EU policymakers have reached a provisional agreement on the revision of the Renewable Energy Directive, showing a high level of ambition. But the real challenge lies in the national implementation, write Pia Kerres, Malte Gephart and Corinna Klessmann.
Pia Kerres, Malte Gephart and Corinna Klessmann are experts with Guidehouse, a global management consultancy advising energy providers, corporations, and the public sector.
The EU has agreed on a new renewable energy target of 42.5% by 2030. More than one and a half years after the European Commission (EC) tabled its proposal for a Renewable Energy Directive (REDIII), and after months of negotiations with the European Parliament and the Council of the EU, a provisional compromise was reached on 30 March 2023.
REDIII is a central piece of the EU’s “Fit for 55” package of energy and climate laws and will substantially shape the EU’s path towards decarbonisation.
The renewable energy target
Member states have committed to collectively reach a share of at least 42.5% of renewable energy sources (RES) in the EU’s gross final energy consumption by 2030. There is also an option for an additional 2.5% indicative top-up that increases the overall target to 45%.
Though the relevance of the indicative top-up is questionable, the overall target is still remarkable. It is almost double the EU’s current RES share (21.8% in 2021) and significantly increases the 2030 ambition compared to the REDII target of (at least) 32% RES by 2030.
For REDIII, the EC had initially proposed a target of 40%, which was already at the upper end of a preceding impact assessment. The global energy market disruption caused by Russia’s invasion of Ukraine has catalysed the EU to truly understand the central role of RES in energy security and arguably has made this deal possible.
Much more than “just” renewable energy
Contrary to what the directive’s title may suggest, REDIII covers more than RES production.
The scope of REDIII expanded significantly compared to previous versions, as demand sectors are now covered more comprehensively. The Directive includes numerous sub-targets for industry, transport, heating and cooling, and buildings, all geared towards the overall renewable energy target of 42.5% by 2030.
Targets are set, but measures for implementation are key
Notably, the obligation to meet the target is often placed on the member states themselves. Only in few instances are targets on market players via quotas or backed by a menu of available policy instruments.
For example, member states must ensure that renewable fuels of non-biological origin (RFNBOs) account for at least 42% of the hydrogen used for final energy and non-energy purposes in the industry by 2030. By 2035, the share must increase to 60%.
The ambition underlying this binding target is significant, but it is not directly placed on industry but rather on governments. In just a few years, member states must create regulatory conditions for green hydrogen economies to emerge that enable the development of hydrogen supply, demand, and infrastructure.
This transformation will be a huge undertaking, as reflected by the prior heated controversy around allowing low-carbon hydrogen from nuclear energy to count towards the renewable hydrogen target.
The REDIII compromise discards this option but provides some flexibility: countries which reach their 2030 RES target benchmark and have low fossil energy shares in industry get a discount on the 42% hydrogen target. Discounted or not, the decision on the specific measures taken to ensure target achievement is left to the member states.
Member states must now implement the right measures to reach their ambitious targets and do so fast.
Key to enabling the deployment of RES to meet these targets will be speeding up permitting procedures and designating suitable areas, a formidable challenge. Rolling out heat pumps across Europe alongside the required refurbishment of buildings will be equally difficult. And, of course, additional measures across the other identified sub-sectors will also be hugely challenging to implement.
Ensuring target achievement – the governance challenge
This puts the Governance Regulation at the centre of ensuring EU target achievement. Currently, the EC is obligated by the Regulation to aggregate and assess member states’ National Energy and Climate Plans and Progress Reports and the measures presented therein to monitor whether the EU is on track to meet the EU 2030 energy and climate targets.
However, the Regulation’s main weakness is its relatively soft mandate for the EC to trigger actual changes in case member states show insufficient progress. The regulation enables the EC to recommend to member states and ultimately use “its power at Union level” (though this is not further defined).
Whether this will be sufficient to ensure achieving the new, ambitious targets is questionable. The upcoming revision of the Governance Regulation in 2024 may need to substantially strengthen the EC’s mandate to properly reflect that reaching the new targets will be challenging.
Summary and outlook
Overall, REDIII displays a very high level of ambition. This may arguably not have been possible before the Ukraine War, as the ensuing energy crisis made the EU aware of the central role RES can play in energy security.
The real challenge is implementing the right measures in member states to reach the EU targets. This must be done while framework conditions for RES investments and, ultimately, target achievement evolve. Upcoming legislation, such as revising the Governance regulation, will be key. At least equally important will be the reform of the electricity market design.
