Written by Octavian Stamate
Counsellor - Climate Action and Energy
EU Delegation to China

On 18 May 2022, the European Commission presented the REPowerEU Plan. This is a policy initiative designed to accelerate a radical transformation of the EU energy system by significantly reducing consumption of fossil fuels, while effectively tackling the climate crisis. The bold move is also a direct response to the global energy market disruption caused by Russia’s invasion of Ukraine.

The REPowerEU Plan will achieve its objectives through energy savings, diversification of energy supplies, and an accelerated roll-out of renewable energy to replace fossil fuels in homes, industry and power generation.

The envisaged transformation will generate growth, strengthen EU energy security and reaffirm its global leadership in climate action.

The Recovery and Resilience Facility (RRF), a dedicated financial instrument designed to support the building back of the EU economy in the post-pandemic era, will provide necessary resources for cross-border and national infrastructure, as well as for energy projects and reforms.

Saving energy is the cheapest and quickest way to address the current energy crisis. Therefore the plan puts forward a proposal to enhance long-term energy efficiency measures, which includes raising the binding Energy Efficiency Target from 9% to 13%, alongside adoption of short-term behavioural changes aimed at reducing demand of oil and gas by 5%. At the same time, Member States are encouraged to use fiscal measures to encourage energy savings, such as reduced VAT rates on energy efficient heating systems, building insulation and appliances and products etc. Contingency measures in case of severe supply disruption and prioritisation criteria for customers have also been put in place.

The EU is engaged in talks with actual and potential suppliers of gas, in order to diversify and increase deliveries, while the newly created EU Energy Platform will enable voluntary common purchases of gas, LNG and hydrogen by pooling demand, optimising infrastructure use and coordinating outreach to suppliers. Based on the experience gained with the common purchase of anti-COVID vaccines at EU level, the Commission will consider the development of a ‘joint purchasing mechanism’ which will negotiate and contract gas (and renewable hydrogen) purchases on behalf of participating Member States. Measures that will require Member States to diversify their supply sources are also under consideration.

It is clear that EU energy independence can be realistically achieved only through a massive scaling-up and speeding-up of renewable energy provision in power generation, industry, buildings and transport. Therefore, the Plan raises the EU’s ambition in terms of rolling out renewables, with a Fit for 55 target increase from 40% to 45% for year 2030, matching the EU Solar Strategy aim for a doubling of solar photovoltaic capacity by 2025 and installation of 600GW by 2030.

To achieve these goals, a new legal requirement will come into force: solar panels will have to be installed on all new public and commercial buildings and new residential buildings. The rate of deployment of heat pumps and integration of geothermal and solar thermal energy in district and communal heating systems is expected to double. Major renewable projects will benefit from a shortened and simplified permitting processes, and Member States will have to designate ‘go-to’ areas, based on EU digital maps and datasets on environmentally sensitive areas. For hard-to-abate sectors, there will be a big push to replace oil, gas and coal with renewable hydrogen, with a target of 10 million tons of domestic production and 10 million tons of imports per year. At the same time, the Commission will issue a definition of ‘renewable hydrogen’, to ensure that production leads to actual decarbonisation. There is also a plan to increase production of bio methane to 35 bcm/yr by 2030, including through the Common Agricultural Policy.

The EU hopes that, through energy savings and efficiency measures, electrification, and increased uptake of renewable hydrogen, biogas and biomethane in key sectors such as industry, transport and construction, it could save up to 35 bcm/yr of natural gas by 2030 on top of what is foreseen under the Fit for 55 proposals.

EU Emission Trading System allowances currently held in the Market Stability Reserve will be used to support the whole process, by supplementing the RFF financial envelope. Thus, ETS will not only effect emissions reduction by inhibiting use of fossil fuels, but it will also contribute towards the strategic goals of EU energy policy. To achieve REPowerEU objectives, EUR 225 billion is already available in loans under the RRF. However, an additional EUR 210 billion is needed by 2027. Financial instruments designed for regional and cohesion policies, the Common Agricultural Policy and to support innovation will provide funding of around EUR 35 billion. To allow import substitution, limited additional gas infrastructure will have to be built, at a cost of a further EUR 10 billion, which will be drawn from the budget allocated to EU Projects of Common Interest. Almost EUR 1 billion will go towards the necessary adaptation of the power grid. The amount of money required is significant, but it is worth every penny, as it represents investment in EU energy independence and security, and will eventually allow the bloc to save almost EUR 100 billion per year, by cutting imports from Russia or elsewhere.

The success of the REPowerEU plan depends to a large extent on the EU’s successful engagement with partner countries, primarily in the vicinity of the EU, but also around the world. The EU external energy strategy, made public as part of the REPowerEU plan, explains the EU’s vision for a global clean transition: to reduce overall energy demand, ensure fair competition for resources and boost energy savings, energy efficiency and development of renewables. These topics were on the agenda of the 10th edition of the EU-China Energy Dialogue that was held, on the margins of the EU-China Summit, on 31 March 2022. On this occasion, Commissioner Simson and Administrator Zhang reviewed progress on the implementation of the Joint Statement on EU-China Energy Cooperation, signed back in 2019. The high-level EU-China energy dialogue focused in particular on energy security, the green energy transition and electricity market reform. LNG, natural gas and oil markets featured prominently in discussions on energy security.

The EU and China have a common interest in building a properly-functioning global energy market that will help them to be less dependent on fossil fuel imports and accelerate the transition to a cleaner energy system worldwide. Only by working together can the EU and China achieve success in reshaping the world’s energy landscape, in order to tackle effectively the existential threat related to climate change, and to guarantee the sustainable, secure and affordable supply of energy to humanity as a whole, for generations to come.

The article was originally published on EU-China Energy Magazine