The European regulatory framework
“Clean Energy for all Europeans” legislative package
The “Clean Energy for all Europeans” legislative package, proposed by the European Commission in 2016, laid the foundation necessary for achieving greater integration and regionalization of markets for electricity, balancing, flexibility services and capacity. Following the inter-institutional agreement reached in 2018, the following regulations and directives completing the package were published in the Official Journal of the European Union on June 14, 2019: the Electricity Market Regulation (2019/943), the ACER Regulation (2019/942), the Risk Preparedness Regulation (2019/941) and the Electricity Market Directive (2019/944). The measures entered force on July 4, 2019, with the regulations taking immediate effect, while the directive must be transposed into the law of the various EU countries by December 31, 2020. The new legislation fosters the integration of the different technologies and the participation of diverse market operators. It also opens up the possible development of mechanisms to provide long-term signals to investment in decarbonization (e.g. auctions, PPAs) and the adequacy of the electricity system (the capacity market).
The “Clean Mobility” legislative package
The “Clean Mobility” legislative package, proposed by the European Commission in three separate packages between 2017 and 2018, contains a series of legislative proposals and other initiatives intended to make traffic safer, reduce CO2 emissions and air pollution, support the development of zero- and low-emission vehicles and the creation of a supply chain for the production of European batteries. In 2019, following an inter-institutional agreement reached in 2018, the final legislation completing the package was published in the Official Journal of the European Union. Regulation (EU) 2019/631 setting CO2 emission performance standards for new passenger cars and for new light commercial vehicles for 2025 and 2030 was published in the Official Journal of the European Union on April 25, 2019 and entered force on May 15, 2019. Regulation (EU) 2019/1242 setting CO2 emission performance standards for new heavy-duty vehicles for 2025 and 2030 was published in the Official Journal of the European Union on July 25, 2019 and entered force on August 14, 2019. Finally, Directive (EU) 2019/1161 on the promotion of clean and energy-efficient road transport vehicles was published in the Official Journal of the European Union on July 12, 2019 and entered force on August 1, 2019. While the regulations will be directly applicable following the publication of the text in the Official Journal of the European Union, the directive will have to be transposed with specific legislation in the Member States within two years of entry into force.
In December 2019 the European Parliament and the Council of the European Union reached an agreement on a proposed regulation on a classification system for sustainable economic activities (taxonomy), with the aim of enhancing private and public investments to finance the transition to a climate neutral and green economy. Formal approval of the regulation is expected to come in the 1st Quarter of 2020.
Also in December 2019, a regulation concerning low-carbon benchmarks and positive carbon impact benchmarks was formally approved (amending the previous Regulation (EU) 2016/1011).
The two regulations are part of a sustainable finance package, which also includes a proposal for a regulation on disclosures relating to sustainable investment and sustainability risks, amending Directive (EU) 2016/2341 (IORPs), and the establishment of a European green bond standard to increase transparency and comparability in this market, in support of sustainable finance.
“European Green Deal” Communication
On December 11, 2019, the European Commission presented the “European Green Deal” (EGD). The communication outlines a series of initiatives aimed at enabling European citizens and businesses to benefit from a green and sustainable transition. It is an integral part of the European Commission’s strategy to implement the United Nations’ 2030 agenda for sustainable development. The European Green Deal includes initiatives on climate, environment, industrial strategy, green finance, financing, sustainability and society and legislative proposals that will be presented in 2020 and 2021.
- The Commission will propose the first European ‘Climate Law’ by March 2020, aimed at reflecting greater climate ambition and enshrining the 2050 European climate neutrality objective in legislation.
- An assessment of measures to increase the EU’s greenhouse gas emission reductions target for 2030 to at least 50% and towards 55% (replacing the current reduction target of 40%) is also envisaged. To this end, the European Commission will launch a review of all relevant climate-related policy instruments in order to align them with the new climate targets. This will comprise the Emissions Trading System (ETS) and the possibility of extending it to new sectors, the Energy Taxation Directive and the introduction of a “carbon border adjustment mechanism” for specific sectors aimed at reducing the risk of “carbon leakage” and preserving the competitiveness of EU industry.
- The update of the national energy and climate plans envisaged in 2023 will be assessed with a view to increasing climate ambitions and supporting renewable energy. In addition, a process will be launched to review the legislative dossiers relating to energy and the development of energy infrastructures. > During 2020, initiatives will be proposed to support offshore wind and the smart integration of various sectors.
- A new industrial strategy aimed at achieving the climate neutrality objective and an action plan for the circular economy are expected in March 2020. Furthermore, support for IPCEIs, large alliances and new forms of cooperation with industry and support for investments in strategic value chains will be strengthened.
- In 2020, a strategy for sustainable and intelligent mobility will be presented aimed at making transport more efficient and cleaner. In addition, the Commission will propose the phasing out of fossil fuel subsidies, the extension of the ETS to the maritime sector, the revision of TEN-T and the Alternative Fuels Infrastructure Directive and the revision of the regulations concerning pollution and greenhouse gas emissions for internal combustion vehicles.
- A new initiative will be presented aimed at promoting building renovation with the aim of combating both climate change and energy poverty, and the extension of the ETS to include emissions from buildings will be considered.
- An action plan to reduce air, water and soil pollution will be adopted in 2021, including a revision of air quality standards and measures to address pollution from large industrial plants.
- A proposal will be advanced for a new sustainable investment plan that includes a “just transition mechanism” and “just transition fund” aimed at helping vulnerable regions and sectors that are heavily dependent on fossil fuels and mobilizing the funds necessary to achieve the objectives of the European Green Deal. > The European Investment Bank (EIB) will be transformed into a “climate bank” by allocating 50% of all lending to projects aimed at achieving climate objectives.
- Resources in EU funding programs will be reallocated so that at least 25% of their budgets go to climate-related projects and activities (30% of the InvestEU Fund).
- By 2021, EU guidelines on state aid, including environmental and energy aid, will be revised, while support will be given to national tax reforms designed to increase public investment by EU countries to achieve the objectives set out in the European Green Deal.
State aid rules
After the lengthy reform of the rules governing state aid initiated in 2012, known as “State Aid Modernization”, the European Commission has decided to prolong the validity of the regulations, communications and guidelines expiring in 2020 until 2021.
At the same time, the Commission began a review process for state aid rules, which will be completed by the end of 2021.
Last July, the first phase of a public consultation on aid for environmental protection and energy was completed (Communication 2014/C 200/01 and Section 7 of Regulation (EU) no. 651/2014). The guidelines involved in the evaluation were considered effective, however most responses underscored the need for a revision of state aid rules to ensure consistency with current technological and economic developments.
These initiatives, which lie within the exclusive remit of the European Commission, fall within the more general framework of the European Green Deal and the EU’s ambitious decarbonization objectives. The Commission has repeatedly defined state aid as an essential component of the effective development of policies to achieve climate neutrality by 2050. State aid is an instrument to mobilize additional national resources to support those deployed at the European level.