CoR Plenary (April 2022)

On 14 July 2021 the European Commission adopted the 'fit for 55' package, adapting existing climate and energy legislation to meet the new EU objective of a minimum 55 % reduction in greenhouse gas (GHG) emissions by 2030. The fit for 55 package is part of the European Green Deal, a flagship of the von der Leyen Commission that aims to put the EU firmly on the path towards climate neutrality by 2050, as set out in the recently agreed European Climate Law (July 2021). One element in the fit for 55 package is the revision of the Renewable Energy Directive (RED II), to help the EU deliver the new 55 % GHG target. Under RED II, the EU is currently obliged to ensure at least 32 % of its energy consumption comes from renewable energy sources (RES) by 2030. The revised RED II strengthens these provisions and sets a new EU target of a minimum 40 % share of RES in final energy consumption by 2030, together with new sectoral targets. In the European Parliament, the file has been referred to the Committee for Industry, Research and Energy, with the Committee on the Environment, Public Health and Food Safety as associated committee under Rule 57. Discussions on the file have also begun in the Council of the EU.

The Commission is proposing a new directive to amend the 2018 directive on the promotion of energy from renewable sources. This initial appraisal of the Commission’s impact assessment on the proposal finds that the impact assessment draws a clear logic between the problems, their drivers, the objectives and the policy interventions under consideration. However, the the vast amount of work which must have gone into such an assessment is to some extent impaired by the inconsistent, unclear presentation of options and the equivocal identification of preferred options. Also, the IA is not clear as to how it ultimately settles on the specific target of 40%. While the IA was clearly an extremely complex exercise and appears to be based on reliable data, analysis and modelling, different choices as to its organisation and presentation would have likely considerably improved the IA’s clarity and readability and its ability to support the policy choices made in the proposal.

This working paper is organised as follows: Section 1 start with a brief presentation of the carbon pricing components of the ‘Fit for 55’ package. These include the extension of the Emission Trading Scheme (ETS); the revision of the Energy Taxation Directive (ETD) and the Carbon Border Adjustment Mechanism (CBAM). Section 2 discusses the contrast between the economic merits and the political acceptance of carbon pricing. Section 3 examines the distributional issues. Our view is that the debate is truncated and misleading when it sticks to the regressivity of carbon taxation. The issue is not whether we should introduce carbon pricing or not, bearing in mind the regressivity, but rather what instruments achieve the best combination of fairness and effectiveness among the ways of delivering a reduction in emissions. Because of the revenue it procures, carbon pricing appears to offer a win–win solution. Section 4 discusses the competitiveness issue and the Carbon Border Adjustment Mechanism proposal.

The recast of the Renewable Energy Directive (RED II) provides an enabling framework for “Renewable Energy Communities” (RECs) that is being transposed into law by the 27 European Union Member States by June 2021. RECs are majority owned by local members or shareholders who are authorized to share energy within the community, offering the potential to unlock private investment and financing for renewable energy sources and provide social benefits. This paper highlights the benefits and challenges of widespread development of RECs, and using examples from the pending transposition process provides policy advice for effective implementation of the RED II with respect to RECs.