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Around the globe, governments and international organisations are rewriting the rules of trade, production, competition, and investment in energy and natural resources. It is an open-ended process prompting continuous reviews and amendments of legislation over the next decade and beyond.
In Europe, the ongoing energy transition and the latest rebalancing of competitiveness vs sustainability affect every area of business and commerce. All enterprises doing business on the EU’s internal market must continuously review compliance of their operations, investments and contractual arrangements with the vast range of new legislation, classification and reporting standards that are currently being implemented or will be enacted soon.
At the same time, the drive to decarbonisation and repatriation of production and supply chains may open new markets and unlock access to public and private funding.
What is clear is that in this new environment, market operators must be more vigilant than ever to stay on top of developments, ensure compliance of their business operations, and safeguard their interests regarding regulation and contractual arrangements.
News .
The EU Commission aims at boosting Europe's economy
The Clean Industrial Deal, published on February 26, wants to strengthen EU industrial competitiveness while accelerating decarbonization. The plan aims at addressing key challenges such as high energy costs, global competition, and supply chain security.
Key Measures:
Financial Support:
The Commission proposes mobilizing over €100 billion for clean manufacturing, including an Industrial Decarbonisation Bank expected to attract up to €50 billion in public and private investment
Regulatory Reforms:
A new State aid framework for clean industry is set to be adopted by mid-2025, aiming to facilitate support for renewable energy expansion, decarbonization, and clean tech production
Energy Costs:
The Affordable Energy Action Plan focuses on lowering energy prices through clean energy expansion, electrification, market integration, and reducing fossil fuel dependence
Circular Economy:
A proposed Circular Economy Act would accelerate resource efficiency measures to reduce material dependencies and create new employment opportunities
Trade and Global Partnerships:
The Commission intends to expand clean trade agreements and enhance the Carbon Border Adjustment Mechanism (CBAM) to counter overcapacity and protect EU industry
Workforce Development:
A Union of Skills initiative aims to support workforce training and address labor shortages in key industrial sectors
According to the EU Commission, the Clean Industrial Deal is designed to ensure European industry remains competitive and resilient while advancing climate and energy goals. The measures are intended to align with broader EU policy objectives, including energy security and strategic autonomy.
Switzerland chooses a pragmatic approach
On December 13, 2024, the Federal Council adopted the national hydrogen strategy. It contains the Federal Council's vision and objectives for hydrogen and Power-to-X derivatives. It also proposes measures for developing the domestic hydrogen market and connecting to the European market. Until the mid-2030s, the strategy anticipates low demand for hydrogen in Switzerland.
Vision and Objectives
According to the strategy, hydrogen and Power-to-X derivatives are flexible energy carriers that can make an important contribution to a fossil-free energy supply by 2050. The strategy aims to create the necessary framework conditions. The prerequisite is that hydrogen from CO2-neutral production processes is used. It should be deployed where it is economically and ecologically sensible; examples: high-temperature process heat in industry, peak load coverage in combined heat and power plants and thermal networks, reserve power plants, aviation, shipping, and heavy-duty transport.
In addition to domestic production and storage, connection to the European hydrogen transport network should be ensured, and imports strengthened through international cooperation and partnerships. The hydrogen infrastructure should be developed along the entire value chain (production, conversion, transport, storage, and refueling infrastructure), and Switzerland's position as an education and innovation location should be strengthened through the development of the necessary technologies.
Demand Development, Domestic Production, and Imports
The hydrogen strategy assumes that demand for hydrogen and PtX derivatives in Switzerland will remain rather low until the mid-2030s and can mainly be covered by domestic production. It foresees no binding targets.
In Switzerland, hydrogen can be produced at existing power plants or close to consumers who use the hydrogen directly on-site or transport it further. Hydrogen is transported in converted or newly built gas pipelines, as well as by road and rail. From approximately 2035, the transport and distribution infrastructure in Europe is expected to be developed to the point where imports to Switzerland will be possible. Storage would require large gas storage facilities that do not yet exist in Switzerland, or the hydrogen would need to be converted into liquid synthetic energy carriers.
From 2035, domestic demand is expected to increase. Since imports from the EU and third countries will be more cost-effective in the long term than domestic production, the share of imports is likely to increase continuously from then on. However, there are uncertainties regarding the course of demand.
Measures
Domestic hydrogen production and storage can be supported for six years through measures in the Climate and Innovation Act (KlG). In addition, DETEC and the Federal Department of Finance, in collaboration with the cantons and the owners of the transit gas pipeline, will examine the necessity and possibilities of financial backing for the transit gas pipeline for connection to the European hydrogen network by the end of 2025. At the same time, the requirement for the prospect of a promising business model should significantly influence the analysis of any financial backing.
The EU Commission's proposals for simplifying sustainability rules
On February 26, 2025, the European Commission adopted a new package of proposals aimed at simplifying EU rules aimed at boosting competitiveness and unlocking additional investment capacity. According to the Commission, these measures are expected to save over €6 billion in administrative costs, thereby enhancing the efficiency of EU investments.
Key Components of the Proposal:
1. Simplification of Sustainability Reporting:
The Commission proposes streamlining sustainability reporting requirements for companies, reducing the administrative burden while ensuring transparency and accountability in environmental, social, and governance (ESG) matters
2. Enhancing Investment Frameworks:
The proposals include measures to facilitate access to EU funding and investment programs, aiming to attract more private investments into sustainable projects and technologies
3. Regulatory Reforms:
The Commission plans to revise existing regulations to eliminate alleged redundancies and overlaps, with the aim of making it easier for businesses to comply with EU laws and focus on innovation and growth.
New obligations and regulatory uncertainties
The Methane Regulation establishes a framework for Monitoring, Reporting, and Verification (MRV) and aims to set a maximum methane intensity for fossil fuel production, domestically produced and imported fossil fuels through an MRV equivalence requirement, for natural gas and LNG imports as well as other fossil fuels. It also outlines reporting obligations concerning methane emissions intensity.
Importers of natural gas and LNG must submit an annual methane emissions report to the national competent authorities of the EU Member State where they are established. This report must be assessed by an independent third-party verifier. Member States will then collect data on methane emissions based on these reports and make it available to the EU Commission and the public.
The Methane Regulation is relevant to all segments of the natural gas industry, from upstream exploration and production, gas gathering and processing, to transmission, distribution, underground storage, and LNG liquefaction terminals, explicitly excluding LNG shipping. The MRV and maximum methane intensity obligations focus on methane emissions associated with natural gas production and exports.
For compliance with Article 28 of the Methane Regulation, starting January 1, 2027, LNG delivered must meet MRV obligations equivalent to those in the Methane Regulation if the producer/exporter outside the EU adheres to the Oil & Gas Methane Partnership 2.0 (OGMP 2.0) level 5 standards. OGMP 2.0, an oil and gas reporting and mitigation programme by the United Nations Environment Programme (UNEP), is a measurement-based international reporting framework covering nearly 40% of the world’s oil and gas production and over 80% of LNG flows. It has five reporting levels, with level 5 requiring companies to reconcile their source-level emission inventories with site-level measurements.
The Methane Regulation also provides for country-level equivalence, a standard to be established by the Commission in an implementing act pursuant to Article 28(6). However, as there is no set deadline for the implementing act, individual company (producer/exporter) equivalence will likely be the default option in the short- to medium-term. From an EU importer's perspective, this is a less favorable option compared to country-level equivalence, which would offer more clarity, certainty, and ease of application by relieving individual companies from proving MRV equivalence for their or their suppliers’ production facilities in any acknowledged “equivalent” country.
Currently, there are uncertainties regarding many detailed legal provisions, and further specifications are expected from the EU Commission. In the meantime, market participants must navigate a somewhat unclear regulatory environment which likely complicates the conclusion of supply contracts.
Parties must adapt contracts
Natural gas and LNG supply and purchase agreements (LNG SPAs) commonly utilized in the natural gas sector are long-term take-or-pay contracts. These agreements often include highly restrictive clauses to ensure supply and demand stability, making them ideal for securing project financing for large, capital-intensive energy projects. Their purpose is to bind parties to a specific transaction under defined conditions for extended periods, typically ranging from 10 to 25 years.
These contracts generally result in locking in the supply of natural gas (whether pipeline gas or LNG) for considerable durations unless both parties agree otherwise or one party compensates for contract cancellation.
In the context of the ongoing energy transition, this lock-in effect poses challenges. It concerns natural gas buyers aiming to shift to more sustainable energy sources (e.g., biogas, biomethane, green or blue hydrogen) and sellers/producers who may be unable to cancel their natural gas purchase or supply obligations when they wish to transition to other energy carriers or when government regulations significantly alter the conditions for natural gas imports or exports, potentially even banning unabated natural gas operations.
This situation also affects gas transporters wanting to switch to transporting green hydrogen, which can be accomplished without major pipeline infrastructure changes and is supported by public sector initiatives (e.g., the EU Hydrogen Strategy and the new EU Gas and Hydrogen Market Directive).
The lock-in effect is further complicated when government-mandated changes compel a party to potentially invoke legal doctrines such as frustration, force majeure, fait du prince, or government compulsion. This issue is closely tied to contract details and how the risk of legal changes is allocated, making the problem posed by the sanctity of long-term agreements and similar contract law doctrines very tangible.
The acceleration of the energy transition and the resulting uncertainties necessitate frequent adaptations of these agreements to new realities often not anticipated by the contracting parties.
Generally, there is a need for more flexibility for contracting parties. Although the natural gas industry has already seen some flexibility introduced into these contracts, understanding the contextual reality and the details of necessary conceptual changes is crucial.
European Critical Raw Materials Act enters into force
On 23 May, the new EU Critical Raw Materials Act entered into force. It aims at ensuring a "diverse, secure, and sustainable supply of critical raw materials for the EU's industry".
In the context of growing international competition over energy investments, countries and trade-blocks are manoeuvring to attract flows of private capital and know-how, especially in sustainable energies and related technologies.
The EU’s “Net-Zero Industry Act” and related provisions are a direct response to earlier legislation by the US that, in view of the European Commission, may pose a threat of new investments in these sectors being diverted away from Europe.
Back in 2021, the US enacted the bipartisan “Infrastructure Investment and Jobs Act”, which among other things provided for grants and programmes to boost investment in clean energy projects including solar, wind, hydrogen, carbon capture and storage, and other net-zero technologies.
Additionally, the US enacted the “Inflation Reduction Act” (IRA) in August 2022, providing for tax credits and subsidies for investments in clean energy technologies and bonuses for firms that incorporate domestic manufacturing and labour content in the process. It allocates approximately $369 billion to energy security and climate change programmes over the next decade, while providing $300 billion in deficit reduction.
In view of this, the EU’s “Net-Zero Industry Act” aims at attracting investment for scaling up the manufacturing capacity of net-zero technologies in the EU, and to ensure access to the supply of such technologies that are needed for the resilience of the EU’s energy system.
This includes simplified and accelerated permitting procedures for strategic projects as well as the prioritisation of public interest in such investments over competing priorities, such as nature and environmental protection.
One of the striking features of this legislation is that the strategic net-zero technologies identified in the annex to the regulation, which include, for example, electrolysers and fuel cells, carbon capture, utilisation, and storage technologies, will not only receive particular support but are also subject to the 40% domestic production benchmark by 2030.
This is because for certain elements of the supply chain the EU manufacturing capacity is low, especially for inverters, solar cells, wafers, and ingots for solar PV or cathodes and anodes for batteries.
The European Commission argues that increasing the manufacturing capacity for net-zero technologies in the EU will also facilitate the global supply of net-zero technologies and the transition towards clean energy sources in the whole world.
This is true to the extent that new EU capacity does not replace existing capacity elsewhere. While this may be the case in view of the expected global growth of demand for such technologies, it is clear that the EU aims at strategic independence from third-country supplies.
Another noteworthy provision in direct response to the competitive challenge from the impressive financial resources mobilised by the US, is the so called “matching aid”. The European Commission is prepared to exceptionally allow for subsidies matching the level of financial support that a beneficiary could demonstrably receive for an equivalent investment in a country outside the EU. This mechanism can lead to the granting of subsidies that are significantly higher than maximum state aid amounts would normally be in Europe.
One of the peculiar elements of the matching aid is its link to the EU’s cohesion policy. The beneficiary must locate its investment either in one of the EU’s “assisted areas”, or it must be extended over at least three member states where a significant part of the investment occurs in at least two assisted areas. These areas are the more remote and less developed regions of member states which means that the investment would have to take place in an environment that typically offers less infrastructure and other features that would make it interesting for investors.
It appears that the EU and the US have once more chosen rather different routes to tackle the same problem. It remains to be seen which of the approaches will turn out to be more successful.
EU Delegated Act on free allocations published in the Official Journal
On 4 April, the DA was published in the EU's Official Journal. From 2025, producers of decarbonised hydrogen and its derivatives as well as decarbonised steel are granted free allocation of emissions allowances equivalent to producers of grey hydrogen and ammonia based on fossil gas as well as coke-fired iron and steel.
This means that producers of decarbonised hydrogen and steel can temporarily create a new revenue stream by claiming and selling the credits since they do not need them for covering any own emissions.
Currently, an ETS carbon credit is worth around EUR 60 per tonne of CO2, but about a year ago prices had risen up to EUR 100. This may act as incentive to take final investment decisions for green hydrogen projects.
In the longer run, the EU's CBAM rules (carbon tax on imported industrial products incl. H2, iron and steel) are aimed at eliminating the reasons for granting free allowances.
EU Council and Parliament agreed on the Corporate Sustainability Due Diligence Directive
On 15 March, the "Corporate Sustainability Due Diligence Directive" (CSDDD) gained provisional approval from EU Member States after lengthy back-and-forth and following further amendments to the draft based on a compromise proposal from the Belgian EU presidency. The compromise text remains to be formally adopted by the EU Parliament and the Council before it enters into force.
Key provisions:
- Increased Application Thresholds: Adjustments were made to the CSDDD's application criteria to mitigate its impact on smaller and medium-sized enterprises (SMEs). Initially aimed at companies with 500 employees and a global turnover exceeding EUR 150 million, these thresholds have been elevated to include companies with 1000 employees and a turnover of EUR 450 million, extending the same turnover threshold to non-EU companies operating within the EU. This revision significantly reduces the number of companies directly affected.
- Activities under due diligence obligations: The directive now focuses on obligations related to direct business partners, not indirect ones. This translates to a more narrow application of due diligence requirements. Financial activities and specific aspects relevant to the financial sector have been removed from the downstream part of activities covered. Regulated financial undertakings are only included in relation to upstream activities.
- Removal of High-Risk Sectors Approach: While initially part of the directive, provisions on high-risk sectors have been removed. A provision for future reassessment remains.
- Flexibility in Civil Liability: The compromise text grants Member States leeway in defining "reasonable conditions" for injured parties to engage NGOs or other entities in pursuing rights enforcement.
- Climate Transition Plans: While still compulsory, the obligation for large companies to promote climate transition plans e.g. through financial incentives has been removed.
- Staged Transition Periods: Implementation timelines are adjusted according to company size, with a three-year period for entities over 5000 employees and EUR 1500 million in turnover, a four-year period for those above 3000 employees and EUR 900 million turnover, and a five-year period for smaller companies covered by the directive.
Next Steps:
The EU Parliament is expected to adopt the legislation in April during its final session before EU elections, followed by formal adoption by the Council.
Updated Q&A from the EU Commission
The EU Commission updated its Q&A document giving guidance on the implementation and application of last year's delegated acts on hydrogen.
This follows discussions with certifiers and voluntary schemes about how hydrogen
producers and voluntary schemes should implement the requirements set out in the “RFNBO delegated act” and the "delegated act GHG methodology”.
The document helps resolving unclarity in some areas, but questions remain nevertheless. E.g., the notion of a PPA with a power producer and the role of intermediaries is adressed: the Commission asserts that "a direct relationship between
the electricity producer and the hydrogen producer" must be maintained.
The nature of this direct link, however, is not defined. It needs to be assessed on a case-by-case basis whether a direct bilateral conract is required, or whether other constellations are accepted, such as a binding bilateral MoU coupled with a trilateral contract involving the intermediary.
It is important to note that going forward there will most likely be further updates to the guidance without prior announcement.
Deal on EU electricity market reform
In December 2024, the EU Council and Parliament reached a deal on reforming the EU electricity market, focussing on updating consumer protection measures and transitioning towards renewable energy sources.
The new legislation includes several key elements aimed at reforming the EU's electricity market. One of the primary features is the introduction of mandatory contracts for difference. These contracts are designed to financially support the generation of low-carbon electricity, providing stability and predictability for new renewable and nuclear energy projects. The European Commission will determine case-by-case whether compensation is excessive or not.
Another significant aspect is the objective to mitigate the impact of fluctuating energy prices on consumers, aiming for more transparent and fair pricing mechanisms. This was driven by recent volatility in fossil fuel prices.
The agreement also allows for specific national considerations. For instance, countries like Poland have been granted the option to deviate from EU rules by activating existing peak coal power plants in case of an energy crisis.
Next, the deal will have to be formally adopted by both the Council and Parliament before it becomes law.
Ongoing topics .
Extension of the EU ETS to the maritime sector emissions in 2024 - even beyond the EU's borders
According to the EU Commission, shipping accounts for around 2.9% of global man-made emissions, and at EU level for 3 to 4% of total CO2 emissions. Therefore, EU rules have been extended to include the maritime sector. Among many other rules, the EU has imposed mandatory renewable energy and RFNBO targets for this sector. In addition, it will now be included in the EU emission trading scheme.
From 2024 onwards the maritime sector will also be covered by the EU's Emissions Trading System (ETS), first CO2 and starting from 2026 also CH4 (methane) and N2O (nitrous oxide). All vessels above 5000 gross tonnage will initially be covered by the system. Extension to smaller vessels can take place later.
At least initially, the ETS covers emissions that have a connection with the EU. It will cover all the emissions that occur for voyages between two EU ports as well as the time at EU ports. It will also cover half of the emissions for voyages where only the start or end point is an EU port.
But by means of a delegated act, the scope of this legislation is being extended under certain conditions also to cover specifically designated “container transhipment ports” in third countries near the EU’s borders, for instance in North-Africa, where cargo is offloaded for further forwarding to EU ports.
These rules apply to all ships, regardless of their flag-state. There will be an initial transition period starting from 2024 (obligation to surrender 40% of the total emissions) until 2027 (100% coverage).
A number of delegated acts will create the framework for reporting, accounting and verification for these emissions. Non-compliance by the shipping company will be subject to sanctions. Repeated violations can lead to an expulsion order that cover the entire fleet and all EU ports.
Driving the transition in aviation and maritime sectors
The EU legislator recently adopted several new legislative measures that aim at decarbonizing the transport sector. One of the central implications of these regulations is an increasing regulatory push for the uptake of renewable fuels of non-biological origin (RFNBO’s) also in the maritime and aviation sectors:
The "Regulation on ensuring a level playing field for sustainable air transport" (ReFuelEU Aviation) was adopted on October 9. It aims at increasing the supply and demand of sustainable aviation fuels (SAF’s).
The regulation requires, i.a., that aircraft fuel suppliers gradually increase the supply of SAFs, synthetic fuels (RFNBO’s) in particular, but also recycled carbon fuels and advanced biofuels that comply with the sustainability and emission savings criteria under the 2018 Renewable Energy Directive. It also requires that airports guarantee the infrastructure for this purpose.
The "Regulation on the use of renewable and low-carbon fuels in maritime transport", FuelEU maritime, was already adopted earlier in 2023 to drive the transition in the maritime industry towards low carbon fuels.
The regulation provides mandatory rules on, i.a., GHG emission reductions in the maritime industry, and on on-shore power supply for ships at ports. Penalties for shipping companies not compliant with the new rules will start from 1st May 2026.
These measures are part of the EU fit-for-55 package introduced by the European Commission on in 2021, aiming at a reduction of the EU's net greenhouse gas emissions of at least 55% by 2030 (compared to 1990 levels), and at achieving climate neutrality in 2050.
CBAM: A premium on imports
The Carbon Border Adjustment Mechanism (CBAM) imposes a price premium on imported products with greenhouse gas emissions that originate in non-EU countries. The objective is to improve the relative competitiveness of products from inside the EU that have already internalized the costs of such emissions in their sales price under domestic EU rules.
From the start, CBAM will apply to goods such as hydrogen and electricity, cement, aluminium, fertilisers, iron and steel. Imports of natural gas are not yet affected at this point, but the legislation is indicative of developments that are on the horizon. It is expected that CBAM will be extended to all products covered by the EU Emissions Trading System (ETS).
The new regime is phased in gradually from 1 October 2023, and the first reporting period for importers ending on 31 January 2024. During an initial transition period, importers will not yet have to make any payments, but report greenhouse gas emissions embedded in their imports. Gradually, the rules will become stricter, and the costs for importing affected goods will be tied to the price of allowances under the EU’s Emissions Trading System (ETS).
Furthermore, the legislation contains elements that are likely to be included in a future methane standard for imported energy goods, including natural gas.
This piece of legislation was presented by the European Commission at the same time with its “Critical Raw Materials Act” in March 2023 to ensure the EU's access to a secure and sustainable supply of critical raw materials. To this end, the Commission aims at ensuring that, by 2030, EU capacities for each strategic raw material have significantly increased.
The targets for EU-domestic capacities are different for different stages of the supply chain:
Extraction: at least 10% of the EU's annual consumption
Processing: at least 40% of the EU's annual consumption
Recycling: at least 15% of the EU's annual consumption
Furthermore, not more than 65% of the EU's annual consumption of each strategic raw material at any relevant stage of processing may come from a single third country. The raw materials considered to be strategic are such that are central to the green and digital transition.
In a similar manner to the EU’s “Net-Zero Industry Act”, the “Critical Raw Materials Act” also foresees simplified and accelerated permitting procedures for strategic projects as well as the prioritisation of public interest in such investments over competing priorities, such as nature and environmental protection.
New Renewable Energy Directive adopted
On October 9, the Council of the EU adopted the new Renewable Energy Directive (RED III) to raise the share of renewable energy in the EU’s overall energy consumption to 42.5% by 2030 with an additional 2.5% indicative top up that would allow to reach 45%. Adoption by the European Parliament had already taken place earlier.
Key amendments brought forward by the new directive are the specific demand side targets for a range of end-use areas of hydrogen and renewable fuels of non-biological origin, or ‘RFNBO’s’. The new rules are now expanded from transport to cover industrial and maritime sectors, among others, creating mandatory targets for RFNBO’s.
However, for the industrial sector, there is a possibility to discount the contribution of RFNBO’s by 20% where:
• ... the member states’ national contribution to the binding overall EU target meets their expected contribution; and
• ... the share of hydrogen from fossil fuels consumed in the member state is not more 23% in 2030 and 20% in 2035.
Another key element is the creation of renewables acceleration areas. In order to facilitate and speed-up renewable energy projects, the new directive attempts to accelerate permitting for such projects.
For this purpose Member States will design renewables acceleration areas where renewable energy projects can be subject to simplified and accelerated permit-granting procedures.
The EU's Net-Zero Industry Act: Public funding and domestic production
In the context of growing international competition over energy investments, countries and trade-blocks are manoeuvring to attract flows of private capital and know-how, especially in sustainable energies and related technologies. The EU’s “Net-Zero Industry Act” of March 2023 and related provisions are a direct response to earlier legislation by the US that, in view of the European Commission, may pose a threat of new investments in these sectors being diverted away from Europe.
In 2021, the US enacted the bipartisan “Infrastructure Investment and Jobs Act”, which among other things provided for grants and programmes to boost investment in clean energy projects including solar, wind, hydrogen, carbon capture and storage, and other net-zero technologies. Additionally, the US enacted the “Inflation Reduction Act” (IRA) in August 2022, providing for tax credits and subsidies for investments in clean energy technologies and bonuses for firms that incorporate domestic manufacturing and labour content in the process. It allocates approximately $369 billion to energy security and climate change programmes over the next decade, while providing $300 billion in deficit reduction.
In view of this, the EU’s “Net-Zero Industry Act” aims at attracting investment for scaling up the manufacturing capacity of net-zero technologies in the EU, and to ensure access to the supply of such technologies that are needed for the resilience of the EU’s energy system. This includes simplified and accelerated permitting procedures for strategic projects as well as the prioritisation of public interest in such investments over competing priorities, such as nature and environmental protection.
One of the striking features of this legislation is that the strategic net-zero technologies identified in the annex to the regulation, which include, for example, electrolysers and fuel cells, carbon capture, utilisation, and storage technologies, will not only receive particular support but are also subject to the 40% domestic production benchmark by 2030. This is because for certain elements of the supply chain the EU manufacturing capacity is low, especially for inverters, solar cells, wafers, and ingots for solar PV or cathodes and anodes for batteries.
The European Commission argues that increasing the manufacturing capacity for net-zero technologies in the EU will also facilitate the global supply of net-zero technologies and the transition towards clean energy sources in the whole world. This is true to the extent that new EU capacity does not replace existing capacity elsewhere. While this may be the case in view of the expected global growth of demand for such technologies, it is clear that the EU aims at strategic independence from third-country supplies.
Another noteworthy provision in direct response to the competitive challenge from the impressive financial resources mobilised by the US, is the so called “matching aid”. The European Commission is prepared to exceptionally allow for subsidies matching the level of financial support that a beneficiary could demonstrably receive for an equivalent investment in a country outside the EU. This mechanism can lead to the granting of subsidies that are significantly higher than maximum state aid amounts would normally be in Europe.
One of the peculiar elements of the matching aid is its link to the EU’s cohesion policy. The beneficiary must locate its investment either in one of the EU’s “assisted areas”, or it must be extended over at least three member states where a significant part of the investment occurs in at least two assisted areas. These areas are the more remote and less developed regions of member states which means that the investment would have to take place in an environment that typically offers less infrastructure and other features that would make it interesting for investors.
It appears that the EU and the US have once more chosen rather different routes to tackle the same problem. It remains to be seen which of the approaches will turn out to be more successful.
Revision of the Federal Climate Protection Act in Germany
A revision of the German Federal Climate Protection Act is currently in the legislative process. The Climate Protection Act has been in force for more than three and a half years. In June of this year, the Federal Cabinet approved a revision of the provisions. This is currently being debated in the German Parliament.
The planned changes had been the subject of lengthy debate for some time, even within the governing coalition. In its current version, the Act sets precise targets for the amount of greenhouse emissions that must be saved per year in individual sectors such as industry, transport, agriculture and buildings.
In future, the revision is intended to limit the total permissible emissions as compared to indidvidual sectors. That aims at a more flexible handling. If, for example, too much greenhouse gas emissions are caused by the transport sector, this can be offset by increased savings in the industrial sector. The specifications for the total permissible quantity remain unchanged.
By way of a factual background, most recently Germany failed to achieve its CO2 reduction targets for heating and, above all, transport. Under previous legislation, the responsible ministries would have had to table immediate programmes to close the gaps quickly.
The described changes are being criticised, e.g. by NGOs, arguing that the legal requirements and targets have been weakened.
New state aid rules for energy projects in the EU
As far as energy and climate measures are concerned, the two main instruments in the area of state aid are the General Block Exemption Regulation (GBER) and the Commission Guidelines on state aid for climate, environmental protection and energy of 2022. Furthermore, the European Commission has recently adopted temporary frameworks for increased flexibility in national aid measures. These include the Temporary Crisis and Transition Framework (TCTF) of March 2023, which is an amendment and prolongation of the Temporary Crisis Framework adopted a year earlier.
The GBER declares certain categories of state aid to be permissible per se. There are no obligations on prior notification and approval. According to amendments of March 2023, it now extends to include hydrogen and CO2 projects and it adds new conditions for CCS/CCU investments. In terms of aid amount, it is provided for CCS and CCU that it shall not exceed 30% of the eligible costs. Furthermore, in the case of larger energy and climate-related projects, investment aid for environmental protection under may not exceed EUR 30 million per company, per project. The Commission Guidelines provide for the conditions of compatibility of a notifiable aid measure for climate, environmental protection, and energy.
The 2022 update broadened the scope of the guidelines and provided new categories that could be subject to state aid. The amount of state aid can be up to 100% of the funding gap. State aid can now be granted to technologies that contribute to the reduction of greenhouse gas emissions. For instance, the production of low-carbon energy or synthetic fuels produced using low-carbon energy, energy efficiency including high-efficiency cogeneration, and CCS/CCU are in principle eligible. The legislation also covers support for the removal of greenhouse gases from the environment.
The TCTF of March 2023 allows funding for a range of technologies, including the manufacturing of batteries, solar panels, wind turbines, heat pumps, electrolysers, and equipment for CCUS. This may take the shape of direct subsidies, tax advantages or loan guarantees. The individual aid limit depends on the size of the company, the region where the investment is made, and the form of aid.
Furthermore, the updated rules on state aid also allow for “matching aid” in order to prevent invesmet from being diverted away from Europe to third countries such as the US. Consequently, the respective aid amounts can be much higher than permissible under normal circumstances.
German state aid for new gas-fired and hydrogen-operated power plants
Germany's government announced in August 2023 that it has reached an agreement in principle with the EU Commission on the promotion of new gas-fired power plants that can later be operated with hydrogen. The German government has been negotiating with the EU Commission on key parameters of the planned financial support for the construction of additional plants which are to bridge gaps in electricity production from wind and sun.
A total of just under 24 gigawatts of new capacity is planned to be put out for tender. Apparently, 8.8 gigawatts of this is planned to be operated with hydrogen from the start. Another up to 15 gigawatts are earmarked for gas-fired power plants that convert to hydrogen by 2035 at the latest. The energy industry has been waiting for this strategy and for incentives to invest.
Germany's new national hydrogen strategy
Germany approved an updated national strategy for the future use of hydrogen in July 2023. Hydrogen is considered being the missing piece of the energy transition jigsaw, and offering the chance to combine energy security with climate neutrality and competitive-ness. Ten gigawatts of green hydrogen are to be produced in Germany by 2030, according to the updated strategy. The previous target was half that.
Not only green hydrogen in focus: until there is enough green hydrogen, other types of hydrogen are to be used, especially low-carbon hydrogen from waste or natural gas. Where necessary in the market ramp-up phase, the German government is also intending to promote blue, turquoise and orange hydrogen.
Blue hydrogen is produced from fossil fuels and the resulting carbon dioxide is captured and stored. Turquoise hydrogen is produced by the thermal fission of methane, producing carbon in solid form that can also be stored. Orange hydrogen is produced from biomass or waste combustion.
By 2028, a network of more than 1,800 kilometres of converted and newly built hydrogen pipelines are planned to be in place.
Across Europe, around 4,500 kilometres air aimed at to be added. By 2030, all major generation, import and storage centres should be connected to relevant customers.
Growing focus on emissions of LNG and natural gas
The gas industry is increasingly subject to new rules concerning the transparency and the pricing of greenhouse gas emissions. It is easy to predict that prices and import costs of greenhouse gas-intensive products will increase, and that this development will affect energy products such as natural gas. Despite the recent turmoil on gas markets, this will happen in short- to mid-term in the EU where developments in this direction are well underway.
Already in 2021, the European Commission initiated the establishment of a methane intensity standard for imported as well as domestically produced fossil fuels, including imported natural gas. The proposed legislation lays down rules for accurate measurement, reporting and verification of methane emissions in the energy sector, as well as the abatement of those emissions, including through leak detection and repair surveys and restrictions on venting and flaring. Importantly, this also includes rules on tools ensuring transparency of methane emissions from imports of fossil energy into the EU.
The new rules are expected to apply to all segments of the oil and fossil gas industry from upstream exploration and production, fossil gas gathering and processing to transmission, distribution, underground storage and LNG terminals.