What's Green Hydrogen? Now We Know
But also — Sanctions, Growth, Infringements, SGP
Hi! This is Monday, 20 February 2023, and here’s the news you need to start your week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and Linkedin.
The Briefing
On 13 February, the European Commission adopted two delegated acts to define what constitutes renewable hydrogen at the EU level. Disagreements between Member States had delayed the adoption of these two texts for more than a year.
WAIT • The Parliament and the Council had chosen to leave it to the Commission to establish technical criteria to define renewable hydrogen, via delegated acts. The publication was highly anticipated by the industry — with many investors waiting for a clear signal from the Commission to invest in hydrogen production.
According to Jorgo Chatzimarkakis, CEO of Hydrogen Europe, the lack of clarity on renewable hydrogen had led investors to "bite the bullet", as Euractiv reported. The legal certainty provided by these new rules is appreciated, as the United States tries to attract investment through the Inflation Reduction Act.
H2 • Essentially, the Commission is deciding what Member States can consider renewable hydrogen. Thus, it clarifies what types of hydrogen can be used — or not — by member states to meet their renewable energy targets.
The major contribution of these new rules concerns the principle of additionality, according to which only hydrogen production from new renewable sources of electricity can be considered as renewable.
The logic behind this additionality requirement is that the EU wants to avoid hydrogen being produced from existing renewable electricity sources, as this could create pressure on electricity production. The EU wants to encourage more renewable electricity generation, not use existing capacity to produce hydrogen.
DEROGATION • Under the new rules, it will be possible to derogate from the additionality principle in areas where CO2 emissions from the electricity sector are below a certain level, set at 18g CO2 equivalent per megajoule — or 18gCO2eq/MJ if you really like acronyms.
For example, in an area where electricity is produced entirely from nuclear power — which therefore satisfies the low CO2 emissions condition — hydrogen could be considered "renewable" if it is produced from existing wind turbines or photovoltaic panels.
In countries such as France, where electricity is largely decarbonized thanks to nuclear power , it will not be necessary to build new renewable electricity production capacity to satisfy the additionality principle. Existing facilities will suffice.
Through these new rules, the European Commission thus recognizes the contribution of nuclear power to the EU's decarbonization objectives.
VICTORY • Some wish that the same logic would be applied to other pieces of legislation such as RED3, the Renewable Energy Directive. On 1 February, nine Member States – including France — sent a letter to the Commission requesting the inclusion of low-carbon hydrogen in this directive. According to the letter, excluding low-carbon hydrogen from RED3 would be a "dead end" for decarbonization and would have deleterious effects on competitiveness across the bloc.
OPPOSITION • While Germany welcomed the adoption of the two delegated acts, the country remains sceptical about the inclusion of low-carbon electricity sources in renewable electricity generation targets.
"This is a subject that is being discussed on many issues and for which a solution must be found. Some countries want 'low carbon' everywhere and other countries don't want it at all," commented a diplomat to the FT. For its part, France could be willing to consider higher targets for renewable energy if they are weighted according to the carbon intensity of the electricity mix.
As for hydrogen, several environmental associations believe that derogations from the additionality principles could lead to greater consumption of fossil fuels to compensate for the electricity used for electrolysis.
In Case You Missed It
SANCTIONS • On 15 February, the Commission announced a tenth set of sanctions against Russia.
New export bans worth 11 billion euros, targeting industrial goods, construction products, and essential goods such as jet engines and machine parts.
Stricter controls on exports of dual-use goods, i.e. goods that can be used for military purposes — such as helicopters. The Commission also proposes for the first time to sanction third country entities, including Iranian entities accused of supplying drones to Russia.
Russian propaganda. The Commission proposes to establish a list of individuals who relay false information on the conflict in favour of Vladimir Putin.
Greater coordination of sanctions, to prevent Russia from circumventing the measures.
"With nine sanctions packages already in place, the Russian economy is in retreat," explained Ursula von der Leyen, determined to "maintain this strong pressure”. However, the effects of the sanctions are difficult to measure, according to Swedish Finance Minister Elisabeth Svantesson. She refers to IMF projections that nevertheless predict a positive growth rate for Russia in 2023.
The new sanctions will be discussed by the Council with a view to adopting the measures before 24 February, one year after Russia launched its ‘special military operation’.
ECO • According to the Commission's latest economic forecast, "the EU economy is expected to escape recession [in 2023], but remains exposed to turbulence”. The forecast level of growth in the Eurozone for 2023 is now estimated at 0.9%, up 0.4 percentage points from the autumn 2022 prediction.
Lower gas prices, relatively mild winter weather, and low unemployment have largely contributed to the upward revision of this forecast. The Commission also confirms that the inflation peak has passed.
The turbulence of energy prices nonetheless continue to be a significant burden for consumers. Core inflation — which provides a more accurate picture of the overall state of the economy by excluding the relatively volatile energy prices and unprocessed foods — also remains up in January.
INFRINGEMENTS • The European Commission issued its infringement decisions on 15 February. Infringement proceedings routinely occur — the Commission sends Member States to court for failing to comply with their duty to transpose EU directives or comply with EU law more broadly.
For instance, the EU’s executive is starting legal proceedings against eight Member States for failing to fully transpose provisions under the Whistleblower Directive; against Luxembourg for its failure to transpose EU rules on buying firearms; and against Hungary for voting against the EU’s common position at the World Health Organization (WHO).
The highest profile measure is undoubtedly against Poland, which is being referred to the EU’s top court for “violations of EU law by the constitutional tribunal and its case law”. Poland’s constitutional tribunal caused a huge stir in 2021 when it declared in two rulings certain provisions of the EU Treaties to be incompatible with the Polish constitution — thereby mounting a serious challenge to the primacy of EU law.
The EU and Poland have been at loggerheads over rule of law since PiS came to power in 2015 — with Brussels increasingly worried about the democratic backsliding and Warsaw increasingly adamant about the EU’s incursions into its constitutional sovereignty. The tug of war has caused the EU to withhold billions in NextGenEU funding.
SGP • In an effort to promote public investment in critical areas such as those linked to the green transition and prevent excessively harsh deficit-reduction policies, the Commission is calling on EU capitals to accelerate discussions on revamping the Union's fiscal framework.
Current deficits and debt levels remain high and, with the economic environment slated to remain volatile in the foreseeable future, an early return to the Stability and Growth Pact’s fiscal rules, which are currently partly suspended, seems unrealistic. The Commission is expressing concerns that if headway is not made on the updated framework by next month, it could jeopardise the prospect of revising the bloc’s rulebook before the 2024 European elections.
In November, the Commission introduced proposals aimed at streamlining the fiscal rules and granting individual countries more authority over their strategies for reducing debt. Progress in the negotiations on reforming the SGP has been impeded by disagreements concerning the extent to which fiscal policies should accommodate the needs of each member state. The German government fears that a loosening of the rules could weaken fiscal responsibility in the Eurozone. The Commission is betting that a deal can reached when finance ministers meet on 15 March, in time for the European Council of 24–25 March 2022.
What we’ve been reading
Following an eventful week in Moldova, Tony Barber’s potted history of the country and analysis of its prospects for unification with Romania and accession to EU membership for the FT’s Europe Express comes in handy.
This week’s newsletter is brought to you by Maxence de la Rochère and Augustin Bourleaud. See you next Monday!