Industry and Europe’s “Fit for 55” package

Industry and Europe’s “Fit for 55” package

In July the European Commission adopted a package of proposals – called the Fit for 55 package – to make the EU’s climate, energy, land use, transport and taxation policies fit for reducing net GHG emissions by at least 55% by 2030, compared to 1990 levels. As the Commission states, achieving these emission reductions in the next decade is crucial to Europe becoming the world’s first climate-neutral continent by 2050 and making the European Green Deal a reality.

The Fit for 55 package containing hundreds of pages of legislative proposals, includes the increased energy efficiency and renewable energy targets, a new EU emissions trading system (EU ETS) for buildings and road transport, a profound restructuring of energy taxation in Europe, the introduction of a carbon border adjustment mechanism, revised CO2 emissions standards for new cars and much more. It will be quite a challenge to get all those proposals through the EU approvals process. But, given the urgency expressed by the latest IPCC report, everything must be done to get to full implementation.

Let’s look at what new is being proposed for industry in the draft revision of the Energy Efficiency Directive.

In the original EED from 2012, Article 8 had one obligation for energy-intensive industries and several recommendations for all industry. The one obligation for EIIs from the 2012 EED is the requirement to have regular mandatory energy audits. This obligation can be removed if the company has implemented an Energy Management System (e.g. ISO 50001). While the audits for large industry are mandatory, there is no requirement to implement the recommendations. However, the EED states that member states are to develop programmes for SMEs to undergo energy audits and then continue with implementation of the recommendations. The European Commission supported these efforts by funding several projects through the Horizon 2020 programme (now Horizon Europe).

The new proposal has several recommended changes:

• Enterprises with an average annual consumption higher than 100TJ of energy over previous 3 years are to implement an energy management system
• Enterprises with an average annual consumption higher than 10TJ of energy over previous 3 years are subject to an energy audit. Energy audits are to be carried out every 4 years in an independent and cost-effective manner by qualified or accredited experts
• The results of the audits must be transmitted to management of the enterprise and they are to be published in the enterprise’s annual report, where applicable
• Member states are to establish transparent and non-discriminatory minimum criteria for energy audits
• Again, member states shall develop programmes to encourage SMEs to undergo energy audits and the subsequent implementation of the recommendations
• Member states may set up support schemes for SMEs, including if they have concluded voluntary agreements, to cover costs of an energy audit and of the implementation of highly cost-effective recommendations.

As can be seen, there are several changes. These must also be put in the context that the EU Emissions Trading System (EU ETS) has been strengthened. The fourth phase which began in 2021 is designed to help the EU meet its 2030 GHG emissions targets to comply with the Paris Climate Agreement.

These have to be seen in the context of other related EU policies. The New EU Industrial strategy (March 2020 and updated in May 2021) seeks to balance the objectives of a globally competitive and world-leading industry and an industry that paves the way to climate-neutrality by a number of initiatives supporting industry on their path towards climate neutrality. In March 2020, the EC adopted a new Circular Economy Action Plan – one of the main blocks of the European Green Deal. The action plan includes both legislative and non-legislative measures. In November 2019, the High-Level Group on Energy-intensive Industries developed a Masterplan to advise the Commission on the enabling policy framework needed to manage the transition to low-emissions while keeping industry competitive.

There have also been some other initiatives that will help to some extent. The following two are particularly important:

• The EU and the Technical Expert Group (TEG) on sustainable finance has published the EU Taxonomy for sustainable activities in June 2020 and entered into force on 12 July 2020. The EU Taxonomy presents a uniform language that helps to distinguish which investments contribute to the European environmental objectives and introduces a classification system, establishing a list of environmentally sustainable economic activities, including energy efficiency aspects.
• The Energy Efficiency Financial Institutions Group (EEFIG) has a working group on industry which would assess industrial practices dealing with energy efficiency, identify and assess the main obstacles and drivers for improving energy efficiency, identify best practices and provide recommendations to DG ENER on what tools and policy instruments are likely to be most effective for increasing the energy efficiency investments in industry. The working group will present its results from this phase of its work later this year.

Final comments

Industry by and large knows it has to decarbonise if Europe is to meet its long-term energy and climate objectives. It also knows it needs to survive as the economy takes the steps to break out of the doldrums of the COVID-19 pandemic.

As the proposal goes through the approval process in the European Parliament and European Council there will be opportunities to have some influence. It will be interesting to follow the approval process to see the actions and reactions of the various stakeholders.

Importantly the draft directive gives considerable priority to the Energy Efficiency First principle. While we know there are many tools to help industry decarbonise, that principle should give pause to blindly going off on another direction without ensuring energy demand is given careful, initial attention. Industry will benefit from it. We all will.