotiations on EPBD revision kick off
The inter-institutional negotiations on the revision of the Energy Performance of Buildings Directive (EPBD) have kicked off with a first trilogue meeting held on 6 June. Following the meeting, the four-column table document, which serves as the basis for negotiations, has been made publicly available. It includes the European Commission’s proposal, the European Parliament’s Report, the Council’s General Approach, and a column for potential compromises. The targeted proposal within the European Commission’s REPowerEU Plan is also reflected in the document.
However, the negotiations are challenging, with many Member States expressing concerns about the proposed law. Italy is particularly opposed to it. Depending on the final legislation, between 17% and 22% of EU buildings may need to be renovated by 2033.
While the trialogues for the EPBD are scheduled to start soon, the focus of decision-makers has shifted to the Electricity Market Design proposal. Some member states are engaged in national debates on issues like Germany’s Heating strategy and France’s gas heating reduction targets, leaving the EPBD caught in the middle.
There are rumours that a deal may not be reached before the end of the European Parliament’s mandate in June 2024. It is crucial for stakeholders to raise awareness among the European Parliament and member states about parallel discussions on Ecodesign and Energy Labelling, which could potentially ban stand-alone boilers.
In the meantime, it is important not to overlook the current EPBD. The European Commission has published four technical assistance documents to ensure optimal performance of technical building systems under the new EPBD. One of these documents focuses on supporting the implementation and enforcement of Articles 8(1) and 8(9) of the EPBD. These articles pertain to system requirements for energy performance and the assessment of altered technical building systems.
As part of the recommendations, there is a suggestion to replace old combustion boilers (25-30 years old) with more efficient models, exclusively privately owned single-family houses and boilers that meet the minimum Ecodesign requirements.
Eurofuel joins European Commission’s ETS2 Expert Group and takes part in inaugural meeting
The European Commission’s Expert Group on Climate Change Policy (CCEG) serves as a coordination and exchange forum for climate policy matters. It supports DG Climate Action in implementing EU climate policies and preparing delegated acts. The group, composed of Member States, can form ad hoc “formations” to address specific issues. In October 2022, the ETS2 implementation formation was established and later expanded in May 2023 to include stakeholders.
Eurofuel has been accepted to join the CCEG ETS2 formation. Through its participation in the Expert Group, Eurofuel will aim at ensuring that the red tape is kept to a minimum.
The inaugural meeting took place on 5 June, where the Commission presented the initial framework for the system:
- Operational from 2027, with a potential one-year postponement in case of exceptionally high gas or oil prices.
- Front-loading of an additional 30% of 2027 auction volumes to ensure a smooth start with sufficient liquidity.
- The Market Stability Reserve (MSR) for the new sector will be a rule-based mechanism, adjusting the supply of allowances. It will begin with an initial volume of 600 million allowances and have volume-based thresholds of 210 and 440 million allowances.
- Price-based mechanisms will be employed for MSR releases to counter the risks of excessive prices and fluctuations. An additional trigger will be in place until 2029 if carbon prices reach €2
Key characteristics of ETS2 include being a separate system for the existing ETS, building upon ETS rules for regulated entities and monitoring, reporting, and verification (MRV). It will be an upstream system, regulating fuel suppliers rather than end-consumers. The compliance obligation will be triggered by the release of fuels for combustion in the relevant sectors, and emissions will be indirectly determined based on the quantities of fuels put on the market.
A specific challenge for ETS2 is determining whether the released fuels are combusted in sectors covered by the new system. The “scope factor” will be introduced to address this, requiring sellers to identify the sectors in which the fuels are used. Eurofuel, accepted as an expert, emphasized the difficulty in doing so for their sectors during the meeting.
Heat Pumps bottlenecks to be addressed by the European Commission
EU decision-makers are increasingly interested in the potential of heat pumps for achieving fully decarbonized heating. However, there are numerous obstacles and challenges, including the availability of skilled installers and technical feasibility for various types of dwellings. To address these issues, the EC is planning to introduce a Heat Pump Action Plan by A4 2023. One of the key ambitions outlined by the EC is to achieve a significant increase in the deployment of heat pumps, aiming for 30 million or more additional units by 2030 compared to 2020 (as per the EC website).
The manufacturing sector associated with the heat pump value chain currently employs 117,000 individuals in Europe, with around 44,000 of them working in manufacturing, according to a report from the European Commission. This value chain meets approximately 73% of the EU’s current heat pump requirements. Central and Eastern EU countries, particularly Poland, the Czech Republic, and Slovakia, have taken the lead in heat pump manufacturing due to the availability of cheap and skilled labour, forming what some refer to as the Heat Pump Valley.
Apart from manufacturing challenges, another obstacle lies in the capacity of the electricity grid. The EU Joint Research Centre is studying ways to enhance communication between electric vehicles and smart grids to avoid power outages caused by simultaneous charging. However, applying similar solutions to the heating sector, which may experience even greater power demand peaks, is more complex and requires further scientific exploration.
Meanwhile, a recent study proposes phasing out the use of Russian natural gas in electricity and heating in the EU, suggesting that deploying heat pumps powered by renewable electricity could enable the EU to completely eliminate Russian gas by as early as 2028. This study aligns with the notion of technology neutrality, emphasizing the cost-effectiveness of heat pumps as a means of decarbonizing space heating in the EU.
It is worth noting that the official EU website now includes an explanatory page dedicated to heat pumps.
Biofuels
EWABA is calling for urgent action to stop imports of potentially dubious biodiesel. According to the association representing the European Waste-based & Advanced Biofuels, there has been “a recent enormous spike of Chinese exports of biodiesel, with volumes deemed to be potentially fraudulent, has depressed biodiesel markets across the EU.”
To ensure that biofuels are sustainable is especially important at a time when criticisms are not shy. Transport & Environment, a group traditionally favouring electrification, published an article. If this is one of many, let’s agree that it is catchy: “Fun fact: Pigs don't fly. Not so fun fact: Fuelling flights with dead pigs (fat) also does not work”.
Ambitious Targets from Oil and Gas
At the G7 Summit in May, the IEA’s Executive Director, Fatih Birol, emphasized the urgency of taking action to ensure a fast and secure path to achieving net zero emissions. Birol hopes that COP28 will serve as a critical moment for the oil and gas industry to address climate change. Many existing emission reduction plans in the industry are incomplete or lack clear strategies, particularly for the crucial period leading up to 2030.
In a report published in May on “Emissions from Oil and Gas Operations in Net Zero Transitions”, the IEA highlights that these activities account for nearly 15% of total energy-related greenhouse gas emissions. The sector requires an upfront investment of USD 600 billion to achieve a 60% reduction in emissions by 2030, which represents only a small fraction of its recent windfall income. The IEA proposes key measures to limit temperature rise, including addressing methane emissions, eliminating non-emergency flaring, electrifying facilities, utilizing carbon capture and storage (CCUS), and expanding the use of low-emissions hydrogen inn refineries. By implementing these levers, the need to develop new oil and gas fields can be avoided, and universal access to modern energy can still be achieved by 2030.
What’s new with the Energy Taxation Directive?
The current EU Directive on energy taxation, designed to avoid unfair competition among Member States, is no longer suitable for Europe’s climate neutrality goals. The proposal aims to remove exemptions and reduced rates that promote fossil fuel use and instead tax fuels based on energy content and environmental performance. However, reaching an agreement on minimum tax rates is challenging due to complex technical issues and Member States’ defence of national sovereignty. Discussions on topics like maritime shipping, aviation fuel, and road transport fuels remain contentious. A recent working group meeting did not result in an agreement, and the file will be passed on to the Spanish presidency in July 2023. Belgium, the following presidency, also expects to deal with the negotiations in 2024.