On December 11, 2019, the President of the European Commission, Ursula von der Leyen, presented the backbone of her legislative program: the European Green Deal, a package of fifty far-reaching measures to transform the way Europe produces, consumes, and interacts with the environment, with the aim of reducing greenhouse gas emissions by 40% by 2030 from 1990 levels and achieving full decarbonization by 2050.
Nine months and five days later, Von der Leyen announced the Commission’s proposal to raise that target to 55%. Between the two dates, the coronavirus pandemic had paralyzed the global economy and policymakers around the world were presenting their recovery plans.
The United States and China included, among their first economic measures, a relaxation of their environmental regulations in order to alleviate the impact of the health crisis, in an attempt to lighten the burdens on some economic sectors.
On the other hand, the European executive raised its bet on energy transition, pursuing a symbiosis between economic growth, green transition and digitalization as the key stone of the EU´s recovery plan, despite the voices raised within the Union suggesting that the impact of COVID-19 would force the European Green Pact to be set aside, such as that of the Prime Minister of the Czech Republic, Andrej Babiš.
The implementation of this green recovery strategy will have a profound and long-lasting impact on the evolution of the European energy sector.
A year with an extremely demanding agenda begins for Europe, an agenda that includes the deployment of the green recovery funds, the development of the regulatory initiatives launched in 2020 and the Commission’s ambitious new legislative plan.
The European Union should start channeling the 1.8 trillion euros of its recovery plan, 30% of which is allocated to the fight against climate change, in addition to the Fair Transition Fund.
Regarding policy initiatives launched in 2020, the Union must approve the European Climate Law, reassess the Member States’ national climate plans in light of the new decarbonization targets, and complete the development of the strategies on hydrogen, energy system integration, energy storage and methane strategy, as well as the green investment taxonomy, the European Battery Alliance and the Renovation Wave for improving the energy efficiency of buildings.
In addition to these “inherited” tasks from 2020, only in energy and environmental matters, the European Commission’s work program for 2021 includes the development of 22 other far-reaching regulations, such as the revision of the Emissions Trading Sysytem, the amendment of the Renewable Energy, Energy Efficiency, Energy Tax, and Alternative Fuels Infrastructure directives, together with the Third Energy Package for Gas[1].
In addition to these specific energy measures, the impact on the sector of other European policies is not minor in this context of profound transformation towards a decarbonized economy. This is the case of the Farm to Fork, the European Biodiversity and the Circular Economy strategies.
The legislative challenge is as ambitious as the decarbonization objectives, but the most daring task will be the effective implementation of these policies within the demanding timeframe set. So far, two important goals have been already achieved: reaching consensus among the Member States and developing a financial mechanism of unprecedented dimensions and creativity.
Europe is determined to maintain its leadership in the energy transition and has grasped the potential of post COVID-19 policies as an accelerator of climate action, transforming the Green Deal into the Green Recovery. This green recovery has, at least on paper, the potential to be a solution to address economic and employment recovery; accelerate decarbonization; reduce vulnerability and inequality; and, ultimately, improve the well-being of European citizens.
In addition to green recovery, following trends will draw the energy landscape in Europe in the short and mid terms.
With the decision to abandon nuclear power (apart from France), the importance of liquified natural gas (LNG) in the continent is even more vital. LNG was for the first time the second source of gas to the Europe in 2019. Its role at European energy diversification will keep growing.
Several recent developments have strengthened supply security: the flow of gas from Azerbaijan to Bulgaria, Greece, and Italy through the Trans Adriatic Pipeline (TAP), the full capacity operation of the Krk regasification terminal in Croatia, and the first shipments to Europe via the TurkStream pipeline.
With the supply secured, the focus in the LNG sector is now on the development of new financial structures and the ecological transition of this energy source.
Hydrogen is the buzzword in the energy sector. In recent months, a huge number of initiatives and partnerships have been launched. Hydrogen production does not pose technological challenges. The two major challenges are, on one hand, to move from blue hydrogen, which is extracted (at high cost) from natural gas fields, to green hydrogen, produced by electrolysis of water from 100% renewable electricity. The second major technological challenge is transportation and, in an optimal scenario, its transport through the adaptation of existing conventional gas distribution infrastructures.
Green hydrogen is at an embryonic stage, as was solar energy only 15 years ago. Industrial, chemical and energy companies have accepted the challenge of its development and it is expected that the next few years will be full with advances and announcements in this field.
By the end of 2020, all major European oil companies had already announced ambitious long-term decarbonization targets. This is the case of BP, Shell, Equinor, Repsol and Eni. For the time being, they cannot overshadow the renewable energy megaprojects announced by electricity giants such as EDF or Iberdrola, and the pressure on their cash flow from plummeting hydrocarbon prices is making even more difficult for them to become green energy producers. But this process is inevitable if they are to survive.
Photovoltaics is already the cheapest source of electricity on the planet. The International Energy Agency, traditionally skeptical about solar energy, has already acknowledged it. With geographical differences, Europe will continue to witness a boom in the development of photovoltaic projects, encouraged by the unstoppable growth of self-consumption and local energy communities.
For its part, the importance of offshore wind energy has been consolidated until 2020 and both the EU and the UK have set more ambitious growth targets. The difficulties to be resolved are permit management and network planning.
All the trends mentioned above are developing in a scenario in which Europe will not be alone in its fight against climate change, thanks to the return of the United States to the Paris Agreement decreed by President Joe Biden, which also has the backing of both a Senate and Congress with a Democratic majority, and the commitment made by China to achieve carbon neutrality by 2060.
January 2021
[1] European Commission Work Programme 2021. https://ec.europa.eu/info/publications/2021-commission-work-programme-key-documents_en
