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Commission sets out plans for the energy system of the future and clean hydrogen

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To become climate-neutral by 2050, Europe needs to transform its energy system, which accounts for 75% of the EU’s greenhouse gas emissions.  The EU strategies for energy system integration and hydrogen, adopted today, will pave the way towards a more efficient and interconnected energy sector, driven by the twin goals of a cleaner planet and a stronger economy.

The two strategies present a new clean energy investment agenda, in line with the Commission’s Next Generation EU recovery package and the European Green Deal. The planned investments have the potential to stimulate the economic recovery from the coronavirus crisis. They create European jobs and boost our leadership and competitiveness in strategic industries, which are crucial to Europe’s resilience.

Energy System Integration

The EU Strategy for Energy System Integration will provide the framework for the green energy transition. The current model where energy consumption in transport, industry, gas and buildings is happening in ‘silos’ – each with separate value chains, rules, infrastructure, planning and operations – cannot deliver climate neutrality by 2050 in a cost efficient way; the changing costs of innovative solutions have to be integrated in the way we operate our energy system. New links between sectors must be created and technological progress exploited.

Energy system integration means that the system is planned and operated as a whole, linking different energy carriers, infrastructures, and consumption sectors. This connected and flexible system will be more efficient, and reduce costs for society. For example, this means a system where the electricity that fuels Europe’s cars could come from the solar panels on our roofs, while our buildings are kept warm with heat from a nearby factory, and the factory is fuelled by clean hydrogen produced from off-shore wind energy.

There are three main pillars to this strategy:

  • First, a more ‘circular’ energy system, with energy efficiency at its core. The strategy will identify concrete actions to apply the ‘energy efficiency first’ principle in practice and to use local energy sources more effectively in our buildings or communities. There is significant potential in the reuse of waste heat from industrial sites, data centres, or other sources, and energy produced from bio-waste or in wastewater treatment plants. The Renovation Wave will be an important part of these reforms.
  • Second, a greater direct electrification of end-use sectors. As the power sector has the highest share of renewables, we should increasingly use electricity where possible: for example for heat pumps in buildings, electric vehicles in transport or electric furnaces in certain industries. A network of one million electric vehicle charging points will be among the visible results, along with the expansion of solar and wind power.
  • For those sectors where electrification is difficult, the strategy promotes clean fuels, including renewable hydrogen and sustainable biofuels and biogas. The Commission will propose a new classification and certification system for renewable and low-carbon fuels.

The strategy sets out 38 actions to create a more integrated energy system. These include the revision of existing legislation, financial support, research and deployment of new technologies and digital tools, guidance to Member States on fiscal measures and phasing out of fossil fuel subsidies, market governance reform and infrastructure planning, and improved information to consumers. The analysis of the existing barriers in these areas will inform our concrete proposals, for instance the revision of the TEN-E regulation by the end of 2020 or the revision of the energy taxation directive and the gas market regulatory framework in 2021.

Hydrogen strategy

In an integrated energy system, hydrogen can support the decarbonisation of industry, transport, power generation and buildings across Europe. The EU Hydrogen Strategy addresses how to transform this potential into reality, through investments, regulation, market creation and research and innovation.

Hydrogen can power sectors that are not suitable for electrification and provide storage to balance variable renewable energy flows, but this can only be achieved with coordinated action between the public and private sector, at EU level. The priority is to develop renewable hydrogen, produced using mainly wind and solar energy. However, in the short and medium term other forms of low-carbon hydrogen are needed to rapidly reduce emissions and support the development of a viable market.

This gradual transition will require a phased approach:

  • From 2020 to 2024, we will support the installation of at least 6 gigawatts of renewable hydrogen electrolysers in the EU, and the production of up to one million tonnes of renewable hydrogen.
  • From 2025 to 2030, hydrogen needs to become an intrinsic part of our integrated energy system, with at least 40 gigawatts of renewable hydrogen electrolysers and the production of up to ten million tonnes of renewable hydrogen in the EU.
  • From 2030 to 2050, renewable hydrogen technologies should reach maturity and be deployed at large scale across all hard-to-decarbonise sectors.

To help deliver on this Strategy, the Commission is launching today the European Clean Hydrogen Alliance with industry leaders, civil society, national and regional ministers and the European Investment Bank. The Alliance will build up an investment pipeline for scaled-up production and will support demand for clean hydrogen in the EU.

To target support at the cleanest available technologies, the Commission will work to introduce common standards, terminology and certification, based on life-cycle carbon emissions, anchored in existing climate and energy legislation, and in line with the EU taxonomy for sustainable investments. The Commission will propose policy and regulatory measures to create investor certainty, facilitate the uptake of hydrogen, promote the necessary infrastructure and logistical networks, adapt infrastructure planning tools, and support investments, in particular through the Next Generation EU recovery plan.

Quotes from members of the College of Commissioners

Executive Vice-President for the Green Deal, Frans Timmermans, said: “The strategies adopted today will bolster the European Green Deal and the green recovery, and put us firmly on the path of decarbonising our economy by 2050. The new hydrogen economy can be a growth engine to help overcome the economic damage caused by COVID-19. In developing and deploying a clean hydrogen value chain, Europe will become a global frontrunner and retain its leadership in clean tech.”  

Commissioner for Energy Kadri Simson, said: “With 75% of the EU’s greenhouse gas emissions coming from energy, we need a paradigm shift to reach our 2030 and 2050 targets. The EU’s energy system has to become better integrated, more flexible and able to accommodate the cleanest and most cost-effective solutions. Hydrogen will play a key role in this, as falling renewable energy prices and continuous innovation make it a viable solution for a climate-neutral economy.”

Commissioner for Internal Market, Thierry Breton, said: “The European Clean Hydrogen Alliance launched today will channel investments into hydrogen production. It will develop a pipeline of concrete projects to support the decarbonisation efforts of European energy intensive industries such as steel and chemicals. The Alliance is strategically important for our Green Deal ambitions and the resilience of our industry.” 

Background

The European Green Deal is the new growth strategy of the EU, a roadmap to make our economy sustainable by turning climate and environmental challenges into opportunities across all policy areas and making the transition just and inclusive for all. A better-integrated energy system is essential in order to move to climate neutrality by 2050, while also creating jobs, ensuring a fair transition and strengthening innovation in the EU and industrial leadership at a global level. The sector can make a key contribution to Europe’s economic recovery from the coronavirus crisis, as outlined in the Next Generation EU recovery package presented by the Commission on 27 May 2020.

Today’s energy system is still built on several parallel, vertical energy value chains, which rigidly link specific energy resources with specific end-use sectors, wasting a significant amount of energy. For instance, petroleum products are predominant in the transport sector and as feedstock for industry. Coal and natural gas are mainly used to produce electricity and heating. Electricity and gas networks are planned and managed independently from each other. Market rules are also largely specific to different sectors. This model of separate silos cannot deliver a climate neutral economy. It is technically and economically inefficient, and leads to substantial losses in the form of waste heat and low energy efficiency.

One way to deliver sector integration is by deploying renewable hydrogen. It can be used as a feedstock, a fuel or an energy carrier and storage, and has many possible applications across industry, transport, power and buildings sectors. Most importantly, it emits no CO2 and almost no air pollution when used. It therefore offers a solution to decarbonise industrial processes and economic sectors where reducing carbon emissions is both urgent and hard to achieve. All this makes hydrogen essential to support the EU’s commitment to reach carbon neutrality by 2050 and for the global effort to implement the Paris Agreement.

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Global emissions are set to surge to an all-time high

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Governments worldwide are deploying an unprecedented amount of fiscal support aimed at stabilising and rebuilding their economies, but only about 2% of this spending has been allocated to clean energy measures, according to new analysis from the International Energy Agency.

The sums of money, both public and private, being mobilised worldwide by recovery plans fall well short of what is needed to reach international climate goals. These shortfalls are particularly pronounced in emerging and developing economies, many of which face particular financing challenges.

Under governments’ current recovery spending plans, global carbon dioxide (CO2) emissions are set to climb to record levels in 2023 and continue rising in the following years. This would leave the world far from the pathway to net-zero emissions by 2050 that the IEA set out in its recent Global Roadmap to Net Zero.

These findings come from the new Sustainable Recovery Tracker that the IEA launched today to help policy makers assess how far recovery plans are moving the needle on climate. The new online tool is a contribution to the G20 Ministerial Meeting on Environment, Climate and Energy in Naples, which takes place on 22 and 23 July under the Presidency of Italy.

The Tracker monitors government spending allocated to sustainable recoveries and then estimates how much this spending boosts overall clean energy investment and to what degree this affects the trajectory of global CO2 emissions. The Tracker considers over 800 national sustainable recovery policies in its analysis, which are publicly available on the IEA website.

“Since the Covid-19 crisis erupted, many governments may have talked about the importance of building back better for a cleaner future, but many of them are yet to put their money where their mouth is. Despite increased climate ambitions, the amount of economic recovery funds being spent on clean energy is just a small sliver of the total,” said Fatih Birol, the IEA Executive Director.

Governments have mobilised USD 16 trillion in fiscal support throughout the Covid-19 pandemic, most of it focused on emergency financial relief for households and firms. Only 2% of the total is earmarked for clean energy transitions.

In the early phases of the pandemic, the IEA released the Sustainable Recovery Plan, which recommended USD 1 trillion of spending globally on clean energy measures that could feature prominently in recovery plans. According to the Plan – developed in collaboration with the International Monetary Fund – this spending would boost global economic growth, create millions of jobs and put the world on track to meet the Paris Agreement goals.

According to the Tracker, all the key sectors highlighted in the IEA Sustainable Recovery Plan are receiving inadequate attention from policy makers. Current government plans would only increase total public and private spending on clean energy to around USD 350 billion a year by 2023 – only 35% of what is envisaged in the Plan.

The Tracker shows the stark geographic disparities that are emerging in clean energy investment. The majority of funds are being mobilised in advanced economies, which are nearing 60% of the investment levels envisaged in the Sustainable Recovery Plan. Emerging and developing economies, many of which have limited fiscal leeway, have so far mobilised only about 20% of the recommended spending levels.

“Not only is clean energy investment still far from what’s needed to put the world on a path to reaching net-zero emissions by mid-century, it’s not even enough to prevent global emissions from surging to a new record. Many countries – especially those where the needs are greatest – are also missing the benefits that well planned clean energy investment brings, such as stronger economic growth, new jobs and the development of the energy industries of the future,” Dr Birol said

“Governments need to increase spending and policy action rapidly to meet the commitments they made in Paris in 2015 – including the vital provision of financing by advanced economies to the developed world,” Dr Birol added. “But they must then go even further by leading clean energy investment and deployment to much greater heights beyond the recovery period in order to shift the world onto a pathway to net-zero emissions by 2050, which is narrow but still achievable – if we act now.”

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Portugal’s energy policies set a clear pathway towards 2050 carbon neutrality

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Portugal’s equitable and well-balanced plans for reaching a carbon-neutral economy should support the country’s economic growth and energy security, according to a new energy policy review by the International Energy Agency.

Portugal’s energy and climate policies aim to reach carbon neutrality primarily through broad electrification of energy demand and a rapid expansion of renewable electricity generation, along with increased energy efficiency. These measures are backed by a strong focus on reducing dependency on energy imports and maintaining affordable access to energy. In the longer term, Portugal is aiming for hydrogen to play a major role in achieving carbon neutrality.

“Portugal was among the first countries in the world to set a target for carbon neutrality by 2050, and its Roadmap for Carbon Neutrality shows a strong commitment to electrifying its economy and ensuring a secure and affordable energy transition,” said Fatih Birol, the IEA Executive Director, who is launching the policy review today at an event with João Pedro Matos Fernandes, Portugal’s Minister for the Environment and Climate Action. “The IEA looks forwards to supporting the Portuguese government as it works on a fair and inclusive transition to a carbon-neutral economy.”

Portugal’s climate and energy goals still face notable challenges, the IEA policy review notes, with an economy that remains heavily reliant on imported fossil fuels today. The report welcomes steps the government is taking to address these challenges. An effective auction process for renewable energy projects should result in almost 2 gigawatts of new renewable generation coming online in the next few years, which will triple Portugal’s solar PV capacity.

Portugal is pushing to reduce oil demand and associated emissions through transport decarbonisation, with over EUR 10 billion of investments in electrified rail and public transport, favourable tax treatment for electric vehicles and support for charging infrastructure. Portugal is also taking a major step towards lowering emissions and reducing energy import dependency by phasing out coal-fired electricity generation in 2021.

Portugal sees a key role for hydrogen produced from renewable energy in hard-to-decarbonise sectors and for achieving carbon neutrality. The National Hydrogen Strategy sets a goal for hydrogen produced from renewable energy to cover 1.5-2% of Portugal’s energy demand by 2030, with use in industry, domestic maritime shipping, road transport and for injection into the natural gas network and potential exports.

“I congratulate Portugal for developing a broad policy framework with robust measures to achieve emission reductions,” Dr Birol said. “Portugal has found a good balance of ambitious targets and competitive support measures needed to drive a cost-effective energy transition.”

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EU energy programme with Eastern partner countries extends into second phase

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The European Commission has launched the second phase of its EU4Energy programme, which promotes low-carbon and clean energy transitions in the Eastern Partnership (EaP), a joint initiative involving the European Union, its Members States and six Eastern European Partners: Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine.

“Promoting the Clean Energy Transition in the Eastern Partnership Countries: EU4Energy Phase II” will run for the next four years and will help develop legislative and regulatory frameworks that support the region’s energy transformation and the liberalisation of its energy markets, as well the digitalisation of its energy systems. Beyond reducing emissions, the programme’s goal is to provide the citizens of the Eastern Partnership Countries with more stable and resilient energy supplies, empowering consumers and increasing energy security.

The International Energy Agency is a partner in the EU4Energy programme along with the Council of European Energy Regulators (CEER) and the Energy Community Secretariat (EnCS). The 8 July kick-off conference for the programme’s second phase includes country representatives from Armenia, Azerbaijan, Georgia, Moldova and Ukraine who will share their knowhow and experience to further enhance cooperation in the energy sector within the region.

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