EIGAzette 2023 05 – REC
General set up:
The work of the REC is primarily composed of the efforts of its two Ad Hoc Groups: R.3 (energy & environmental legislation) and R.4 (sustainable finance, sustainability reporting and the “Taxonomy”). R.4 has been re-activated from the state of “hibernation” to follow the latest developments in taxonomy and the Corporate Social Responsibility Directive.
Meetings of the REC itself are intended (a) to set the direction for the Council, identifying areas of useful activity not yet included in the portfolios of R.3 and R.4 and (b) to communicate the work of R.3 and R.4 to the broader membership of the Council.
Hiring process launched for new EIGA public affairs resource:
After approval at the last Board of Directors meeting, the hiring process for the new position was initiated immediately. A “PA selection committee” was established under REC which in coordination with the EIGA secretariat prepared a job description and aligned on the profile specifications for the hiring process. The vacancy was posted on the EIGA website and on LinkedIn in February, resulting in several direct applications. Unfortunately, most applicants as well as additional profiles obtained through Michael Page, did not meet the desired requirements. A promising candidate was invited for a round of interviews with selection committee members and was close to being offered a contract, but unfortunately decided to relocate to the UK, so hiring was discontinued. As a result, a specialised PA recruiting firm (“Dober and Partners”) was contracted to identify and propose potential candidates for the vacant position.
Individual policy developments addressed by AHG-R.3
- Emissions Trading System (ETS)
Following the political agreement and formal adoption of the revised ETS directive by co-legislators, the EU Commission is focusing on the implementing legislation to ensure that relevant regulations are revised in the light of the amended Directive and enter into force before the start of the second allocation period of EU ETS phase IV (2026-2030).
In particular, the revision of the Free Allocation Regulation (FAR) – to be adapted by the end of 2023 - will be a crucial dossier for the IG sector to follow. The revision process has already been initiated in the Commission's Climate Change Policy Expert Group (CCEG) with the intention to modify the definition of the hydrogen benchmark in the FAR in line with the revised scope of the ETS Directive. This includes extending free allocation of allowances also to hydrogen production processes without direct GHG emissions (electrolysers) as well as severing the mathematical link with the refinery benchmark.
EIGA will engage with the EU Commission in the context of the FAR revision process and further relevant implementing legislation and (1) challenge the calculation and current methodology problems of the hydrogen benchmark based on the findings from the joint “shadow
benchmarking exercise” with CEFIC; (2) propose suggestions to ensure a more realistic performance curve and allocation to hydrogen installations in the future as well as to maintain equal treatment for outsourced hydrogen production with refineries.
- Hydrogen and Decarbonised Gas Market Package (the “Gas Package”)
Proposals of the EU Commission for a regulation and a directive (the "gas package") would require private hydrogen networks to be regulated in the future, with third-party access becoming mandatory after 2030. EIGA has closely followed the political process in EU Parliament and EU Council and advocated for exempting private pipeline from the regulation, highlighting differences between the planned public hydrogen backbone infrastructure and private pipeline networks serving existing customers, and concerns regarding potential downsides to industrial customers in terms of hydrogen purity and legal certainty.
While the position of the EU Parliament remains supportive of the Commission’s initial regulatory approach and did not reflect EIGA’s specific concerns, the EU Council has adopted its General Approach on March 28 which provides more flexibility and favourable provisions for EIGA. This includes the option for Member States’ authorities to grant exemptions for existing hydrogen networks from unbundling and third-party access provisions. In contrast to earlier drafts, such exemptions may even apply for an indefinite period, as long as the network is not connected to another network, significantly expanded or considered as risk to competition or efficient deployment of H2 infrastructure. In addition, the EU Council positions expanded the scope and duration of exemptions for hydrogen networks in geographically confined areas, which would now apply to hydrogen networks irrespective of the number of entry points.
The co-legislators will now negotiate a common position based on their respective positions in the upcoming informal trialogue meetings. EIGA will continue to closely follow the negotiations and to advocate support for the more flexible and favourable provisions proposed by the EU Council.
- Renewable Energy Directive (RED)
On February 10, 2023, the EU Commission finally published the long-awaited RED II delegated acts (RED II DAs). The proposals specify the definition of renewable hydrogen in the EU and also provide a detailed methodology to be met by renewable non-biological hydrogen and its derivatives (RFNBOs) in order to comply with the renewable energy directive (RED). While in principle limited to the use of renewable fuels in the transport sector, the DAs can be considered as general rules applicable for production of green hydrogen in all sectors in the EU but also for imports. Before they can enter into force, the DAs still have to pass scrutiny of the co-legislators, who can either approve or reject but not amend the proposals. With parts of the EU Parliament still opposed to the included "additionality requirement", providing that only new, "additional" and not already existing renewable energy capacities can be used for production of green hydrogen, some MEPs are still trying to pass resolutions to reject the proposals but so far have not succeeded to stringent majority requirements. However, if adopted – probably in June 2023 - the provisions of RED II will directly enter into force and become applicable for all hydrogen produced in the EU as well as for hydrogen imports.
In parallel, co-legislators have reached a preliminary political agreement on the recast of the Renewable Energy Directive (RED III) in informal trialogue negotiations, providing binding targets and quotas for the use of RFNBOs not only in the transportation sector but also in industry.
This includes a combined sub-target for a share of RFNBOs and advanced biofuels of 5.5% and a minimum requirement of 1% of RFNBOs in the share of renewable energies supplied to the transport sector in 2030. For the industry sector, it was agreed that RFNBOs must account for 42% of hydrogen used by 2030, and at least 60% by 2035. As some Member States had requested more flexibility on the use of low-carbon (non-renewable) hydrogen to meet the industrial target, a rebate of 20% was agreed for countries fulfilling their national contribution to the overall EU renewable energy target and consume less than 23% fossil hydrogen in 2030 (20% in 2035), which will be beneficial for countries using hydrogen from nuclear power.
Individual policy developments addressed by AHG-R.4
Corporate Sustainability Reporting Directive (CSRD)
The EU Commission had asked the European Financial Reporting Advisory Group (EFRAG) to develop sustainability reporting standards that companies falling under the Corporate Sustainability Reporting Directive (CSRD) will be required to use for their sustainability reporting; with first reports due in 2025 (based on 2024 data) for companies already subject to the Non-Financial Reporting Directive (NFRD).
EFRAG had developed and published a series of sector-agnostic sustainability standards, which were sent to the EU Commission for consideration end of 2022. Due to its “sector-agnostic” nature, EIGA choose not to engage in the consultation process on these standards. Instead, EIGA decided to focus on the development of the complementary “sector-specific” standards, which EFRAG was developing in parallel. A first batch on the energy, utilities and oil & gas sectors was expected to be delivered to the Commission by the end of 2023. However, EIGA learned that the process has been delayed significantly into 2024, as the Commission has requested EFRAG to stop work for the time being and instead prioritise additional guidance for the already proposed sector-agnostic standards. A consultation on the sector-agnostic standards is expected to be issued between mid-May and end of May. EIGA will continue to monitor further developments and seek opportunities for early involvement in the development of "sector-specific" standards.
- Taxonomy
While disclosures of companies under the EU taxonomy for eligible and aligned activities under the first two environmental objectives (climate change mitigation & climate change adaptation) are already in full swing, the EU Commission recently published proposals for screening criteria for the four remaining objectives and launched a consultation. However, the taxonomy focuses primarily on economic activities with the highest Scope 1 (direct) emissions and therefore does not yet cover all economic activities and especially processes with Scope 2 (indirect) emissions.
However, as its mandate draws to a close, the EU Commission seems to be slowing down its work on further expanding the taxonomy framework, but rather to focus on questions around the application and usability of the existing criteria and reporting requirements.
In this context, EIGA will continue to monitor developments in particular with a view to a wider consideration of "enabling activities" in the taxonomy which could potentially serve as a door-opener for discussions with the Platform on Sustainable Finance on inconsistencies in the current framework and to explore future opportunities for the inclusion of air gases; e.g. via the Platform’s proposed “framework for assessing enabling activities”.