European Clean Energy Pack

 Written by our consultant Pieter Vermeiren

In times of spiking energy prices and market insecurities, the topic of the European energy policies is more relevant than ever. In this article, we take a look at how the European Union has shaped the energy market in the past and how it plays a vital role in shaping its future.

The Energy Union and the Clean Energy Package

In 2015, Russia annexed the Crimea which resulted in growing tensions between the West and the Russian federation. The European Union realized that its energy market was too dependent and divided which made it very vulnerable to external forces.

As a response, the European Commission decided that it was time to unite the individual member states’ energy policies into an Energy Union. They did this by drawing up a plan that described a new path towards an integrated European energy market. The general mission was “to give EU households and businesses a secure, sustainable, competitive and affordable energy supply”.

The Energy Union builds on five dimensions that are closely related and mutually reinforcing:

1. Security, solidarity and trust – diversifying Europe’s sources of energy and ensuring energy security through solidarity and cooperation between EU countries.
2. A fully integrated internal energy market – enabling the free flow of energy through the EU through adequate infrastructure and without technical or regulatory barriers.
3. Energy efficiency – improved energy efficiency will reduce dependence on energy imports, lower emissions, and drive job and economic growth.
4. Climate action, decarbonizing the economy – the EU is committed to a quick ratification of the Paris Agreement and to retaining its leadership in the area of renewable energy.
5. Research, innovation and competitiveness – supporting breakthroughs in low-carbon and clean energy technologies by prioritizing research and innovation to drive the energy transition and improve competitiveness.

In line with the Energy Union, the European Commission introduced its 4th energy package in 2019, called the Clean Energy for all Europeans package (CEP). This CEP included 8 directives which ultimately have the purpose to move our energy consumption away from fossil fuels and towards clean energy. The most relevant directives and their targets are the following:

REPowerEU plan

Since the publication of the CEP, international developments have forced the European Union to take actions to diminish its dependency on Russian energy sources.
Hence, the European Commission responded in May of this year with the REPowerEU plan. This plan sets out a series of measures to rapidly reduce dependency on Russian fossil fuels and fast forward the green energy transition, while increasing the resilience of the EU-wide energy system. It is based on:

• Saving energy
• Producing clean energy
• Diversifying our energy supplies

It is backed by financial and legal measures to build the new energy infrastructure and system that Europe needs. The REPowerEU plan also sharpened some objectives defined in the CEP from 2019. The energy savings target of 9% is being increased to 13% and a new target of 45% is being set for the use of renewable energy sources.

In order to reach those targets, the European Commission started several initiatives. For example, in May 2022 and as part of the REPowerEU plan, the Commission adopted an EU solar energy strategy. This strategy identifies remaining barriers and challenges in the solar energy sector. It also outlines initiatives to overcome them and accelerate the deployment of solar technologies. Another example are the so called ‘Projects of common Interests’ (PCI’s) which have the objective to link up the energy systems of EU countries. One of these PCI’s is the Baltic connector pipeline which connects the Finnish gas network with the Continental European Network, ending Finland’s gas isolation. The project also allows Finland and the Baltic States to diversify their gas sources, routes and counterparts, increasing security of gas supply and energy solidarity in the region. Moreover, the project enhances competition on the market which can help reduce gas prices.

Where are we now?

While the European Union shows a lot of good will and is closely involved with the energy transition, it might be interesting to have a look at the currently available data (published by the European Environment Agency) of the targets we discussed above. First, we have a look at the greenhouse gas (GHG) emission numbers of the EU. The COVID pandemic had a significant impact. In 2020, greenhouse gas emissions were down by 33% compared with 1990 levels, representing an absolute reduction of 1 563 million tons of CO2-equivalents (CO2-eq). Due to the recovery of the economy, we saw a 7% increase in the first quarter of 2022 compared with the same quarter of 2021. Notwithstanding this rise, we were still below pre-COVID levels of 2019.

To get an indication of the energy efficiency we look at the final energy consumption, which is the total energy consumed by end users. In 2020, thanks to the COVID-19 pandemic, final energy consumption in the EU declined drastically to a consumption of 907 Million of tons of oil equivalent (Mtoe), 7% away from the 32,5% target by 2030. Of course, the EU economy did show a great recovery in 2021 which also resulted in a higher final energy consumption.

At last, we look at the percentage of renewable energy sources used. Today, just over 22% of Europe’s energy comes from renewables. This number has grown steadily over the years, but at the current rate the target of 45% renewables by 2030 will be a challenge.

Recap

This article started with a high-level explanation of the structure of the European energy market and its evolution over the years. Uniting the energy market makes the European Union stronger which proves useful during the current times of international tension. The Ukrainian war serves as a catalyst for Europe to move away from fossil fuel to clean energy. As we discussed the different targets, it is clear that although we are on the right path, a lot of effort is still needed from every member state to fulfil the long-term goals.