EUROPEAN COMMISSION

Brussels, 14.7.2021

SWD(2021) 621 final

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT REPORT

Accompanying the

Proposal for a Directive of the European Parliament and the Council

amending Directive (EU) 2018/2001 of the European Parliament and of the Council,  Regulation (EU) 2018/1999 of the European Parliament and of the Council and Directive 98/70/EC of the European Parliament and of the Council  as regards the promotion of energy from renewable sources, and repealing Council Directive (EU) 2015/652

{COM(2021) 557 final} - {SEC(2021) 657 final} - {SWD(2021) 620 final} - {SWD(2021) 622 final}

Table of contents

1.Introduction: Political and legal context

1.1.Key aspects of the 2018 Renewable Energy Directive (REDII)

1.2.The Renewable Energy Directive and interactions with the key ‘Fit for 55’ legislation/initiatives and others

2.Problem definition

2.1.What are the problems?

What are the problem drivers?

2.2.How will the problem evolve?

3.Why should the EU act?

3.1.Legal basis

3.2.Subsidiarity: Necessity of EU action

3.3.Subsidiarity: Added value of EU action

4.Objectives: What is to be achieved?

4.1.General objectives

4.2.Specific objectives

4.3.Intervention logic

5.What are the available policy options?

5.1.Baseline

5.2.Scope of this initiative and alignment with the Climate Target Plan

5.3.Description of the policy options

5.4.The overview of policy options

5.5.The core scenarios, variants and their use in this IA

5.6.Options discarded at an early stage

6.What are the impacts of the policy options including for effectiveness, efficiency and coherence?

6.1.Overall renewable energy target level and achievement

6.2.Heating and Cooling

6.3.Transport

6.4.Measures to enhance the contribution of transport and heating and cooling to the system integration of renewable electricity

6.5.Certification of renewable and low carbon fuels

6.6.Promotion of innovative renewable and low carbon fuels

6.7.Bioenergy sustainability criteria

6.8.Flanking and enabling measures

7.How do the options compare and conclusions

7.1.Effectiveness

7.2.Efficiency and impacts

7.3.Coherence

7.4.Administrative and monitoring impacts

7.5.Subsidiarity and proportionality

8.Preferred option/CONCLUSIONS

8.1.Methodological approach

8.2.Policy interactions

8.3.Preferred policy options

8.4.Investments underpinning the preferred policy option

8.5.Ensuring coherence in the finalisation of the package

8.6.REFIT (simplification and improved efficiency)

9.How will actual impacts be monitored and evaluated?

10.List of tables and figures

Glossary

1.Introduction: Political and legal context

The European Green Deal establishes the objective of becoming climate neutral in 2050 in a manner that contributes to European competitiveness, growth and jobs. This objective, and the objective of a 55% reduction in GHG emissions by 2030 as confirmed by EU Heads of State and Government in the European Council in December 2020, requires an energy transition and significantly higher shares of renewable energy sources in an integrated energy system. The increased use of energy from renewable sources is crucial to combat climate change, protect our environment and health and reduce our energy dependency, as well as to contribute to the EU’s technological and industrial leadership and the creation of jobs and growth.

REDII sets a binding EU target to reach at least a 32% share of renewables in the energy mix in 2030. It moves away from the national binding targets which were set within the 2020 framework to national contributions to the Union target as set by the Member States in their National Energy and Climate Plans (“NECPs”). On 17 September 2020, the Commission adopted the 2030 Climate Target Plan 1 (“CTP”), which explores options to achieve a new 2030 climate target of at least 55% GHG emissions reductions. This target was endorsed both by the European Parliament 2 and by the European Council 3 . As stated in the CTP, renewable energy plays a fundamental role in delivering the European Green Deal 4 and for achieving climate neutrality by 2050. The energy sector contributes over 75% of total GHG emissions in the EU and energy efficiency. Renewable are therefore central to achieving the higher climate ambition for 2030. According to the CTP, achieving at least 55% GHG emissions reductions would result in an accelerated clean energy transition and a greener energy mix, with renewable energy seeing its share reaching 38% to 40% of gross final energy consumption by 2030.

The acceleration of the ongoing energy transition requires a real paradigm shift and profound changes in the way how we produce and consume energy. This requires significant investments in new technologies, materials and fuels. Such profound changes do not happen overnight and the magnitude of investment is a challenge. To further leverage this step change, investors need certainty on the direction to go and where to invest. Compared to other “Fit for 55” measures, the revision of RED can deliver best on specific support measures for new renewable solutions and create certainty for investors to make the accelerated energy transition happen.

This revision of RED II builds on the CTP and the impact assessment 5 that underpins it, as do all the ‘Fit for 55’ initiatives.

Implementing the EGD roadmap, the Commission has adopted several strategies that require a review of different elements of the EU’s renewable energy policy:

·The Energy System Integration Strategy 6 and the Hydrogen Strategy 7 aim to build an integrated energy system fit for climate neutrality and to turn hydrogen, especially renewable hydrogen, into a viable solution to contribute to this vision. Both strategies propose a number of actions to be addressed through the review of REDII, including promoting the principle of energy efficiency first, moving towards a more “circular” energy system by reusing waste heat and biomass wastes and residues, promoting renewable-based electrification in sectors such as transport, buildings, industry and promoting the use of renewable and low carbon fuels 8 , including hydrogen, for hard-to-decarbonise sectors;

·The Renovation Wave initiative 9 , which aims to at least double the current low renovation rates in the EU and highlights the need to speed up the integration of renewables in buildings as well as the decarbonisation of heating and cooling;

·The Offshore Renewable Energy Strategy 10 , which sets out the scaling up of offshore renewable energy and its use as an EU priority;

·The EU Biodiversity Strategy 11 calls for better protection of and increasing the quantity, quality and resilience of Europe’s forests, including primary forests. It also includes a mandate to the Joint Research Centre to carry out a study on use of forest biomass for energy production and related biodiversity risks, in order to inform the review of REDII 12 . 

Furthermore, in response to the COVID-19 induced economic crisis effects on the European economy the Commission adopted an Economic Recovery Package 13 to facilitate investments to accelerate the transition towards a climate neutral economy (amongst other matters). The review of REDII must been seen in this context as a tool to complement the Recovery Package by helping to create a legal framework that sets the right incentives for a smooth and cost-effective energy transition that supports Europe’s recovery and resilience efforts, making Europe a healthier continent.

The review of REDII does not stand alone. It is part of a broader exercise that affects other energy and climate legislation and policy initiatives, as announced in the EGD roadmap, and in the Commission work programme for 2021 14 under the title “Fit for 55 package”. Therefore, close coordination is undertaken with the other proposals that are part of the June 2021 ‘Fit for 55’ package (see section 1.2).

1.1. Key aspects of the 2018 Renewable Energy Directive (REDII)

REDII is the main EU instrument dealing with the promotion of energy from renewable sources. It was adopted in 2018 and has to be fully implemented by Member States on 1 July 2021. A full review of the Directive is therefore not yet possible, and the Impact Assessment will focus on a targeted review to ensure the implementation of the Climate Target plan and other key Commission initiatives such as the Energy System Integration Strategy and the Biodiversity Strategy, while ensuring coherence with the other initiatives under the “Fit for 55” package.

It establishes an EU-level binding renewable energy target for 2030 of at least 32 % to be collectively delivered by Member States on the basis of voluntary national contributions, calculated according to an indicative formula included in the Governance Regulation. The national (binding) 2020 targets set in REDI also act as a minimum share of renewables (“baseline”) that Member States are obliged to maintain after 2020.

REDII also sets an indicative target to increase renewables in the heating and cooling sector by 1.3 percentage point yearly 15 . The targets are accompanied by a list of optional measures that Member States may choose to take and an obligation to, assess the potential of the use of renewables and waste heat and cold in the heating and cooling sector including District heating and cooling 16 . Member States must introduce appropriate measures in their building codes to increase the level of renewables in the building sector, in particular requiring minimum levels of renewable energy in new buildings and those undergoing major renovation. General requirements on basic information provisions and disconnection rights for consumers in district heating and cooling are also included.

REDII includes a sectorial binding target for transport of 14%, to be met by an obligation on fuel suppliers. It includes a cap of 7% of food based biofuels and a specific sub-target for advanced biofuels of 3.5%. Electrification of transport is only incentivised in a residual manner. The use of renewable energy in certain sectors (road transport, rail transport, maritime and aviation) is only incentivised through “multipliers”, allowing to account more than the actual energy content consumed. The consumption of renewable electricity is also incentivised through such multiplier, as well as that of advanced biofuels. 17  

REDII strengthens the EU sustainability framework for bioenergy. It includes enhanced sustainability criteria covering also biomass/biogas in heat and power, in addition to biofuels/biogas for transport (as under REDI). REDII includes new biodiversity and climate safeguards for forest biomass. Also, REDII lays down minimum GHG emission saving thresholds, requiring biomass in heat and power to emit 70% fewer GHG emissions (on lifecycle basis) compared to fossil fuels (increasing to -80% in 2026). Minimum energy efficiency requirements for biomass electricity production have also been introduced. REDII promotes the shift from conventional to advanced biofuels. Finally, article 3 of the Directive requires that, amongst other, Member States design their support schemes with due regard with the waste hierarchy, to aim to avoid undue distortions of the biomass raw material market. These criteria have not yet taken effect, as the deadline for transposition by Member States is June 2021.

REDII also includes a number of enabling measures aiming to increase the renewable energy shares in the EU. These measures were calibrated in the Clean Energy for All Package with other energy, climate, environmental but also consumer legislation. They include the right for renewable self-consumers and renewable energy communities to generate, store and sell electricity without being subject to disproportionate procedures and to be fairly remunerated for the electricity they feed into the grid.

Furthermore, measures to simplify and speed up administrative and permitting procedures to ease the administrative burden for renewable projects developers. The Directive also includes general principles for the design of support schemes, in order to provide visibility to both Member States and investors on their possible design. Schemes are also subject to a voluntary opening to neighbouring Member States, with a review clause to reassess the possibility of a mandatory opening.

1.2.The Renewable Energy Directive and interactions with the key ‘Fit for 55’ legislation/initiatives and others

In conjunction with the REDII, the current EU climate and energy policy framework already presents several elements of synergies as shown in the figure below. Specific interlinkages between legislative instruments are explained in detail and where relevant in Chapters 5 and 6.

Figure 1 - RED II Interactions with other key legislation affecting Renewable Energy

The interactions are the strongest with the ETS – especially if extended to sectors of road transport and buildings. The analysis supporting the CTP shows that carbon pricing works best hand in hand with regulatory measures, and that this helps avoid “extreme” scenarios of either:

·very high carbon prices that can translate, in the absence of regulatory measures addressing market failures and barriers, into high energy prices for consumers (representing the highest burden for vulnerable individual consumers energy intensive industry etc.);

·very stringent energy policy requirements (e.g. very high energy savings or renewables obligations) that may be rejected by Member States because it would not give them much flexibility and would be too costly for economic operators struggling to mobilise the necessary investments and ultimately passing it through to consumers.

The proposed approach is to adjust and review the various complementary policy instruments to address various and distinct challenges in the pursuit of climate neutrality and European Green Deal objectives.

The IA is fully aligned with the GHG targets proposed in the Climate Law 18 for 2030 and 2050, as the IA is based on the Climate Target Plans scenarios achieving those two targets. The IA focuses on how to deliver the necessary level of ambition, mindful of interaction with other instruments, the governance process and subsidiarity principles. It looks at ways to formulate the sectoral RES targets, what fuels are eligible to fulfil them, which tools are proposed for Member State choice and which elements are binding. In addition to delivering the RES levels of ambition as defined in the CTP, the revision of REDII also assesses certain tools to achieve better energy system integration (ESI) and ensure that biomass sustainability criteria are fit for purpose.

In order to address the key interactions with legislative instruments mentioned above, scenarios (so-called “Fit for 55” core scenarios) were modelled to show how all instruments together can deliver the increased climate target of 55% net GHG reductions. REDII revision is reflected in those scenarios – please see methodology explained in Chapter 5.

2.Problem definition

2.1.What are the problems?

REDII was designed and adopted to achieve a share of at least 32% renewable energy in gross final energy consumption in a cost-effective and sustainable way by 2030, as part of a broader 2030 climate and energy framework, which set a 40% GHG reduction target. However, the EGD and its follow-up initiatives have increased the ambition of the Union climate and energy policies. This new ambition can only be achieved with considerably increased volumes of renewable energy in the system in addition to a strong improvement in energy efficiency. The common economic analysis underpinning the 2030 Climate Target Plan shows that, in the pathway/scenario focusing on a combination of carbon pricing and medium intensification of regulatory measures in all sectors of the economy, the current REDII fails to contribute sufficiently to the increased ambition and new policies adopted under the EGD in three ways.

First, the targets and measures set in the Directive are not sufficiently ambitious to achieve the general and sectoral shares in heating and cooling and transport sectors of renewables the CTP indicates as cost-effective to achieve an at least 55% of GHG emissions reduction in 2030 and climate neutrality by 2050.

While in the electricity sector the penetration of renewables has been the fastest, it will need to be scaled up substantially compared to historic rates of deployment. The key drivers remain the ETS price, energy taxation and taxonomy as well as further reducing technology costs through further enabling measures in renewables legislation in the electricity and industry sectors.

Second, the Directive does not properly reflect the measures proposed in the Energy System Integration and Hydrogen strategies to advance towards a more integrated energy system where there is, inter alia, a more energy efficient and circular energy system, further renewables-based electrification and further use of renewable and low-carbon fuels in those sectors where electrification is not yet a viable option.

These three goals are essential to reach the 2030 ambition in a cost-effective way. This is in particular valid for sectors that are difficult to de-carbonise such as transport, heating & cooling and industry.

Furthermore, the current certification system has already shown good results but its scope and content does not cover new fuels such as innovative renewables of non-biological origin (RFNBOs). All renewable and low-carbon fuels need robust certification across the life cycle to help achieve of both energy and climate targets.

Finally, the current REDII sustainability criteria for bioenergy need to be reinforced in a targeted way in light of the increased climate and biodiversity ambition of the EU Green Deal 19 .

The clean energy transition will result in an overall increasing demand for biomass (particularly after 2030), be it for bioenergy or alternative uses in products, while at the same time the EU land use sink needs to be maintained and enhanced and EU biodiversity safeguarded. According to the National Energy and Climate Plans, a majority of Member States plan to increase their use of bioenergy, but in most cases without assessing the impacts on LULUCF sinks and biodiversity (see Annex 8).

Energy policy is only one among several factors influencing forest management. Nevertheless if an increased uptake of renewable energy is met through unsustainable forest biomass sourcing, this could put further pressure on the forest sink and the biodiversity in forests. A. In addition, the combustion of biomass in inefficient energy installations can affect air quality objectives. At the same time, the Climate Target Plan pointed out to the need for increased use of sustainable bioenergy in order to achieve the 55% target by 2030 and climate neutrality by 2050. It is therefore essential to ensure that RED II in combination with the LULUCF Regulation and other climate and environment legislation) further minimises trade-offs and maximises synergies between biomass production and biodiversity and climate protection.

2.2.What are the problem drivers?

2.2.1. Insufficiently ambitious targets and measures for renewables deployment in EU and Member State legislation both in 2030 and 2050 perspective

2.2.1.1. Insufficient ambition to achieve the overall renewable energy target in 2030

As indicated in the latest Renewable Energy Progress Report 20 , if Member States meet the national contributions for renewable energy they have set in their NECPs, the Union is expected to reach a share of renewables between 33.1% and 33.7% by 2030 21 that would contribute to -41% GHG emission reduction thereby overachieving the current 32% RES target set in REDII while being significantly lower than the necessary 38% to 40% share set out in the CTP to be consistent with the overall EU target of at least 55% GHG reduction by 2030.

Apart from these identified shortcomings regarding the EU overall renewable energy target, an assessment per sector also reveals that REDII’s ambition and measures are not sufficient to deliver the EGD and CTP ambition. Market barriers and lack of incentives, particularly in end-use sectors such as heating and cooling or transport, hinder further penetration of renewables, either through electrification, or via the penetration of renewable and low-carbon fuels such as advanced biofuels and renewable and other sustainable alternative fuels and gases. Further cross –border cooperation and integrated approach to develop and deploy further renewable technologies like offshore renewable energy and in industry is still missing. Enhanced and expanded measures, including flanking and enabling measures, under RED II could deliver a larger uptake of renewable energy in the EU.

2.2.1.2. Insufficient ambition for renewables deployment in the heating and cooling sector

Heating and cooling currently accounts for half of the EU energy consumption. 60% of heating is consumed in buildings and around 40% in industrial process heating. More than three quarters of heating is supplied from fossils fuels. 80% of energy demand in residential buildings is driven by heating and cooling needs, and around 60% in service sector buildings. Many heating systems are old and inefficient and half are beyond their service lifetime. The replacement of half of the current heating stock and even more in district heating networks will have to occur in the next 5-8 years. A clear and ambitious policy framework is essential to ensure that investments for building renovation are cost-efficient and facilitate replacing fossil fuel boilers with more sustainable alternatives.

The share of renewables in this sector in the EU in 2019 was 22.1%, with only a 5.3 percentage point increase over the last 10 years 22 . In district heating the share of renewables is slightly higher around 28.9% but is mainly attributable to the use of biomass (26.9%), while other renewable heat technologies (heat pumps, solar and geothermal) amounting to only 2% are used only in a few innovative networks. In industry, only 9% of the heating requirements are supplied by renewable energy. In their NECPs, around half of the Member States did not present sufficient trajectories and measures to fulfil the current indicative heating and cooling target of an 1.1 percentage point (ppt) average annual increase (or 1.3 ppt if waste heat is used) over the 2021-2030 period, while the other half indicated the achievement of this target in their plans 23 . Likewise the gradual modernisation and building of renewable based district heating and cooling systems remained unaddressed by but a handful of Member States, even where this type of heating has a significant share. Overall the insufficiency of ambition in planned measures and trajectories signals a significant risk of long-term carbon lock-in, which will be difficult and expensive to correct if steps are not taken in the period until 2030. According to the aggregated projected trend in the NECPs, is only enough to reach a 33% RES share in H&C in 2030, in contrast with the 38-41% estimated necessary in the CTP.

Without a clear policy framework to roll-out renewable heating technologies in buildings and district heating as the main pillar of decarbonisation, replacement of heating systems will be sporadic and in many cases be based on uninformed decisions taken under duress in winter break-downs leading to replacing current fossil systems with the same and leading to fossil lock-in for the next 20-30 years. The synergies with energy efficiency and especially with building renovations are important to harness, as well insulated buildings are a pre-condition to replace old heating systems in buildings with efficient renewable heating or make connection with low-temperature modern district heating networks possible. As almost 75% of the existing buildings in the EU inefficient, they become a key barriers for deploying renewables to cover building’s heating needs. Addressing this barrier, requires a framework amenable to increase the annual heating system replacement rate to at least 4% per annum as indicated in the Climate Target Plan as an integral part of building renovation. The EU Renovation Wave therefore sets heating and cooling decarbonisation as one of its key areas for actions and calls for strengthened heating and cooling targets and minimum levels of renewables to be part of the REDII review. The accelerated deployment of renewable heating and district heating via strengthened measures to facilitate heat planning and planned replacement schemes, ensure risk mitigation and capacity building for consumers and public authorities is critical to scale up projects and investment and ensure level playing field for an orderly and cost-effective decarbonisation of heating.

Effective market and regulatory frameworks to guide the transition to the 2030 critical milestones and towards carbon-neutrality in 2050 are missing in all but a few Member States. With the possible extension of carbon pricing instruments, non-market barriers such as lack of sufficient capacity for heat and project planning, lack of information and coordination, lack of skills to enable the switching to renewables that still exist would need to be overcome for carbon price signals to fully exercise their impacts while allowing for a fair, effective and cost-efficient achievement of the climate goals, consistent with the energy and climate policy architecture as a whole. In this regard, multi-level coordination across the many actors (local, national and EU) is needed and the key building blocks for success (clear targets and horizontal measures supporting their delivery) are developed but not sufficiently understood, diffused and applied across the EU. The lack of clear and effective EU framework jeopardises progress due to the large size of the sector and the high correlation it has with the overall RES shares.

2.2.1.3. Insufficient ambition for renewables deployment in transport sector

Transport is the only energy sector that has seen an increase in GHG emissions in the past decades, increasing mobility needs as well has a high reliance on fossil fuels 24 being the main drivers. This is happening despite the technological developments in the sector, where transport means (cars, planes) are much more energy efficient than some years ago. Furthermore, transport is the end-use sector where renewable energy is being developed at the slowest pace, with an EU 8.9% share of renewables in 2019.

REDII replaced the 10% target set in REDI for 2020 by an obligation on fuel suppliers, which must be designed in a way that allows the Member States to achieve their target of 14% renewables and a sub-target of 3.5% advanced biofuels by 2030 25 . The achievement of the target is facilitated by several multipliers on energy content both for transport sectors and for specific fuels 26 . In addition to technical standards of fuels traded on the EU market, the FQD sets out a 6% target for the reduction of the greenhouse gas intensity of transport fuels by 2020, but does not set out a dedicated target for the promotion of innovative fuels. Following the recast of the RED, the sustainability framework in the FQD is now outdated. For these reasons it is relevant to assess whether elements of the FQD are still appropriate to avoid them acting as a barrier to the achievement of the revised ambition level of the RED.

There are two main technology options to reduce this dependency on fossil fuels and decrease the sector’s GHG emissions: Firstly, penetration of transport electrification and its deep, smart integration with the energy system for enhanced system flexibility and increased use of renewable electricity; secondly, in sectors that are more difficult to electrify such as aviation and maritime, increased use of renewable and low carbon fuels.

As to electricity in transport, in addition to missing price signals, barriers for electrification and its integration in the energy system are mainly the narrow range of electric vehicle models across all budgets, and insufficient recharging infrastructure, especially with intelligent or bidirectional functionality. The conditions for innovative mobility services such as aggregators are not yet in place, including access to data of vehicles, electricity grid and charging. Different charging infrastructure types and payment models also complicate the access for consumers to the infrastructure. Neither consumers, charge point operators, aggregators nor mobility service providers have access to information on the RES share or carbon intensity of the system in an interoperable manner. Further, REDII, apart from counting the contribution of renewable electricity towards the renewable energy target in transport, does not set out any mechanism ensuring that operators of recharging infrastructure are rewarded for supplying renewable electricity to electric vehicles under the obligation on fuel suppliers. This fails incentivising investments into recharging infrastructure and limits the contribution of renewable electricity contribution to the target.

The main market barrier for the use of renewable and low carbon fuels are the higher costs of such fuels compared to fossil fuels. Higher costs and low technological and commercial maturity limit the supply potential of innovative renewable fuels such as advanced biofuels and renewable fuels of non-biological origin (RNFBOs), mainly renewable hydrogen and renewable hydrogen-based synthetic fuels, which have decarbonisation potential despite their intrinsic energy inefficiency. REDII already limits the amount of biofuels produced from food and feed crops that can be counted towards the renewables targets due to their impact on indirect land use change and limited decarbonisation contribution.

The 2030 CTP Impact Assessment 27 shows that with existing policies the transport sector would fall short in delivering the contribution needed to achieve the economy-wide target of at least 55% GHG emissions reduction by 2030 and climate neutrality by 2050. The results also show that after 2030 a further significant scale up of the production of renewable and low carbon fuels is required on the pathway to achieve climate neutrality. With respect to the level of ambition, the CTP indicates that for 2030 the share of RES in transport should reach 27-29% 28 including a substantial contribution of advanced biofuels, which is significantly higher than the current 14% target set in REDII for transport. That assessment further demonstrated the importance of RNFBOs for the achievement climate neutrality in order to provide a decarbonisation pathway for hard to abate sectors. While REDII covers these fuels and sets out a framework ensuring that they achieve emission savings, it does not include specific incentives for their use. Given their early stage of technological development and high costs, a lack of dedicated incentives may slow down their commercial deployment, which would endanger the rapid uptake of renewable and low carbon fuels that is required after 2030. A possible extension of carbon pricing instruments alone would not be sufficient to drive the development of such fuels, and would create the risk to sustain less sustainable low carbon and biofuels. Other instruments that are relevant for the promotion of low carbon technologies such as the ETS are more suitable to promoting the switch to mature low carbon technologies but cannot provide by themselves the strong investment signal needed to develop new innovative technologies. Such investment signals could also keep increasing costs for consumers by carbon taxes and ETS in check.

29 2.2.2. Insufficient promotion of ESI in REDII

The current model, where energy supply and consumption for supply for electricity, heating and cooling, transport, industry, gas and buildings takes place in ‘silos', each with separate value chains, rules, infrastructure, planning and operations - cannot deliver the increased climate targets in 2030 and climate neutrality by 2050 in a cost-efficient way. The lack of integration of the energy system results in greater costs, inefficiencies, lost opportunities and a disproportionate burden on the power sector, which cannot alone deliver the overall decarbonisation effort required at EU level. In the end, it would lead to higher costs to households and businesses.

Several barriers, not appropriately addressed in REDII, still prevent the emergence of a truly integrated energy system, in particular (i) the slow rate of electrification of certain end-use sectors, (ii) the slow uptake of renewable sources in heating and low penetration of renewable and low-carbon fuels, such as biofuels, biogas, hydrogen and synthetic fuels, in particular in certain transport applications and in industry, as well as (iii) a still limited contribution to new distributed loads (electric vehicles, heat pumps) to the system integration of variable renewable electricity.

Smart and renewable use of power is crucial for heating and cooling systems, as well as electric vehicles, to live up to the European Green Deal objectives aiming to a reduction of 90% of the transport sector’s GHG emissions by 2050. The fast uptake of electric vehicles (EVs) is expected to follow exponential tendencies, with an estimate of more than 30 million electric cars by 2030 30 . The potential of EVs to absorb further renewable electricity and decrease system GHG emissions has to be well appreciated and fully utilised through appropriate measures, as stipulated in the Energy System Integration Strategy.

REDII provides only limited incentives for the electrification of end-use sectors. There are no specific provisions encouraging the electrification of heating and cooling, apart from the general, indicative heating and cooling target and the equally indicative and optional district heating and cooling target (the denominator of which can be reduced through electrification). The transport obligation is also rather designed to incentivise the uptake of specific fuels, in particular advanced biofuels, with electricity only incentivised through the use of a “multiplier”.

REDII does not yet include specific provisions aimed at ensuring that distributed assets such as home batteries and electric vehicles contribute to the system integration of variable renewable electricity. The Clean Energy package has brought about a significant redesign of electricity markets to ensure that all forms of flexibility are in principle able to participate in electricity markets, however regulatory gaps still exist on the specific conditions necessary to ensure a level playing field in the participation of such small or mobile distributed assets in practice, both individually as well as through aggregation. The AFID and EPBD also regulate the deployment of EV charging points, however through fragmented scopes of application. Provisions are missing to ensure coverage at all types of locations (publicly accessible, private for own use, and private with broad access), as well as to ensure that the deployed charging points are indeed fit for system integration purposes by offering smart charging or even vehicle-to-grid functionalities. Specific measures are also necessary to ensure that integration can be supported by a competitive and innovative services market through a level playing and enhanced consumer choice.

Regarding certification systems, REDII does enable the tracing of renewable transport fuels and some low carbon transport fuels. However, this system does not allow a sufficiently clear distinction between renewable and low-carbon fuels (including hydrogen) on the one hand and more polluting energy sources on the other hand, and does not allow tracing in the transport/transmission system from production facilities to consumption centres. Moreover, the two parallel systems for tracking the consumption of renewable energy under REDII (‘book & claim’ system based on guarantees of origin and a certification system based on mass balance) do not sufficiently promote further the integration of the energy system.

2.2.3. Insufficient sustainability criteria safeguards for bioenergy

Today bioenergy represents the largest single source of renewable energy in the EU, making up about 60% of final renewable energy consumption, of which 60% comes from forestry 31 .

In order to further inform the review of REDII, the Biodiversity Strategy has mandated the JRC to conduct a study on the use of woody biomass for energy and its potential climate and environmental impacts 32 . While bioenergy production can have positive climate and biodiversity impacts 33 , JRC has identified a number of potential bioenergy pathways that should be avoided for biodiversity and climate protection. For example, an excessive removal of harvest residues, or the removal of stumps, for bioenergy use can harm soil productivity, biodiversity, and water flows. In addition, the conversion of primary and highly biodiverse forests to plantations, aiming to provide wood for material and energy use, can be extremely negative for local biodiversity and climate mitigation in the short-medium term and lead to irreversible damage.

The JRC study has found that a robust and effective implementation of the REDII sustainability criteria for forest biomass could effectively minimise/avoid several of the identified risks. However, the study has concluded that additional safeguards are needed to address the existing policy gaps in the context of future biomass demand increases. More specifically, JRC has recommended the following two key measures: a) applying the existing no-go areas for agricultural biomass also to forest biomass, in order to avoid the risk of biomass sourcing from primary and highly biodiverse forests: b) applying the EU sustainability criteria to smaller installations (below the current threshold of 20 MW) in order to regulate a larger share of biomass use, thus avoiding possible ‘environmental leakage’ risks.

According to JRC data, the majority of woody biomass for energy use comes from timber residues and waste produced either from the forest-based industries and post-consumer wood (49%), or from timber logging (17%). At the same time, 20% of total woody biomass supply comes from stemwood, of which at least half is from coppice forests. About 4% of total woody biomass use for energy comes from industrial quality stemwood. This finding highlights the need for Member States to further promote the cascading use of woody biomass when designing their support schemes for bioenergy. In this respect, the Biodiversity Strategy has also called for the use of whole tree harvesting for energy production – whether produced in the EU or imported – to be minimised 34 .

Inefficient biomass combustion is also a source of air pollution 35 . According to the World Health Organisation, residential heating with solid fuels (coal or wood) is an important source of particulate matters and carcinogenic compounds, especially in Central Europe. In particular, biomass combustion in old and inefficient households and other small installations could compromise local and regional air quality objectives. While REDII does not include specific air quality criteria for biomass combustion, it should be noted that air pollution of fuels is effectively addressed through EU environmental legislation including a number of different measures 36 . Under the energy legislation, the Eco-design Directive has been identified as the most appropriate tool to set stricter emission requirements for new solid fuel boilers and space heaters, which are applicable since 1 January 2020.

2.3. How will the problem evolve?

REDII is the main Union instrument for the promotion of renewable energy 37 . To meet the share of 38% to 40% renewable energy in 2030 set out in the CTP, an increase in renewable energy is needed as a consequence of the proposal by the Commission endorsed by the European council and confirmed by co-legislators in the Climate Law, to step up the ambition of the climate target 2030 to at least -55%. According to the 2020 Renewable Energy Progress Report 38 , based on the existing framework of REDII and analysis of the NECPs submitted by the Member States, projects that the EU’s renewable energy share will reach between 33.1% and 33.7% in 2030. Leaving the ambition level of the Renewable energy directive unchanged would put additional burden for increased decarbonisation on other instruments such as the Energy Efficiency Directive as well as other instruments such as the Emissions Trading System, and the LULUCF and Effort Sharing Regulations. This could increase economic costs and distributional impacts especially in sectors included in the ETS. It would also fail to incentivise the market to invest more in renewables and innovate sufficiently.

In heating and cooling, the low ambition shown by many of the Member States in their NECPs in relation to the indicative renewable heating and cooling target and the indicative renewable district heating and cooling target set in REDII would continue. The current target ambition, coupled with no additional measures to tackle long-entrenched barriers across the whole heating and cooling sector means there would be slow progress, technology lock-in and lack of engagement from citizens, consumers and investors to contribute to the decarbonisation of this sector.

In transport, it is clear that several Member States have high ambition for greening road transport, in particular by looking into policies strongly discouraging the use of cars and vans with internal combustion engine. Direct electrification with renewable electricity, in conjunction with deep integration of electric vehicles in the electricity system, are considered to be the main options to reduce GHG emissions of cars and light duty vehicles. However, there are other transport modes, such as aviation and maritime but also long-haul transport, which cannot today be easily electrified and where renewable and low-carbon fuels including renewable hydrogen will be needed to replace fossil fuels, complementing energy efficiency improvements, modal shift and electrification efforts. Such innovative fuels will not be sufficiently promoted by other means such as ETS.

Renewables are developing strongly in the power generation sector through lower technology costs and stable ETS prices, but this is not enough to decarbonise the electricity sector at the pace required to cut emissions in the EU by 55% by 2030. New market avenues to develop additional renewable power generation, e.g. through merchant projects or corporate PPAs, are emerging, but still at a limited scale and in only a few Member States. The use of measures for cross-border cooperation has been limited in the past. With a view to 2030, very few Member States included concrete plans in their NECPs to implemented cross-border cooperation projects in the future, and this leads to lost opportunities. With regard to offshore renewable energy, the sector has shown great progress over the past years. However, to complement the provisions on grid related planning and cooperation addressed in the proposal for the revised TEN-E Guidelines, more ambition and increased efforts on deployment plans, joint projects and regional cooperation on renewable offshore generation are essential in order to tap the huge potential offered by offshore energy needed by 2030 and beyond and to do so in a cost-effective way.

As there are no specific requirements on industry to increase the level of renewable energy use under REDII, it is to be expected that the uptake of renewable energy will continue to stagnate as it has done over the past decade, and GHG emissions from industry will not decrease.

Regarding buildings, on average, the percentage use of renewables in buildings is 23.5%. Without new measures to increase the use of renewable energy in buildings generally and to encourage the move away from oil and coal- boilers, emissions from the buildings sector will be very slow to decrease. 

In terms of energy system integration, the further penetration of electricity and other decarbonised energy carriers such as renewable and low carbon fuels is expected to be moderate and uneven. Without further action to improve integration of the energy system, the burden of decarbonisation would continue to fall predominately on the power sector, and the substantial potential for decarbonisation and increased renewable energy use in end-use sectors, such as buildings, heating and cooling, transport and industry, would be partly foregone. Regarding the system integration of variable renewable electricity, the Clean Energy Package has introduced a number of provisions ensuring that electricity markets are fit for renewables. However, such provisions could be complemented by more sector-specific measures aimed at reaping the full benefit of distributed assets, such as heat pumps or electric vehicles and stationary batteries, for the integration of variable renewables.

In hard-to-decarbonise sectors such as maritime, aviation and industry, the current framework will offer limited incentives to promote innovative fuels such as RFNBOs and low-carbon fuels by 2030. While REDII sets a target of 3.5% for advanced biofuels in transport, high upfront capital investment needs and higher costs for RFNBOs and low carbon fuels will not allow them to penetrate these sectors before 2030 and thus provide the basis for a more significant uptake after 2030. Renewable and low-carbon fuels (including hydrogen) can be promoted most effectively if they can be easily distinguished from more polluting energy sources. Without a certification system and the provision of information to the market and policy makers about the environmental and energy efficiency performance of energy carriers, the promotion of promising energy solutions would be jeopardised. 

REDII extended the EU bioenergy sustainability framework to cover also large-scale use of biomass and biogas in heat and power and it included new risk-based criteria for forest biomass and for agriculture biomass. It also includes minimum GHG saving criteria for biofuels for transport and biomass/biogas in heat and power and minimum efficiency criteria for biomass based electricity production. In addition, it requires Member States to design their support schemes with due regard to the waste hierarchy to avoid undue distortions of the raw material market, and not to support waste to energy in case they have not met the separate sorting obligations under the Waste Framework Directive. However, these criteria will be effective only from the transposition deadline in June 2021 and there is no information on their effectiveness.

39 The use of bioenergy is projected to increase moderately between 2020 and 2030 (in some scenarios biomass consumption is even projected to decrease, mitigating possible conflicts with biodiversity objectives). Post-2030 sustainable bioenergy is set to gain increasing importance, particulary in the electricity, transport and industry sectors, with the view to contribute to carbon neutrality goal by 2050. While the EU sustainability criteria have been reinforced under REDII, they do not fully address the risks of sourcing forest biomass from primary and highly biodiverse forests (unless they are protected by national or international competent authorities). In addition, the exemption of installations equal or above 20MW still leaves a large share of biomass unregulated (25% of commercial woody biomass plus households use for space heating). Furthermore, thanks to the Renovation Wave, the replacement rate of inefficient biomass boilers is projected to increase, with related reduced emissions. Finally, Member States provide important financial support to bioenergy production. In 2018 the total EU27 biomass support amounted to 10.3 billion EUR, and biogas received 3 billion EUR, and when subsidies could not directly assigned to any of the two (biomass-biogas), the support amounted to 1.5 billion EUR. Without a reinforced application of the cascading principle, this national financial flows could lead to undue distortions of the raw material market, and even divert high quality wood to energy market, with associated negative impacts on resource efficiency, biodiversity and carbon sinks. The projected reduction of biomass use by households for local space heating, due to more efficient housing and higher electrification, will result in a reduction of related air emissions.

3.Why should the EU act?

3.1. Legal basis

The proposal is based on Article 194(2) of the Treaty on the Functioning of the European Union (TFEU), which provides the legal basis for proposing measures to develop new and renewable forms of energy, one of the goals of the Union’s energy policy, set out in Article 194(1) (c) TFEU. REDII, which will be amended by this proposal, was also adopted under Article 194(2) TFEU in 2018.

It is an initiative in an area of energy, which is a shared competence between the EU and the Member States.

3.2. Subsidiarity: Necessity of EU action

A cost-efficient accelerated development of sustainable renewable energy within a more integrated energy system cannot be sufficiently achieved by Member States alone. An EU approach is needed to provide the right incentives to Member States with different levels of ambition to accelerate, in a coordinated way, the energy transition from the traditional fossil fuel based energy system towards a more integrated and more energy-efficient energy system, based on renewables-based generation.

The CTP establishes that renewables have a key role to play to decarbonise the Union’s economy and must be substantially increased to respond to the Union’s new climate ambition. Taking into account the different energy policies and priorities among Member States, action at EU level is more likely to achieve the required increased deployment of renewables than national or local action alone. This collective effort is also more likely to succeed in reaching Union climate targets, as can be seen by the 2020 renewable energy target, with some Member States likely to deliver below their national contribution but others above, so that in total the contributions exceed the Union target.

The EU common framework and targets leave discretion for Member States to set concrete policies and actions that contribute to the national contributions and EU targets while respecting their right to decide their energy mix.

3.3. Subsidiarity: Added value of EU action

EU action on renewable energy brings added value because it is more efficient and effective than individual Member States’ actions, avoiding a fragmented approach by addressing the transition of the European energy system in a coordinated way, ensuring net reduction of greenhouse gas emissions and pollution, protecting biodiversity, harnessing the benefits of the internal market, fully exploiting the advantages of economies of scale and technological cooperation in Europe, and giving investors certainty in an EU-wide regulatory framework.

In its Conclusions of 10 and 11 December 2020, the European Council endorsed a binding EU target of a net domestic reduction of at least 55% in greenhouse gas emissions by 2030 compared to 1990. The analysis in the CTP indicated that the least cost pathway to achieve greenhouse gas reduction targets in 2030 is for the renewable energy share to increase. A revised EU-wide energy and climate framework for renewable energy in 2030 will also help to steer Member States energy policies to achieve a sustainable, secure and integrated energy system for European citizens. The increase of renewable energy across the EU benefits from coordination at the EU level given the EU’s single market. An increase in the 2030 target for the EU’s Renewable energy share will impact all sectors and has a much greater chance of leading to the necessary transformation, acting as a strong driver for a cost-efficient change and resilient to external shocks.

This impact assessment looks at how to increase the share of renewable energy in different sectors by 2030 to contribute effectively to the goal of GHG emissions. The analysis of the Member States’ NECPs is fully taken into account. Where targets are considered, this is because having ambitious Union targets will also drive ambitious contributions from the Member States. Collective achievement of the Union target will be facilitated by the measures set out in this assessment, which will give Member States the tools and the flexibility necessary to increase the share of renewable energy in their overall consumption. By acting at EU-level in combination with action at Member State level, several barriers to public and private investments can be tackled and this will effectively supplement and reinforce national and local action. Addressing the lack of coordination between various bodies at national level as well as improving administrative and technical capacity will incentivise cost-optimal deployment of renewables at city and community level, where issues such as heating, cooling and hot water use remain key and are not decarbonising rapidly enough with more details under the assessment of the measures (Section 6.2.1.3).

The role of Member States is crucial to achieve the increased overall EU GHG ambition and putting in place measures at Union level aims to focus action at nation level where it can be most effective, taking into account the very varied situations on in Member States. This is fully in line with Article 194(2) of the Treaty on the Functioning of the European Union, which states that the Union policy on energy shall aim, in a spirit of solidarity between Member States, to promote the development of new and renewable forms of energy. Simply setting targets at EU levels and leaving Member States complete freedom as to how to achieve them would however not be an effective way to achieve the agreed targets, as has been recognised by the co-legislators when they agreed the specific measures in the current REDII and the reporting and governance structure set out in Regulation 2018/1999. It also risks causing distortions to the internal market, and would lead to a less effective preservation and improvement of the environment, one of the specific aims of Article 194 TFEU.

Important national prerogatives such as the Member State's right to determine the conditions for exploiting their energy resources, their choice between different energy technologies and the general structure of their energy supply, remain fully untouched. The balance between obligations and the flexibility left to the Member States on how to achieve the objectives is considered appropriate given the imperative of achieving, ultimately, climate neutrality.

In terms of consistency with the Charter for fundamental rights, the overarching aim of this review is to increase the use of renewable energy and reduce GHG emissions, and this is entirely in line with Article 37 of the Charter under which a high level of environmental protection and the improvement of the quality of the environment must be integrated into the policies of the Union and ensured in accordance with the principle of sustainable development.

4.Objectives: What is to be achieved?

4.1. General objectives

The general objective of this initiative is to ensure that the revised REDII is fit to contribute to the achievement of at least 55% of GHG emissions reduction in 2030 and to do so in a cost-effective and sustainable way. This needs to be done in complementarity with the other initiatives of the “Fit for 55” package and consistently with other EGD objectives and initiatives.

4.2. Specific objectives

The initiative will contribute to the achievement of the general objective by pursuing the following specific three objectives:

·To increase sufficiently the renewables share in final energy consumption. This will ensure that the overall and sectoral deployment of renewable energy in 2030 is in line with the CTP findings, thus contributing cost-effectively to the increased 2030 climate target of at least 55% as well as climate neutrality objective in 2050 (which requires the large scale rollout of innovative technologies including RFNBOs and advanced biofuels after 2030).

For this objective, regulatory and non-regulatory options will be explored on the following topics: overall target, heating and cooling, including buildings, transport, accompanied by flanking and enabling measures in electricity and industry.

·To increase energy system integration by promoting electrification based on renewable electricity, to create a level playing field for all innovative renewable and low carbon fuels and to specifically promote innovative renewable fuels (such as hydrogen and its derivatives produced from renewable electricity). This will ensure that the increase in the RES share in final energy consumption is cost-effective by promoting ESI in line with the CTP and the ESI strategy and that innovative fuels are promoted strongly considering that they are indispensable for carbon neutrality.

For this objective, regulatory and non-regulatory options will be explored on the following topics: promotion of renewables-based electrification, measures to improve the system integration of renewables, and definition, certification of all innovative renewable and low carbon fuels and promotion of innovative renewable fuels.

·To ensure that renewables, in particular produced from forest biomass, are sustainable. This will ensure that forest biomass consumed in the EU is produced sustainably, including by minimising the risk of significant negative environmental and climate impacts, in line with the ambition set in the EGD and the BDS.

4.3. Intervention logic

The figure below visualizes the intervention logic, linking the problem, problem drivers, specific objectives and general objectives. The policy options described in section 5 are defined to address these objectives.

Figure 2: Intervention logic

5.What are the available policy options?

5.1.Baseline

The baseline for this initiative is the recast of REDII as described in Section 1.1

The EU Reference Scenario 2020 (REF) and its Member States specific results reflect implementation of REDII recast. REF is the baseline in the impact assessments for all the initiatives of the “Fit for 55” Package 40 , including in this one. Complete information about preparation process, assumptions and results are included in the Reference scenario publication 41 . The most relevant information for this assessment is also presented in Annex 4.

REF reflects the agreed 2030 EU climate and energy targets: at least 40% GHG reduction, at least 32% renewables share and at least 32.5% energy efficiency (energy efficiency target is, however, not achieved – see below). REF also reflects main policy tools at EU level to implement these targets and, to the extent possible, the complete range of foreseen of bottom up national policies and measures of the final NECPs that Member States submitted in 2019/2020 according to the Governance Regulation 42 . The REF also takes into account the energy system impacts of the COVID-19 crisis that already heavily impacted the EU and Member States’ economies in 2020/2021 43 .

For 2030, REF projects for the EU a 33.2% share of renewable energy in gross final energy consumption 44 . It also projects that final energy consumption is 883 Mtoe, which is 29.6% below the 2007 Baseline and thus an ambition gap to the agreed 2030 energy efficiency target of at least 32.5%. For the ESR, an overall reduction of emissions of 30.7% by 2030 as compared to 2005 is projected. These projections are in line 45 with the Commission’s assessment of final NECPs 46 .

Taking into account the national contributions and policies put forward in the final NECPs, the REF scenario achieves 33.2% renewable energy share in 2030, and thus overachieves the current EU 32% renewable energy target. All sectoral shares show growth in renewable energy deployment compared to historical levels, which reflects the ambitious policies of the Member States. Those policies and the resulting renewables deployment are, however, not sufficient for achieving the level of ambition commensurate with the increased climate target (38-40% according to CTP). Naturally, also all sectoral shares are below the levels projected in the CTP scenarios - as illustrated in the table below.

Table 1 - Overview projected sector shares; Source ESTAT, PRIMES

While not all trends can be captured in energy system modelling, the REF shows the impacts of several trends described in section 2.3 above.

According to REF, GHG emissions from the European Union in 2030 (incl. intra EU aviation and maritime and incl. LULUCF) would be 45% below the 1990 level. An EU allowance price of 30 EUR/tCO2eq. in 2030 47 , national policies and lowering costs of renewable technologies would drive the emissions reduction in the ETS sector.

REF models the impacts of targets and policies already adopted, but not the target of net-zero emissions by 2050. As a result, there are no additional policies driving decarbonisation after 2030. However, climate and energy policies will likely not be rolled back after 2030 and several of the measures in place today will continue to deliver emissions reduction in the long term. By 2050, some 60% GHG reductions (with regards to 1990) are projected to be achieved.

5.2. Scope of this initiative and alignment with the Climate Target Plan 

All “Fit for 55” initiatives, including this one build on the CTP and its underpinning impact assessment, but they also expands CTP analysis looking more in detail of actions in different sectors and creation of necessary enabling conditions. The CTP showed, on the basis of scenarios, that achievement of increased climate target of at least 55% net GHG emissions reduction in 2030 is feasible and enables a smoother trajectory to climate neutrality in 2050 but it requires that all sectors contribute to the increased effort.

With the energy sector contributing currently to just over 75% of GHG emissions, the clean energy transition in the current decade plays a central role. This transition has to accelerate significantly compared to scenarios leading to the previously agreed climate target (of at least 40% GHG reduction in 2030). They key finding from CTP modelling was that achieving in the cost-efficient manner the 55% GHG target in 2030 would mean a share of renewables in final energy consumption of 38%-40% in 2030. A significant additional uptake of energy efficiency will also be necessary. CTP assessment indicated that achieving 55% GHG reductions in 2030 requires savings of 36-37% of the final energy and savings of 39-40% of the primary energy. Likewise, the CTP established the desired reductions in the GHG emissions in the current ETS and ESR sectors.more details are included in Annex 5.

Consequently, the scope of this initiative is to deliver, together with other “Fit for 55” proposals, the necessary and cost-effective deployment of renewables (via increasing the targets and addressing the market failures/non-market barriers) to contribute achievement of increased climate target.

The updated core scenarios confirmed that the range for renewables deployment in order to reach 55% GHG target cost-effectively is 38-40%. Several other “Fit for 55” proposals affect the scope of this initiative, notably extension of carbon pricing. This fundamental interaction is portrayed by core scenario set-up discussion on the core scenario results interpretation in section 5.5. Other interactions and key findings of the CTP and how these findings were fine-tuned based on the “Fit for 55” IA work are discussed in Annex 4.

The updated core scenarios have an important role in this assessment as the policy options on the level of targets (overall, sectoral) are aligned with core scenario findings (while considering also options proposed by stakeholders). In addition, a number of policy options concerns how these options can be delivered - i.e. the ways to establish targets or enabling conditions for their achievement.

Policy options such as the ones revolving around advanced biofuels and RFNBOs are based on a dedicated variant (MIX-H2) coherent with other “Fit for 55” policy options, still lead to 55% GHG target but are in line with the goals of the Hydrogen Strategy in order to provide a stronger push to mainstream such fuels (see section 5.3).

5.3.Description of the policy options

Based on existing studies, on the inputs from stakeholders and on internal analysis, a range of policy options and measures for each policy area were screened to respond to the problems identified in the problem definition.

A set of policy options and measures under each policy area including non-legislative and legislative alternatives are considered below in order to address the drivers of the problems identified above. The concrete figures supporting the policy options are assessed in detail in Chapter 6. A ‘snapshot’ of stakeholders’ views is included for each set of options 48 , with further details in the text and a comprehensive overview in Annex 2.

5.3.1. Area I: Insufficient ambition in EU and MS legislation both in 2030 and 2050 perspective

5.3.1.1. Options to increase and ensure the achievement of the overall renewable energy target in 2030

As shown in the REF scenario both the current EU renewable energy target (at least 32% by 2030) and the aggregated ambition of the Member States (between 33.1% and 33.7% by 2030 49 ) are not ambitious enough compared to the level of renewable energy shares needed to reach the -55% reduction of GHG emissions included in the CTP 50   51 and agreed by EU leaders. This is problematic as without sufficiently high ambition levels, it is less likely that the share of renewable energy will increase at the rate required for reaching the GHG reduction target in a cost-effective manner.

Options considered are:

Level of the target

·Option 0: No change to the target i.e. keep at least 32 % (baseline scenario).

·Option 1: A minimum target in the range of 38-40%

·Option 2: A higher target than 40%

Nature of the target

·Option 0: No change to the nature of the target and EU target which is fulfilled by national contributions, i.e. EU binding target and national voluntary contributions

·Option 1: National binding targets in addition to the EU binding target

5.3.1.2. Options to increase renewable energy in the heating and cooling sector (RES-H&C)

For the H&C sector to contribute effectively to the overall RES Share levels indicated the CTP , Member States’ efforts in this sector should be increased 53 . Heating and cooling are local and diverse across Member States. leading to highly fragmented industry and stakeholder structure, which constitutes a barrier for sharing knowledge and have access to a common framework of measures and tools (regulatory, financial, etc.), which could facilitate actions at national and local levels. EU framework in this sector is recent and incipient leading to limited EU value added and capacity to harness synergies from shared knowledge and capacity building, common regulatory framework and investment risk mitigation instruments. Clearer overarching EU objectives and more comprehensive list of measures and instruments are needed to support and guide national efforts in Member States by public authorities, citizens and businesses and scale-up the capacity of the heating and cooling industry to supply technologies and solutions. An expanded and comprehensive list of measures would diffuse best practices and would provide a list of policy instruments to guide national efforts while aiming to address non-market barriers, complementary with carbon pricing instruments, while ensuring effectiveness, cost efficiency in a balanced manner.

The options aim to ensure that renewable energy supply (sources, technologies and infrastructures) is sufficiently available and deployed, including via district heating and cooling, and that buildings becomes fit for the integration of renewables to gradually replace fossil based heating and cooling systems in line with the CTP and the Renovation Wave. When it comes to Industry, the pace of RES uptake is clearly insufficient to contribute adequately to an increased 2030 climate target in line with the CTP. Furthermore, early investments are needed to adapt production processes, e.g. through electrification, to the availability of different renewable energy carriers. Introducing more specific provisions covering the use of renewables in industry could help accelerate the cost-efficient uptake of RES in industry.

To overcome non market barriers from the fragmented nature and the limited capacity to tap on common instruments of the heating and cooling sector, the proposed options revolve around two core issues:

(1) Measures to address non market barriers in the area of heating and cooling for further fuel switching to renewables, coherent with carbon price mechanisms and energy efficiency measures that would complement the current list of measures in Article 23(4) which also, for example, cover buildings.

(2) Assessing the level and nature of RES H&C targets, including renewable energy in buildings and industry, 54 that lead to the necessary deployment of renewables in the H&C sector, contributing to overall 2030 national RES contributions and thus fulfilment of overall RES target.

Options considered are:

Option 0: No changes, maintain current indicative 1.1%-point average increase in renewables at Member State level under REDII and the list of measures (baseline)

·Option 1: Non-regulatory measures - Guidance and Best Practice Exchange 

This option involves the use of non-regulatory measures alone to support the full implementation of REDII provisions. These activities would take the form of Guidance and Best Practice Exchange without using legally binding measures. These could help to address those weaknesses that were identified during the assessment of the NECPs and in discussions with Member States, mainly using the forum of the Concerted Action to prepare the implementation of RED II 55 . These could cover the following areas: RES heating and cooling share accounting; interpretation of relevant definitions and provisions (e.g. in relation to waste heat, ambient energy); guidance on possible measures, renewable cooling following the adoption of the delegated act on calculation methodology foreseen for 31 of December 2021 and also specific guidance on the current measures in Article 23(4)In terms of H&C shares, the existing indicative increase target in REDII would continue to apply unchanged.

·Option 2: Regulatory Measures - Extend the current list of measures of Article 23(4) in REDII

Clarify and complement the current list of measures to ensure the availability of a core set of generally applicable instruments at EU level, as common buildings blocks of common relevance, applicability and replicability for heating and cooling decarbonisation. The extended list of measures will provide the missing common EU framework to ensure level playing field and enhance regulatory certainty. The list of measures an extended list of measures to cover capacity building, risk mitigation, heat purchase agreements, planned replacement schemes, renewable heat planning and updated training and qualification requirements for installers that Member States can use to implement the overall heating and cooling RES target. (See Annex 7 for detail of measures);

This option aims to overcome non-market barriers and complement carbon price signals by ensuring better coordination and planning, increasing capacity for heat system replacement and project development, ensuring accurate and sufficient information for informed decision making, reducing risks of investment and ensuring engagement of local authorities and consumers. Lack of such measures would necessitate much higher carbon prices signals, would delay the translation of carbon pricing into concrete consumer investment decision and increase cost burden for consumers, in particular low-income households and vulnerable consumers.

·Option 3: Level and nature of the targets

oOption 3a) make the current 1.1%-point average increase at Member State level as a minimum baseline complemented by an indicative Member State-specific top-up based on the EU’s RES H&C share as carried out in dedicated modelling work for this impact assessment in agreement with CTP analysis.

oOption 3b) make an annual average increase binding at Member State level translated based on the EU’s RES H&C share as carried out in dedicated modelling work for this impact assessment in agreement with CTP analysis to reach the overall RES 38-40% shares..

oOption 3c) a binding EU target for RES heating and cooling only

oOption 3d) (Indicative) EU RES benchmarks of 49% for the EU building stock (a general numerical level of minimum RES use in national building stocks as a percentage of the overall energy use) and for renewable energy consumption of 1.1% yearly average over the 2020-2030 period in industry to monitor progress and efforts.

This set of options involves possibilities to strengthen the current target. Option 3a) makes the current target mandatory, while also adjusting its design to higher ambition in a way that reflects national circumstances in a proportionate way (indicative top-ups). Options 3b) increases the current target in a uniform way and makes it binding for all Member States. Option 3c) introduces a new design in the form of an overall EU target. Options 3a), 3b) and 3c) present different mutually exclusive design options. Options 3d) is complementary with 3a), 3b) and 3c) and can be applied to reinforce these other options.

5.3.1.3. Options to increase renewable energy in the district heating and cooling sector (RES-DH&C)

Examples of modern renewable-based efficient district heating and cooling (DHC) demonstrated cost-effective solutions for high renewable energy integration, increased energy efficiency and energy system integration 56 . However, while the potentials have been demonstrated in scientific studies 57 and by numerous examples, such examples remain few and far between. The current provisions under REDII require Member States to endeavour to increase the share of renewables by an annual average 1%-point

(100% of this target can be fulfilled by waste heat and cold), or implement network access for renewables, waste heat and cogeneration. These provisions, weak as they are, include several exemptions allowing Member States to do nothing even where their systems are old, mostly based on fossil fuels (for example coal still has a significant share) and subject to consumer dissatisfaction in several Member States, where DHC has significant market share (14%-50% in Northern, Central and Eastern Europe, and above 50-80% in certain cities) 58 .

The NECPs analysis has shown a general lack of measures and trajectories to address DHC in line with the REDII. For example only three MS provided targets and trajectories for renewables in DHC 59 , while the role of these networks is significant or increasing in all but a few countries 60 .

The current provisions make it possible for ‘de-facto’ 100% fossil systems to continue indefinitely in the future, while other segments of the heating sector (e.g. individual heating technologies and fuels) are becoming subject to increasingly stricter requirements to decarbonise, even when their potentials are weaker, more expensive and remote in the future. The lack of EU action in this sector would allow business-as-usual to continue with ensuing lock-in-effects, wasted cost-effective possibilities to harness (especially local) renewable sources (ambient, geothermal energy via heat pumps or bespoken technologies, solar thermal, cheap waste based bioenergy or waste heat, etc.). Similarly the demonstrated energy system integration potential of DHC 61 would not materialise by lack of a clear EU framework guiding local actors and encouraging their efforts to link district heating networks with renewable electricity, waste heat and renewable gases deployment. Consumer information as regards the climate performance of these systems should in parallel be improved to ensure level playing field, greater transparency and fair competition with alternatives. The proposed measures are necessary to ensure that the next inevitable and imminent investment cycle in district heating is not wasted and directed towards future proof solutions when replace the current old and obsolete heat generation units (around two thirds of the generation assets).

The current measures should be aligned with the higher ambition and decarbonisation policies laid down in the European Green Deal, the ESI and the Hydrogen Strategies and the Renovation Wave. In particular, the ESI Strategy calls to accelerate investment in smart, highly-efficient, renewables-based district heating and cooling networks, if appropriate by proposing stronger obligations through the revision of REDII and the Energy Efficiency Directive. The Renovation Wave highlighted the role of district approaches to building renovation creating new business opportunities and reducing overall costs. District approaches where the simultaneous deployment of modern district heating and cooling systems offer cost-saving synergies with building renovation by allowing the scaling and aggregating projects making zero-energy or even positive energy districts possible through modern district heating and cooling systems with large potential for renewables and waste-heat recovery. 

The EED review complements the REDII review by revising the definition for efficient district heating and cooling. This definition should be updated to CTP and EGD goals to make exemptions from the annual average target, network access and disconnection justifiable. The ambition level should be raised to give clear signals for investment decisions even if the target remains indicative to allow sufficient flexibility to cater to specific national conditions. The coordinated review of the EED and REDII aims to increase complementarities and synergies between renewables and energy efficiency in developing modern renewable DHC by enhancing the EED focus on primary energy savings and REDII focus on renewables in DHC; renewables thus can contribute to energy savings, while higher requirements for efficiency enable renewables and make them cheaper to implement. Thus the same renewables in DHC help achieving the renewable heating and cooling, district heating and cooling and overall renewable targets, while also contributing to the energy efficiency targets.

Options, in conjunction with the revision of the EED and the EPBD, are:

·Option 0: No changes, maintain current policies under REDII (baseline scenario);

The baseline scenario assumes continued implementation of the existing framework without changes to the REDII. Enforcement takes place through established methods - the annual monitoring of Member States' performance under the Governance Regulation, continuous dialogue with Member States under the Concerted Action, if needed supported by further Commission recommendations to Member States, and infringement proceedings where relevant.

·Option 1: Non-Regulatory Measures - Guidance and Best Practice Exchange covering provisions that are either new or high-level making room for diverging interpretation and implementation by Member States. Such Guidance and Best Practice Exchange could cover clarification of the following provisions: ‘efficient district heating and cooling’; DHC target accounting; information provisions for consumers; network access and exemptions; sector integration between district heating systems and the electricity grid. Option 1 could in addition cover best practice exchange on areas identified by Member States, such as support schemes and financing, waste heat and renewables connection, links with buildings, flexibility and sector integration or any other element of the current framework.

This option would help address the weaknesses identified during the assessment of NECPs and the discussions with Member States preparing the implementation of RED II 62 . It would cover the following areas: RES DHC share accounting; interpretation of relevant definitions and provisions (e.g. in relation to waste heat and ‘efficient district heating and cooling’); guidance on the role of district heating in energy system integration; renewable district cooling following the adoption of the delegated act on calculation methodology.

·Option 2: Strengthening existing measures on improved information for consumers, strengthened rights of renewable heat suppliers to access networks, improved and extended ESI with other energy carriers and networks.

As exemption from access rights and other measures (disconnection, target) are based on the definition of efficient district heating and cooling, this definition also needs to be revised to align it with the European Green Deal. The review of the definition is undertaken jointly by the EED and REDII reviews, as both directives use the same definition. The shared definition and its joint review ensure coherence and synergy between the two directives.

This option aims to improve the REDII current framework for the development of modern DHC systems and ensure their greater contribution to heating and cooling decarbonisation in alignment with EGD/CTP and the options on H&C. It complements the EED and ensures better synergies between EED and REDII.

·Option 3: Level and nature of the target

oOption 3a) No changes; maintain current indicative 1% point average increase at Member State level

oOption 3b) add indicative EU renewable target for renewables’ share in DHC;

oOption 3c) increase the indicative 1%-point increase target;

oOption 3d) increase the 1%-point increase target and make it binding;

This option involves possibilities to strengthen the current target. Option 3a) keeps the status-quo. Option 3b) introduces a new design in the form of an overall EU target. Option 3c) increases the current target but leaves it indicative. Option 3d) increases the current target and makes it binding. Options 3a)-3d) are mutually exclusive.

5.3.1.4. Options to increase renewable energy in the transport sector (RES-T)

RED II requires Member States to set an obligation on fuel suppliers to ensure that the share of renewable energy in the transport sector achieves a 14% target - and a 3.5 % sub-target for advanced biofuels. The focus of the measure is to set out a policy framework that promotes renewables in transport. Decisions on the concrete design of obligation are largely left to the Member States. Contribution of conventional biofuels is capped based on their share in 2020. The Fuel Quality Directive (FQD) includes in addition to fuel quality standards a 6% target to reduce GHG emissions of transport fuels and an outdated set of sustainability criteria.

The options under this section aim to deliver to achieve the ambition level of the Climate Target Plan 55% GHG reduction across the economy while applying different implementation options.

The measures to limit the contribution of conventional biofuels and the flexible limit on Annex IX Part B biofuels are maintained under all options to minimise indirect land use change-risks and to take into account the limited feedstock supply, respectively.

The use of multipliers in the calculation of the share of renewable energy in the transport sector is maintained in view of the Decision of the co-legislator in 2018 on this matter 63 . However, the multipliers are adjusted to better reflect the maturity of different types of fuels and the energy efficiency of electric vehicles. Where necessary the nominal level of the target is adjusted to maintain the level of ambition. Options in this section are assessed based on their capacity to achieve the ambition level of the Climate Target Plan 55% GHG reduction across the economy as carried out in dedicated modelling work for this impact assessment in agreement with CTP analysis.

Options are:

Baseline

·Option 0: No change in the current legislation (baseline scenario);

Level and nature of the targets

·Option 1: The ambition level for renewables in transport is increased and new fuel blends are introduced to facilitate the achievement of the higher targets 64 . The 6% emission reduction target set out in the FQD 65 is removed.

·Option 1A: The target for renewables in the transport sector is increased and the sub-target for advanced biofuels is increased.

·Option 1B: In addition to the increase of the target and the sub-target for advanced biofuels a dedicated sub-target for RFNBOs is introduced.

Measures

·Option 2: The Member States are required to set out an obligation on fuel suppliers that ensures the achievement of the target. The Directive would set out design features of the obligation to harmonise the way the contribution of renewable electricity supplied to electric vehicles is taken into account and to avoid overlaps with measures implemented under the ReFuel EU Aviation initiative. Further, the following sub-options are considered:

·Option 2A: The obligation on fuel suppliers is expressed in terms of energy i.e. fuel suppliers are required to incorporate a minimum share of renewable energy in the fuels they supply to the market including minimum shares for advanced biofuels and RFNBOs. All fuels need to achieve minimum emission savings requirements;

·Option 2B: The obligation on fuel suppliers is expressed in terms of emission savings i.e. fuel suppliers are required to reduce the emission intensity of fuels placed on the market. There would be no sub targets for advanced biofuels and RFNBOs;

·Option 2C: The choice between the approaches described under A and B is left to the Member States (as currently);

·Option 2D: The obligation on fuel suppliers is expressed in terms of emission savings but operators are required to achieve minimum shares for advanced biofuels and RFNBOs;

Apart from raising the level of ambition for the share of renewables in transport including for renewable fuels of non-biological origin (RFNBOs), renewable electricity in transport and advanced biofuels 66 , the options concern the design of the obligation on fuel suppliers including the question whether it should be expressed in terms of emission savings or supplied renewable energy and how it can better promote the use of renewable electricity in electric vehicles.

The options are aligned, and complementary to the ReFuel EU Aviation and Fuel EU Maritime initiatives. The role of RED II in this context is to set the overarching framework and targets for the promotion of renewables in the transport sector, including for innovative renewable fuels, while ReFuel EU Aviation and Fuel EU Maritime initiatives aim to address sector specific sectorial challenges with dedicated measures. ReFuel Aviation for example proposes sector-specific blending mandates by imposing a minimum share of SAF (Sustainable Aviation Fuels) to be supplied to airlines, and an uplift obligation on airlines to take such fuels at EU airports. The overall availability as well as the terminology and the certification scheme of renewable fuels will be ensured through the RED II framework.

Both measures contribute towards the achievement of the targets set out in RED II.

5.3.2. Area II: Insufficient promotion of energy system integration in REDII

5.3.2.1. Measures to enhance the contribution of transport and heating and cooling to the system integration of renewable electricity

With the extended use of heat pumps in heating and cooling, the deployment of stationary batteries, and especially with the proliferation of electric vehicles (EVs around 30 million vehicles expected in the EU by 2030 based on conservative estimates), it is necessary to ensure that these assets can fully contribute to the system integration of renewable electricity, and thus facilitate reaching higher shares of renewable electricity in a cost-optimal manner, while ensuring a secure and reliable supply of electricity.

The Clean Energy package introduced a number of general provisions aiming at ensuring that various storage assets can gain access to balancing markets without discrimination. Such provisions can be complemented by targeted measures aiming at ensuring that small and mobile distributed assets are sufficiently integrated within the electricity system in a manner that maximizes their potential contribution to the system integration of renewable electricity.

For EVs specifically, their contribution to system integration largely depends on the access to smart charging infrastructure with the ability to vary charging intensity according to certain signals, the availability of bidirectional flow between charger and vehicle (Vehicle to Grid, V2G) and the availability of near-real time information on pricing and share of renewable electricity. In order for integration to take place efficiently and competitively, market players such as electricity suppliers and electromobility service providers also need to have access to basic battery information and be able to offer their services via sufficient and non-discriminatory access to charging infrastructure.

The EPBD and the Alternative Fuel Infrastructure Directive focus on the deployment and planning of charging infrastructure in thermally enclosed buildings and publicly accessible areas, respectively. A gap therefore exists for structures and areas not within the above categories, such as multi-storey parking structures and off-street parking areas with controlled access. In addition, AFID’s scope is specific for ensuring infrastructure adequacy to support EV fleets for mobility, instead for system integration. A gap in regulatory scope is therefore clearly present, both in terms of geographical application and in terms of purpose, which does not enable legislating for the desired location, type and number of charging infrastructure fit for EV integration. It is important to complement these two legislations and their upcoming revisions, by creating transversal requirements for charging points to be deployed and operated in a manner that optimizes their contribution to the system integration of renewable electricity.

The following options are considered:

1.Availability of RES relevant system information: 

·Option 1.0: No changes, availability of near-real-time information on the share of RES in the system is optional (baseline scenario); 

·Option 1.1: In addition to price signals, mandate TSO/DSOs to make available information on the RES-share of the electricity in the system (for instance in the relevant bidding zone), as well as forecasting information where possible, in a near-real-time and interoperable manner, which can be used by all players, including managers of Building Energy Systems and EV users and those acting on their behalf, as well as network connected devices. 

·Option 1.2: In addition to option 1.1, also mandate electricity suppliers to provide information in bills on the actual RES-share of the electricity consumed, based on the real RES-share in the system at hours of consumption, which would complement the information provided through guarantees of origin for customers of green offers (and the “residual mix” for other customers).

2.Set minimum requirements for the availability of intelligent infrastructure (intelligent charging and/or V2G) for the integration of electric vehicles in the electricity system 

·Option 2.0: No change in the current legislation (baseline scenario);

·Option 2.1A: mandate Member States to ensure that all recharging points installed in their territory are able to support smart charging functionality 

·Option 2.1B: same as Option 2.1A, but allow Member States to exclude certain locations where smart charging would typically not present added value to system flexibility 

·Option 2.1C: mandate Member States to assess the extent to which the deployment of additional smart charging points in their territory can further contribute to system flexibility and penetration of renewable electricity, going beyond the minimum requirements of their deployment for mobility purposes for example as required under AFID or EPBD).

·Option 2.2A: mandate Member States to ensure that all recharging points installed in their territory are able to support V2G functionality

·Option 2.2B: same as Option 2.2A, but allow Member States to evaluate the level of deployment of bidirectional charging (V2G) according to the specific needs of their system

3.Ensure a level playing field in the market of electricity supply and electric mobility services, specifically for aggregation of distributed assets

·Option 3.0:  No change in the current legislation (baseline scenario); 

·Option 3.1 ensure that electricity storage systems or devices are treated by network and market operators in ways that are not discriminatory or disproportionate irrespective of their size (small-scale vs large-scale) and whether they are stationary or mobile, so that they are able to competitively offer flexibility and balancing services

·Option 3.2: give electricity market participants and mobility service providers access to basic battery information, such as State-of-Health and State-of-Charge

·Option 3.3: ensure open access to charging infrastructure that is not for own use

5.3.2.2. Terminology covering all renewable and low-carbon fuels

The Energy System Integration strategy announced as one of its key actions the establishment of a comprehensive terminology for all renewable and low-carbon fuels and a European system of certification of such fuels, based notably on full life cycle GHG emission savings and sustainability criteria, building on existing provisions included in REDII as well as in other interconnected policy areas. Moreover, the TEN-E Regulation proposal introduced infrastructure categories facilitating the integration of renewable and low-carbon gases into the grids, smart gas grids and hydrogen networks which require a sustainability assessment.

·Option 0: Continue with existing definitions of RFNBOs and RCFs as categories.

·Option 1: extend the definition of RNFBOs only

·Option 2: include in Article 2 a new definition of low carbon fuels as being: recycled carbon fuels, low-carbon hydrogen, and synthetic fuels the energy content of which is derived from low-carbon hydrogen - without any GHG threshold associated

·Option 3: same as option 2, but associate a specific GHG threshold that such low-carbon fuels have to meet in order to be considered low-carbon; empower the Commission to come up with a common methodology to demonstrate achievement of such GHG threshold by way of delegated act.

       Option 3A: define a GHG threshold that is specific to low-carbon fuels

   Option 3B: define a GHG threshold that is the same as for RFNBOs and Recycled Carbon Fuels (RCFs).

Such thresholds could either be expressed in absolute value of GHG emissions per unit of energy, or in terms of GHG savings to be achieved relative to a comparator – similarly to what is currently done for RNFBOs and RCFs

5.3.2.3. European system of certification of renewable and low carbon fuels

The terminology for renewable and low-carbon fuels should be underpinned by a strong certification and traceability system It is important to ensure that any claims that a fuel is renewable or low-carbon be underpinned by a proper certification, verification and traceability system. Such system should inform customers and the Member States about the sustainability characteristics of renewable and low carbon fuels, ensure that only sustainable fuels are supported and facilitate cross-border trade. Taking into account that supply chains are global, the further development of the EU certification system would also take into account the international implications of such development as well as exploring options for international regulatory cooperation.

The current certification system for renewable and low carbon fuels is based mainly on voluntary schemes, recognised by the European Commission 67 . National certification schemes are also a possible tool under REDII but are used by Member States only to a limited extend. The current system of guarantees of origin (GOs) is used only for consumer information and due to its limitations (GOs only cover renewables, can be sold separately from the electricity supply, and do not contain sustainability nor GHG emissions data), they cannot be used for proper certification of energy, consumed and reported by the Member States. REDII therefore tasks the European Commission to develop a Union database to register and trace along the supply chain all liquid and gaseous fuels in the transport sector.

There is currently no harmonised certification system for hydrogen, although it may be expected that some of the voluntary schemes may enlarge their scope to cover also this type of certification. The same is valid for new fuels that have the potential to increase their market share as a result of the implementation of the REDII (e.g. RFNBOs such as hydrogen-based synthetic fuels) for which a certification system will have to be put in place.

Options, grouped by category, are:

A.Scope and content of the certification system:

·Option 0A:  No changes, maintain current policies under REDII (baseline);

·Option 1A: Adjustment of the scope and content of the current certification system (based on voluntary and national certification schemes) to include all fuels, covered by REDII (including recycled carbon fuels) as well as improvement of the certification process to take into account additional requirements and methodologies developed under REDII;

·Option 2A: Further development and harmonisation of the existing system of Guarantees of Origin as an alternative certification system for renewable and low carbon gases and renewable electricity.

B.Traceability:

·Option 0B: Baseline: remain with the current scope of the Union database to cover only liquid and gaseous transport fuels

·Option 1B: A single information system (e.g. Union database) is developed to improve the traceability of energy carriers and support to the mainstreaming of the mass balance system by applying one covering all energy end-use sectors and the respective supply chains in a life cycle approach (from production to place of consumption of the fuels). The enforcement of the information system to cover parts of the value chain outside of the EU will be ensured through the existing framework for voluntary schemes currently also operating outside the EU. Support for the deployment of the information system would be also ensured through strengthening of international cooperation.

5.3.2.4. Promotion of innovative renewable and low carbon fuels

Whilst REDII sets a target of 3.5% for advanced biofuels in transport, the current framework offers limited incentives to promote the uptake of RFNBOs ahead of 2030. Yet, for hard-to-decarbonise sectors such as transport and industry, early investments in RFNBOs are needed to prepare a rapid upscaling of these solutions after 2030 68 . Similarly, the conversion of renewable electricity into renewable fuels and gases to provide long-term storage and buffering options is not cost-efficient yet, although this solution might be needed with the rapid rise of variable renewable electricity production.

This is also recognised in the action points in the Energy System Strategy and the Hydrogen Strategy which refer to additional measures to support renewable and low-carbon fuels, possibly through minimum shares or quotas for RFNBOs in specific end-use sectors. Based on their current framework that allows for the accounting for RFNBOs in the transport sector, there are a number of options to further promote their uptake. Based on this, the chapter will focus on innovative renewable and low-carbon fuels (both gases and liquids) produced from hydrogen and not look in detail at other renewable fuels such as biofuels.

Options are:

·Option 0: No changes, maintain current policies under REDII (baseline); promotion of RNFBOs with non-regulatory measures such as guidance and best-practice sharing, funding of R&D as well as raising consumer awareness.

A.Extension of the scope of accounting:

·Option 1: Extend RFNBOs accounting beyond transport, including heating & cooling and industry, improve the consistency of accounting and the way RFNBOs are counted to the overall target 69

·Option 2: Allow Member States to count low-carbon fuels towards the sectoral RFNBO targets (in transport and industry), but not allowing low carbon fuels to count towards the overall RES target.

B.Creation of specific sub-targets for RFNBOs:

·Option 3: Dedicated RFNBOs targets in hard-to-decarbonise sectors such as transport (including aviation, maritime) and industry - targets should be established based on additional modelling reflecting ESI and Hydrogen strategies.

·Option 4: Combined target for RFNBOs in transport and industry - targets should be established based on additional modelling reflecting ESI and Hydrogen strategies.

C.Creation of specific sub-targets for all innovative low-carbon fuels:

·Option 5: Dedicated low-carbon fuels targets in hard-to-decarbonise sectors such as transport (including aviation, maritime) and industry - targets should be established based on additional modelling reflecting ESI and Hydrogen strategies.

·Option 6: Combined low-carbon fuel target in transport and industry - targets should be established based on additional modelling reflecting ESI and Hydrogen strategies.

5.3.3. Area III: Options to ensure bioenergy sustainability

According to the modelling for the CTP, projected increases in bioenergy use by 2030 will be limited compared to today. However, post-2030 bioenergy is set to gain increasing importance with the view to contributing to the carbon neutrality goal by 2050. Increased demand for bioenergy from forest biomass may have a negative effect on forest carbon and biodiversity protection if the raw material is sourced in an unsustainable way (e.g. through conversion of primary or old-grown forests, or through unsustainable forest management practices such as whole tree harvesting for energy). A number of options have been discarded at an early stage (see Annex 6). Options assessed are:

·Option 0: Full application of the enhanced REDII sustainability criteria 

This option would include the following measures/initiatives: Implementing Act on forest biomass (article 29(8)); Implementing Act on standards for voluntary schemes (article 30); new reporting requirements on bioenergy supply and demand under the Governance regulation; application of the new eco-design standards for new solid fuel boilers, including biomass.

·Option 1: Non-regulatory measures 

This option would involve the development of a series of non-regulatory measures to complement/support the efficient implementation of the enhanced REDII bioenergy sustainability criteria, including: new guidance on harmonised implementation of the new sustainability criteria (e.g. article 29(2) on soil management for agriculture biomass); new guidance on implementation of article 3(3) on support schemes for bioenergy; new guidance on cascading use of forest biomass; new guidance on better monitoring of forest biomass supply and demand; new guidance on efficient biomass use in the household sector;

·Option 2: Targeted strengthening of the EU bioenergy sustainability criteria

This option would consist in the further strengthening of the REDII enhanced sustainability criteria for biofuels, bioliquids and biomass fuels. This would involve the following additional requirements:

1.application of the existing no-go areas for agriculture biomass to forest biomass, including primary and highly biodiverse forests, in line with the Biodiversity Strategy;

2.application of the GHG saving criteria (article 29(10)) also to existing heat and power installations, in line with the higher climate ambition; and

3.stricter energy efficiency criteria for large-scale electricity installations, in line with resource efficiency goals;

·Option 3: Application of the EU sustainability criteria to small-scale installations

This option would consist in the application of the REDII enhanced sustainability criteria to small heat and power installations. It would involve applying option 2 also to small scale biomass-based heat and power installations below a total rated thermal capacity of 20 MW (e.g. 10 or 5 MW), in order to increase the amount of biomass covered by the EU sustainability safeguards and therefore increase their overall environmental/climate effectiveness;

·Option 4: National caps on the use of high quality stemwood for energy.

Building on options 2 and 3, this option would involve introducing national caps fixed at Member State level on the use of high quality stemwood for energy. The cap would grandfather existing volumes in the period 2015-2020. Salvage logging (i.e. wood from storms, pests and diseases) would not be included in the cap, nor coppicing wood. Only stemwood over a certain diameter and under certain quality characteristics would be targeted by this cap; this diameter would be chosen at Member State level and would depend on the different types of wood species, the objective being to cap the use for energy of stemwood of industrial quality. The cap would also apply to biomass imports. The technical details of this option would need to be further defined in a guidance document, including on how to address possible impacts on the single market that could result from different national approaches.

oSub option 4.1: full exclusion of high quality stemwood as renewable energy source. This sub-option would be achieved by limiting eligible forest bioenergy to waste and residues (e.g. residues from timber harvesting and timber processing). The technical details of this option would need to be further defined in a guidance document.

oSub option 4.2: minimisation of national financial support for the use of high quality stemwood for energy. This alternative sub-option would require Member States to design their support schemes for bioenergy in a way that minimises the use of high quality stemwood for energy purposes. Compliance with this new criteria will be assessed by the Commission in the context of the state aid approval process, building on the current assessment of compliance with the EU sustainability criteria. The technical details of this sub-option would need to be further defined in a guidance document.

·Option 5: National caps on the use of forest biomass for energy 

Building on options 2 or 3, this option would involve of a cap fixed at Member States level on the use of all forest biomass for energy production. The cap would grandfather existing average volumes of forest biomass used over the period 2015-2020. The cap would also apply to imports. Reaching the national cap would mean that a given Member State would not be able to account the additional forest bioenergy against the European/national renewable targets/mandates and would not be able to provide financial support to it. The technical details of this option would need to be further defined in an Implementing Act.

The Impact Assessment does not assess new options related to the REDII provisions on Indirect Land Use Change of biofuels and on the definition of advanced biofuels (Annex IX). On both topics, REDII already includes appropriate mechanisms for the review and revision, if necessary, of the relevant provisions.

In line with the existing REDII provisions, economic operators in the EU outermost regions as defined under article 349 TFEU, which are remote, isolated and not connected to the EU grid, may benefit from a derogation of limited local impact and for a limited duration; provided that the concerned Member States justify so on the grounds of energy independence and ensuring a smooth transition to the sustainability, energy efficiency and greenhouse gas emissions saving criteria.

5.3.4. Flanking and enabling measures

In addition to the core objectives of the revision of this Directive to address the insufficient ambition in a 2030 and 2050 perspective, to address the insufficient system integration, and to update bioenergy sustainability provisions, a limited number of additional “flanking” or enabling measures could contribute to the cost-efficient deployment of renewables, and are addressed in the section below.

5.3.4.1 Measures to increase cross-border cooperation

Cross-border cooperation allows for a cost-efficient deployment renewable energy across Europe. REDII includes options for Member States’ cross-border cooperation on a voluntary basis. However, their use has been very limited, thus implying suboptimal results in terms of efficiency to reach the overall renewable energy target. REDII has introduced provisions related to the opening of support schemes to other Member States, but has left that option voluntary for Member States. REDII has also created a platform aimed at facilitating statistical transfers between Member States. Finally, REDII and the Governance Regulation have created a new cooperation tool, the Renewables Financing Mechanism, which aims at organising tenders for new renewable projects involving several Member States, but managed by the Commission. The use of this tool however depends on voluntary contributions from Member States.

Options considered are:

·Option 0: No changes, maintain current policies under REDII (baseline scenario)

·Option 1: Issue updated Commission guidance on cross-border cooperation (non-regulatory option), including design options for the different Cooperation Mechanisms and guidance on cost-benefit-analysis and allocation

·Option 2: Obligation for Member States to test cross-border cooperation (pilot project) within the next 3 years (paving the way for a partial opening of support schemes in the future)

·Option 3: Mandatory partial opening of support schemes (building on the indicative partial opening of support schemes in Article 5 REDII and its revision clause).

·Option 4: Enhanced use of the Union renewable energy financing mechanism via Member State under certain conditions (e.g. when below its target/ contribution trajectory)

While Options 1 and 4 could be complementary to the other options, options 2 and 3 are rather alternatives to each other (with option 2 being a stepping stone to option 3).

5.3.4.2 Measures to promote and scale up offshore renewable energy

In line with long-term climate neutrality objective, the EU strategy on offshore renewable energy 70 proposes to increase Europe's offshore wind capacity from the current 12 GW to at least 60 GW by 2030 and to 300 GW by 2050 and ocean energy to at least 1 GW by 2030 and 40 GW by 2050. Currently, deployment plans and targets for offshore renewable energy and respective support measures are generally set at national level, while regional cooperation takes place only to a limited extent and is mainly based on best practice exchange. 71  

Options considered are:

·Option 0: No changes, maintain current policies under REDII (baseline scenario)

·Option 1: Obligation for Member States to conclude a non-binding political agreement to cooperate on the amount of offshore renewable generation to be deployed within each sea basin by 2050, with intermediate steps in 2030 and 2040

·Option 2: Introduction of one-stop shops for the permitting of the generation component of cross-border offshore wind projects per sea basin. This would complement the introduction of one-stop shops for the permitting of offshore grids under the TEN-E proposal.

These options can be complementary. Complementarity and coherence with the revised TEN-E Guidelines will be closely monitored and ensured, given the strong interlinkages.

5.3.4.3 Measures to increase renewable energy in industry

The industrial sector accounts for 25% of EU’s energy consumption, but has a relatively low share of renewables (9% of direct renewable energy use, and 22% if the renewable energy share in electricity is considered) 72 . The CTP points to a share of around 37%, partly through an increase use of electrification, partly through the use of renewable fuels, partly through the direct use of renewables. Specifically renewables are primarily used in the wood, pulp and paper industry, but are largely absent in other industry sectors. Since 2015, companies have started to build or purchase renewable electricity to satisfy their electricity demand, but only 3.5% of industrial electricity consumption is covered by such agreements. To achieve the objective of climate neutrality in 2050, industry is faced with investment decisions that need to be taken ahead of 2030 and that will have long-term impacts of the structure and ability of industry to be competitive within a climate neutral economy. Early investments are needed to adapt production processes, e.g. through electrification, to the availability of different renewable energy carriers.

RES in industry is not explicitly covered in REDII, but its transformation is critical to achieve the EU’s objective of climate neutrality. The aim of the possible measures is to initiate an increasing share of renewables, whilst supporting an emerging market for renewables-based products. This tailor made approach for industry would provide investor certainty and ready-made solutions for this sector with specific needs compared to others. Options are:

·Option 0A: No changes, maintain current policies under REDII (baseline scenario);

·Option 1A: Introduction of use of renewable energy in the audits required in the EED;

·Option 2A: Introduction of an EU methodology underpinning the labelling for green industrial products in certain sectors, complementing the Sustainable Product Initiative.;

5.4. The overview of policy options

An overview of the policy options described in section 5.3 is presented in the figure below.

Figure 3 - Overview of policy options

5.5.The core scenarios, variants and their use in this IA

This assessment uses the three core scenarios (based on CTP analysis) that achieve net 55% GHG reduction in 2030 and confirm the cost-effective range for RES share in 2030 as already established in the CTP (38-40%). All scenarios have been built on REF - as described in the section 5.1 and these core scenarios confirm the cost-effective levels of renewables as described in Section 6.1. These scenarios were developed and used to ensure coherence across the different impact assessment of the “Fit for 55 Package”. In essence, the role of core scenarios is two-fold:

-To confirm (with respect to CTP) the internally coherent level of ambition that policy options considered in the “Fit for 55” impact assessments need to deliver.

-To establish range of impact to be expected from all “fit for 55” legislative proposals.

The three core scenarios are:

·REG that relays only on intensification of energy and transport policies in absence of carbon pricing beyond the current ETS sectors;

·MIX that relays on both carbon price signal extension to road transport and buildings and intensification of energy and transport policies;

·MIX-CP that illustrates a lower ambition revision of energy policies (and CO2 standards for vehicles), with a strong role for carbon price signals (as in MIX also extended to road transport and buildings).

Detailed information regarding the policy scenarios: their assumptions and storylines as well as modelling methodology can be found in Annex 4.

The core scenarios are cost-effective pathways that capture all policies needed to achieve the increased climate target of 55% GHG reductions. The fundamental design of carbon pricing and regulatory instruments working together put forward already in the CTP remains robust.

Already from the CTP analysis it is clear that carbon pricing working hand in hand with regulatory measures helps avoid “extreme” scenarios of either:

·a very high carbon price (in absence of regulatory measures) that will translate into energy prices for all consumers as illustrated by the MIX-CP scenario

·very ambitious policies that might be rejected by Member States (e.g. very high energy savings or renewables obligations) because they would be too costly for economic operators as illustrated by the REG scenario.

Therefore, the MIX scenario is the central one, where energy policies address market failures in a targeted manner and provide investor/consumer certainty while pushing for the uptake of innovative technologies. In the MIX scenario, both carbon pricing and energy policy actions are aligned to trigger investments in clean energy technologies and infrastructure, or even to overcome financing difficulties for certain groups of consumers (e.g. renovations shielding consumers from high energy bills linked to fossil fuels based heating).

To some extent, the REG and MIX-CP scenarios are extremes showing the undesired impacts of relying too strongly on only regulatory measures or carbon pricing. Still such scenarios could materialise. The low ambition policy options consisting of additional guidance only considered in this assessment would likely lead to results of the MIX-CP scenario. Conversely, the most ambitious regulatory options would yield results similar to the REG scenario with no carbon price applied in sectors beyond current ETS. Finally, low ambition outcome of the legislative processes or delays in implementation - be it on regulations or on carbon pricing – would be illustrated by the MIX-CP or REG scenarios, respectively.

The core ‘Fit for 55’ scenarios are complemented by the following variants 73 (all built on MIX) that help to assess some specific policy options:

-MIX-H2 that illustrates high uptake of hydrogen in final energy demand sectors already in 2030 74 aligned with the goal of the Hydrogen Strategy (40GW of electrolyser capacity in the EU in 2030) while considering national hydrogen strategies and “Opportunities for Hydrogen Energy Technologies considering the NECPs” by Fuel Cells and Hydrogen Joint Undertaking 75 . MIX-H2 is used for assessment of options including on the promotion of RFNBOs in industry and in transport.

-MIX-LD (MIX-Lost Decade) that aims to assess the impacts of the revision of REDII only or more precisely of the absence of such a revision rather than of the whole package of “Fit for 55” policies. This variant removes all drivers representing REDII revision while “freezing” all other policies on their level of ambition/stringency as modelled in MIX. In this variant, a gap to overall RES and sectoral ambition (especially in H&C) appears as well as gap to GHG 55% target. Bridging the gap can be attributed to revision of REDII. As this variant achieves the carbon neutrality in 2050, MIX-LD has to considerably increase the efforts in renewables deployment post-2030.

In chapter 6, economic, the social and environmental impacts of the core “Fit for 55” scenarios (and for relevant options the variants) are part of analysis of impacts. The core “Fit for 55” scenarios can be compared to each other in the way that the CTP IA did. Where relevant, this type of analysis is performed in this impact assessment to show the advantages and disadvantages of stronger/weaker regulatory actions (notably in case of RES H&C and RES-T obligation). As an alternative approach, the MIX-LD variant provides insights about the impacts of the absence of revision of REDII in the context of the MIX scenario – this is mostly discussed in section 6.1.2. Other variants are used for specific policy options only as described above.

Importantly, some policy options analysed in this impact assessment revolve around the type or way of implementation, and not the level of ambition of regulatory measures. Hence for such measures the scenario results are only useful as “boundary conditions” showing the level of ambition that has to be achieved regardless of the type of regulatory actions or way of implementing it (e.g. nature of the targets).

5.6.Options discarded at an early stage

A number of policy options were discarded:

-on targets for renewable energy, possible scenarios representing an EU 2030 GHG emissions reduction target below 55% or higher levels of ambition as requested by some stakeholders were discarded as they did not fulfil the political mandate agreed by EU leaders of achieving the 38-40% renewable energy.

-on the promotion of low carbon and renewable fuels, as noted in recital 2 of the (current) Directive, its goal is to promote renewable forms of energy as one important part of the Union’s energy policy. The Directive should continue to focus on this main objective. The priority for the EU is to develop renewable fuels such as hydrogen produced from renewable electricity and hydrogen-based synthetic fuels since renewables are projected to develop very strongly in power generation already in this decade (and even more strongly afterwards) while nuclear and CCS have more limited potential and, in some Member States encounter public acceptance issues. Low carbon fuels will continue to play an important role to decarbonise the energy sector for some time in particular in sectors where direct electrification is not possible or renewable fuels are not yet available. This will be addressed in other legislative proposals, including the forthcoming gas decarbonisation package (revision of the gas directive) that will focus on ensuring internal market for low-carbon gases.

-on revising the sustainability criteria for bioenergy, the option to apply sustainability criteria at forest unit level was considered disproportionate and overly intrusive on Member States. Introducing biogenic carbon emission factors in the calculation methodology for the lifecycle greenhouse gas performance of forest biomass, in addition to supply-chain emissions was considered unfeasible. It was not considered appropriate to introduce requirements for air pollution related to solid biomass as this issue is effectively covered by existing EU environmental legislation. In the energy field, it has also been addressed by new stricter emission requirements for new solid fuel boilers and space heaters in the Eco-design Directive (since January 2020). Applying the sustainability requirements to residential users of biomass heating would imply a disproportionate administrative burden on Member States and citizens. An option on new reporting requirements on forest biomass was also discarded as current reporting obligations under the Governance Regulation are considered sufficient. While requested by many individual citizens and NGOs, a complete ban of the use of woody biomass for energy production was considered as a too radical measure which would have significant impact on the ability of some Member States to reach the CTP objectives.

-A revision of Guarantees of Origins (GOs) for electricity was among the popular answers in the public consultation to the question what should be amended in the Directive. On revising the system of this option was discarded as the existing requirements of REDII and the Directive on common rules for the internal market for electricity are expected to deliver improvements when implemented.

-During the 1st stakeholder workshop ‘further support the uptake of energy communities and self-consumption’ was put forward as one the measures appropriate to tackle the remaining barriers for the uptake of renewable electricity, however the current revision of RED II does not plan to change provisions on energy communities as the new rules are still being implemented in the Member States and the Commission has started non-legislative actions to foster the roll-out of energy communities.

Please see Annex 6 for full details of the discarded options.

6.What are the impacts of the policy options including for effectiveness, efficiency and coherence?

The following sections summarise the main expected economic (including specifically energy system and macro-economic impacts), environmental and social impacts of the options considered for each of the policy areas. The analysis of the different options for each policy areas also assessed their effectiveness, coherence and, where relevant, administrative burden and compliance costs.

Part of this assessment is based on energy system modelling. As explained in Chapter 5, the three core “Fit for 55” scenarios are used consistently for design and assessment of all the “Fit for 55” initiatives. These scenarios establish boundary conditions for all policy options and the results of these scenarios establish the range of expected impacts – of all “Fit for 55” initiatives acting together. This is complemented with insights about impacts of specific measures considered for the revision of RED II.

As explained in Chapter 5, the MIX scenario is the central one: carbon pricing is covering most of the sectors and works in synergy with energy policies that address market failures in a targeted manner and provide investor/consumer certainty while pushing for uptake of innovative technologies. The MIX scenario is balanced, while the REG and MIX-CP scenarios are more extreme outlooks showing the impacts of relying mainly on regulatory measures or mainly on carbon pricing, respectively.

It is important to highlight that with a certain degree of simplification, low ambition policy options considered in this IA consisting of additional guidance or other soft measures would likely lead to the results of the MIX-CP scenario. Conversely (and again with certain degree of simplification), the most ambitious regulatory options would yield results similar to the REG scenario with carbon price likely at very low levels/irrelevant.

This is why the results of three core scenarios are used for the assessment. If relevant, additional variants (presented in section 5.5) results are discussed notably as concerns the innovative renewable fuels.

Finally, as an alternative approach, the MIX-LD variant provides insights about the impact of the absence of revision of RED in the context of MIX scenario – mostly discussed in section 6.1.

6.1.Overall renewable energy target level and achievement

6.1.1.Level of overall renewable energy target resulting from core scenarios and variants

As already explained in Chapter 5, the results of the “Fit for 55” core scenarios indicate a similar range for EU level of ambition on overall RES share in 2030: 38-40% as necessary for the increased climate target of 55% GHG reductions in 2030 – in agreement with CTP analysis. The RES shares in the scenarios (overall and sectoral) are summarised in the table below.

Table 2 - Renewable energy shares in core scenarios; Source: PRIMES, ESTAT

In the MIX-H2 variant, an increased overall RES share of 40.2% results from the higher uptake of RFNBOs in line with the 40GW electrolyser capacity envisaged in the Hydrogen Strategy. This variant is discussed in Section 6.6.

In the MIX-LD 76 variant, a gap of 2.1 p.p. appears to overall RES share projected by MIX scenario chiefly driven by the gap to the necessary RES-H&C share (2.9 p.p.) and to the RES-E share (2.7 p.p.).

Table 3 - Results of MIX-LD scenario; Source PRIMES

This variant is counterfactual in the sense that in the absence of the REDII revision, carbon prices would have increased, but such an outlook is already illustrated in the MIX-CP scenario. MIX-LD also has useful insights post-2030. As this variant still achieves carbon neutrality in 2050, thus in the absence of a REDII revision, efforts in renewables deployment post-2030 would have to be considerably increased to bridge the gap that would be created in the current decade.

Finally, it also has to be stressed that this variant does not capture more granular measures of the REDII revision concerning capacity building and local deployment, self-consumption and other aspects and consequently the strong negative signal towards investor and consumer confidence that the absence of a REDII revision would create.

6.1.2.Impacts projected by the core scenarios and MIX-LD variant

6.1.2.1 Economic (including Energy System) impacts

Energy system

The core scenarios lead to an acceleration of the clean energy transition. Even though their policy drivers are differentiated as described in Chapter 5, the results in terms of fuel mix are very convergent. In all core scenarios renewables deployment is the key avenue for the necessary decarbonisation of the fuel mix. This is best illustrated by the changes in the fuel mix – both in the Gross Inland Consumption (GIC) and in Final Energy Consumption (FEC). In GIC, the renewables share grows from 15% in 2015 to already 27% in REF and then 30-31% in the core scenarios. Bioenergy, that is today the main renewable source, has in REF in 2030 the same share in the GIC mix as other renewable sources together. In 2030, in the core scenarios the share of bioenergy remains stable compared to REF while other sources grow, notably wind and solar in power generation.

In MIX-H2 variant, GIC in 2030 increases very slightly (1% compared to MIX) due to additional electricity needs for RFNBOs production. Renewables share increases to 32% and it is due to higher consumption of wind and solar energy in power.

Figure 4 - Gross inland consumption in the core scenarios; Source PRIMES

In terms of fuel mix in final energy consumption the trends are less pronounced than in GIC, the renewables share grows here from 10% in 2015 to 15% in 2030 already in REF and to 16% in the core scenarios. The key trend in final energy consumption is electrification promoted by energy efficiency, renewables and decarbonisation policies. With electricity increasingly relying on renewables (see section 6.8) the electrification of final energy demand provides an additional pull for renewables deployment in the power sector.

In MIX-H2 variant, FEC in 2030 is unchanged compared to MIX. While bioenergy consumption decreases, the RFNBOs share increases but electrification remains the main trend and the renewables shares grows to 17%.

Figure 5 - Share of energy carriers in final energy consumption; Source ESTAT, PRIMES

The MIX-LD variant shows that in the absence of the REDII revision, the energy system would have lower renewables penetration both in GIC and FEC and thus would leave more space for natural gas in heating and in power generation.

Energy system costs

The clean energy transition requires investments (CAPEX) but also enables a reduction in the energy expenditure (OPEX) – both aspects are included in the energy system costs metric projected for all core scenarios.

It is important to notice that energy system costs have been steadily increasing in recent years and are projected to increase in the coming decade reflecting the effort needed to meet the current climate and energy targets for 2030. From an estimated 1,284 billion EUR (or 9.7% of GDP) in 2015, system costs (excl. carbon pricing and disutilities) are estimated to reach 1724 billion EUR (or 11.6% of GDP) in 2030 in REF.

The climate and energy policies already in place (and thus included in the REF) lead to a relatively limited increase in costs between the REF and the core scenarios. The REF already entails significant investments in energy efficiency, renewable energy deployment and shifts to low carbon technologies and fuels. This paves the way for costs reduction for energy-efficient and low-carbon technologies and fuels, which help to reduce the additional energy costs for the core scenarios. The table below shows the energy system costs (excluding carbon pricing payments and disutilities 77 ) in the core scenarios.

Table 4 - Average annual Energy System Costs in the scenarios (excluding carbon pricing payments and disutility costs); Source PRIMES

The average annual additional energy costs/investments (excluding carbon pricing and disutilities) show very small variations across the core scenarios as both the investments and energy expenditure are similar. The average over the 2021-2030 decade increases from 10.9% of GDP in REF to 11.1% - 11.2% of GDP in the core scenarios. MIX-H2 variant has only slightly higher costs than scenario MIX. In agreement with the results presented in the CTP Impact Assessment, system costs appear to be slightly higher in the REG scenario that relies on stronger regulatory policies in absence of carbon pricing.

Due to the higher carbon price in all core scenarios, when payments for carbon auctions are accounted for and adding also disutilities, systems costs increase from 11.0% in REF to 11.5-11.8% of GDP over the 2021-2030 decade. MIX-H2 variant has the same costs as scenario MIX. In agreement with the results presented in the CTP Impact Assessment, system costs including carbon pricing and disutilities are higher in MIX-CP scenario that relies on stronger carbon pricing.

Table 5 - Average annual Energy System Costs (including carbon pricing payments and disutility costs); Source PRIMES

Energy system costs increases in the core scenarios are moderate because the additional investments in new power capacity, buildings’ renovations or rolling stock are offset by savings on energy purchase and in particular fossil fuels expenditure.

The MIX-LD variant shows that in the absence of the REDII revision, the system costs would be lower but the difference would be rather small: only 4bn EUR/year in 2021-30 period (metric excluding carbon pricing and disutilities). This is explained by the fact that while some investments in renewable power generation/heating would not take place, investments in natural gas power generation/heating would still be needed. Also no savings in energy expenditure can be achieved by switching to renewables (many of them with zero operational costs).

In addition to the energy system costs assessment, it is also useful to assess impacts on security of supply and savings in fossil fuels imports. The savings in energy expenditure have direct effect in fossil fuels import bill savings as today most of energy expenditure is on fossil fuels. The table below shows summary of the results of core scenario as well as MIX-H2 variant in this respect. It is clear that renewables deployment that displace fossil fuels is the key factor of these savings. The REG scenario has the highest savings.

MIX-LD variant shows that in absence of REDII revision, the fossil fuels import bill would be higher as lower uptake of renewables would leave more energy demand to be satisfied by fossil fuels. The savings between MIX and MIX-LD amount to 15bn EUR over the period 2021-30.

Table 6 - Impacts on security of supply and fossil fuels imports bill savings; Source PRIMES

Zooming in on investments that are an essential element of system costs, it can be seen that policies already in place will require on average 297 billion € per year in the in the 2021-30 period (excluding transport). This is a considerable increase from the estimated 184 billion € per year spent in the past decade. When compared to the size of the European economy, the investment required in the next decade under polices already in place will amount to 2.1% of the average GDP.

The projections confirm the main trends already observed in the CTP impact assessment. An increased climate target for 2030 will require considerable additional investments. In the policy scenarios annual investments excluding transport 78 , increase to 379-417 bn € per year in the 2021-30 period. This is between 2.7- 3.0% of the European GDP. Investments are higher in the scenario based on an intensification of policy measures (REG) than in a scenario with higher carbon price (MIX-CP). This result illustrates the difference in effects of bottom-up policy measures that tend to increase, for example, renovation rates in buildings compared to effects of carbon pricing that promotes mainly fuel switch.

The MIX-LD variant shows that in absence of REDII revision, the investments would be lower but the difference would be rather small: only 18bn EUR/year in 2021-30 period. This is explained by the fact that while investments in renewable power generation/heating are lower in such a scenario they are replaced by investments in natural gas power generation/heating.

The table below shows the investments by sector in the REF and in the policy scenarios. Apart for transport, the residential sector is the sector requiring the higher amount of investment highlighting the important role of buildings in emissions reduction.

Table 7 - Investment in REF and core policy scenarios (2021-2030 annual averages, billion € 2015); Source PRIMES

Macro-economic impacts of core scenarios

Analysis with macroeconomic models confirms the results presented in the CTP impact assessment. The impact on the European GDP of the increased climate target (or more precisely of the investments necessary to achieve it) is small in any of the cases assessed. Projections obtained with the GEM-E3 macroeconomic model indicate a small positive effect on GDP if assuming favourable financing conditions. Compared to Reference projections, GDP is 0.52% higher in 2030. Assuming crowding out of investments, however, GDP in 2030 is 0.2% below the Reference level. In line with previous findings, result for the MIX and REG scenarios are very similar. The effect of stimulus created by investments wanes after 2030.

Figure 6 - Macro-economic impacts of core scenarios; Source GEM-E3

6.1.2.2. Environmental impacts

All core scenarios, by construction, achieve the 55% net GHG target in 2030. Renewables deployment stimulated by the overarching level of RES ambition as well as policies dedicated to achieving it play an important role in GHG abatement – in synergy with other “Fit for 55” policies. Renewable fuels are accounted as having zero emissions in the energy system and by displacing GHG-emitting fossil fuels they lead to GHG emissions savings.

MIX-H2 variant only slightly overachieves 55% GHG reduction (it has 0.4 p.p. higher GHG reductions than MIX looking at GHG emissions including intra EU aviation and maritime but excluding LULUCF).

The MIX-LD variant in the absence of drivers illustrating revision of RED, would create a gap of 1.2 p.p. to GHG 55% target. Also some synergies with energy efficiency would be lost and using the metric of the current EE targets, MIX-LD would lead to 35.0% of energy efficiency in final energy consumption in 2030.

In addition to impacts on decarbonisation, all core scenarios lead to important overall benefits in terms of heath protection and reduction of pollution. This is mainly due to the replacement of fossil fuels by renewable energy sources, notably non-combustion ones. Combustion renewable energy sources (bioenergy) emits air pollutants (PM2.5, PM10 and VOCs). The reduced air pollution compared to REF was estimated at 10% in 2030. Reduced health damages and air pollution control cost compared to REF were estimated at € 25-43 bn/year 79 .

6.1.2.3. Social Impacts

The table below shows the energy-related costs incurred by households, which are key social impacts of the core scenarios. In REF, the share of energy-related expenditures (comprising both equipment and energy purchases related to both transport and buildings) as % of private consumption increases slightly from 24.1% in 2015 to 25.1% in 2030. In the core scenarios, the share increases to 25.6-25.8% in 2030 with little differentiation among scenarios. Importantly, between 2015 and 2030, the absolute amount of energy-related expenditure (growing due to investments necessary for clean energy transition and to carbon price mark-up) is moderated by the growth in overall private consumption linked to economic growth and increasing welfare of the society.

The share of buildings-related expenditure in private consumption differs little across core scenarios in 2030 (7.4-7.5% without counting disutilities) and in MIX-H2 variant (7.6%). Buildings-related expenditure is dominated by energy purchase expenditure. In comparison, equipment and renovation costs are smaller but also add up to the expenditure as expected from the trends in fuel switch and renovation rates 80 . The costs of heating equipment are the highest in REG, where the highest uptake of renewables in the buildings sector leads to highest replacement rate of heating equipment with households notably switching to heat pumps. Renovation costs are also the highest in REG.

Transport related costs are dominated by capital and fixed costs of vehicles followed by expenditure for transport services and energy purchase expenditure. For transport related costs alone, their share in total households’ consumption is nearly stable between 2015 and 2030 in REF reflecting the gains of fuel efficiency standards. The overall share of transport-related expenditure in total household consumption differs very little across core scenarios in 2030 (18.1-18.5% without counting disutilities) and MIX-H2 variant remains in this range.

The MIX-CP scenario relying on high carbon price leads to the highest expenditure for energy purchases as carbon price mark-up is reflected in this expenditure. Conversely the REG scenario relying on strong regulatory action leads to highest expenditure for renovations and H&C equipment. By including more regulatory instruments alongside carbon pricing, notably via revision of RED, the carbon price increase can be lower and thus impacts on energy bill kept in check – as illustrated in the MIX scenario.

The MIX-LD variant shows that in the absence of a RED revision, energy-related share of household consumption would be very similar to MIX case. This is again explained by the fact that no savings in energy bill can be achieved by switching to renewables (many with zero operational costs) but also no additional investments for fuel switching from fossil-fuel technologies are necessary to replace renewables-based heating installation. Transport-related expenditure does not change as here the ambition stems chiefly from NECPs and not RED revision.

Table 8 - Energy-related expenses in 2030 (excl. disutilities); Source PRIMES

The social impacts can be also analysed in terms of their distributional impacts on different income groups 81 . For low-income group, in all core scenarios, the share of energy-related expenditure in their private consumption is higher (than for average of all income groups) indicating the need for targeted policies addressing needs of vulnerable households. There is only a small differentiation of results among the core scenarios and with the same logic as described for average results for all income levels.

Figure 7 - Energy-related expenses in 2030 (excl. disutilities) as % share of private consumption; Source PRIMES

Macro-economic impacts of core scenarios

Analysis with macroeconomic models confirms the results presented in the CTP impact assessment. The impact on the employment in the EU of the increased climate target (or more precisely of the investments necessary to achieve it) is small in any of the cases assessed. Projections obtained with the GEM-E3 macroeconomic model indicate a small positive effect on employment if assuming favourable financing conditions. Compared to Reference projections, employment is 0.36% higher in 2030. Assuming crowding out of investments, however, employment in 2030 is 0.3% below the Reference level. In line with previous findings, result for the MIX and REG scenarios are very similar. The effect of stimulus created by investments on job creation diminishes after 2030 but its effects are stronger than in case of economic growth.

Figure 8 - Macro-economic impacts of core scenarios; Source GEM-E3

6.1.2.4. Distributional impacts

This IA, as a proportional exercise, focuses on the EU-level impacts, notably as projected by the core scenarios. But the impacts on level of MS are also a key consideration for policy proposals and national results from modelling are also available. Dedicated publication: “Technical Note on the Results of the “Fit for 55” core scenarios for the EU Member States” is presenting the key impacts on MS energy system and beyond (notably economy-wide GHG emissions) for the core scenarios.

Importantly, these impacts result from all “Fit for 55” initiatives and represent the situation in which all MS would contribute cost-effectively to the EU-level targets. The real-life impacts will be different considering that for most of energy legislation Member States have choice in how to implement specific provisions in a way that is best suited to their own national circumstances in full respect of subsidiarity principle. The case in point are revised 2030 RES and EE contributions that Member States will be themselves putting forward. Also, the Member States’ ESR targets will build on but deviate from the cost-effective contribution indicated by the core scenarios.

In this section, some key results of core scenarios are discussed without yet correction of possible implementation on the national level and thus purely from the angle of cost-effective contribution to the EU targets.

Aggregated impacts

On the most aggregated level, the energy system costs can be assessed and they are presented in “Technical Note on the Results of the “Fit for 55” core scenarios for the EU Member States”. The impact of the increased climate target and delivering the Green Deal (and increased RES and EE uptake that go alongside) will represent the energy system cost increase for all MS. However most of the projected increase in energy system costs will occur already in the in the REF2020. On the EU level, between 2020 and 2030, energy system costs are projected to increase 20% in the REF2020 and 26-27% in the core policy scenarios.

Today, the share of GDP spent on energy system services varies considerably between Member States: from 5.3% for Ireland in 2020 to 20.9% for Bulgaria. There are several reasons for this divergence, notably including economic development. As household wealth and prices increase, the national economies tend to specialise in activities with higher value added and lower energy intensity (services). As households’ income increases, energy intensity of the economy tends to decrease. Therefore, also energy system and mitigation costs expressed as a proportion of GDP decrease 82 with increasing household income. Considering together the impact of increased climate target and increasing wealth shows small increases in energy system costs for all MS (core scenarios compared to REF2020) and that disparities remain. In central MIX scenario 83 , the share of GDP spent on energy services varies from 6.1% for Ireland in 2020 to 26.8% for Bulgaria.

Still on aggregated level, the combined impacts for private consumption can be assessed and they are also presented in “Technical Note on the Results of the “Fit for 55” core scenarios for the EU Member States”. As for the system costs, with the growth of economy household wealth tends to increase faster than energy costs. For wealthier Member States, energy expenditures represents a lower share of households’ expenditures. Some MS with lower income (e.g. Bulgaria and Croatia) spend today almost double of the average EU share (approximately 7% of household income) on energy. The policies in the Fit for 55 package will increase the households energy expenses for all Member States by a small amount and the disparities will still remain.

Looking at more detailed elements and most linked to revision of REDII, the changing fuel mix in H&C and in electricity are analysed below and the impacts they have in terms of costs.

Fuel mix change in H&C sector impacts

The table below shows projections of MS RES-H&C shares in MIX and how they need to increase in 2030 between REF2020 and MIX scenario (in p.p). Importantly, RES-H&C shares cover residential, services and industrial sectors. In all these sectors, a substantial fuel switch from fossil fuels to renewable fuels/electricity occurs and thus lead to change in energy-related expenditure. While the industrial and services sectors have the possibility of cost pass-through via the product prices, the consumers in residential sector have to cover the expenditure themselves and thus impacts are easier to assess. Two key elements of this residential expenditure are discussed in this section:

-fuel purchases, which have markedly higher share of renewables and electricity with the remaining fossil fuels bearing a carbon price mark-up due to ETS extension;

-H&C equipment expenditure, which shows the cost relevant to replacement of H&C equipment.

Table 9: National RES-H&C shares and impact on buildings-related expenditure (as share of private consumption); PRIMES,EC own calculations

The MIX scenario projects that the share of renewables in H&C has to increase considerably in all MS and this in close correlation with respective national potentials. However, the effort is balanced across MS and the costs impacts for households are moderate. Largest fuels costs increase are mostly incurred by MS still having high share of fossil fuels in their residential energy mix and lowest costs increases are incurred by MS that have most significant fuel switch to renewables and electricity. The largest decreases in fuel costs often go hand in hand with highest expenditure increases for H&C equipment. These two elements to some extent balance out and the overall, buildings-related energy expenditure share in private consumption (including also renovation costs and other energy-consuming equipment costs) show rather small increases between REF2020 and MIX scenario in 2030 (see “Technical Note on the Results of the “Fit for 55” core scenarios for the EU Member States”).

Fuel mix change in power generation impacts

The table below shows projections of MS RES-E shares and how they need to increase in 2030 between REF2020 and MIX scenario (in p.p). The increase of overall RES ambition is the driver alongside the increase of the ETS price in the current scope. The impacts of renewables uptake in power generation can be analysed:

-from the supply-side perspective - a substantial fuel switch from fossil fuels to renewable solutions in power generation leads to a significant investment needs increase

-from the consumer perspective - in terms of electricity prices.

It can be observed that all MS need to increase considerably their investment in renewables in power generation and the effort is, even more than for RES in H&C, differentiated across MS in line with potentials for different technologies. Importantly, power generation is the sector where renewables share is already very high in REF2020 or potential is still limited due to land constraints, more remote locations and less mature technologies would be needed. Clearly, the MS with large offshore, onshore or solar potential, including repowering, (still available in addition to ambitious developments taking place already in the REF2020) have a most significant increase in investment needs such as Czechia, Italy, Romania, and Slovenia. The investments in new installations are in modelling recovered via electricity prices. It can be noticed that for most MS the electricity price declines in 2030 (comparing MIX to REF2020) and often in the strongest manner for MS that have the most ambitious developments in renewables.

Table 10: National RES-E shares and impact on investment needs in renewables in power generation and on electricity prices; Source: PRIMES, EC own calculations

6.1.3.Effectiveness

6.1.3.1 Level of target

The default Option 0 is the baseline in which the EU RES target is not increased to reflect the new climate ambition. In effect the result would be that the 38-40% renewable energy target would be aspirational rather than mandatory and would make it difficult to mobilise the necessary policy effort at national level and make use of EU-level instrument in response to non-target achievement. However, it is important to note that in the absence of an increased overall EU RES target and further renewables-specific policy intervention, some effectiveness could be reached through other regulatory instruments (EED, EPBD for example), or market based instruments with higher carbon prices to partially compensate for not increasing the overall EU RES target.

Furthermore this option would also mean Member States are not bound to revise their national contributions upwards and that there would be no action taken if Member State policy commitments are insufficient to deliver the 2030 target. Thus, an EU RES share increase would rely on Member States voluntarily revising their ambitions upwards in the context of national policy updates.

Options 1 and 2 would require increasing the EU target to at least 38-40%. Although Option 2 would be the more effective option in contributing effectively for further GHG reduction, higher shares of renewables would diverge from the cost-effective pathways established in the CTP. Furthermore higher ambition for renewable energy share would have to be balanced with different levels of ambition in other sectors hence departing from the coherence of the targets proposed under the CTP. The level of ambition proposed in the context of this initiative is fully coherent with the analysis provided in support of the CTP and would be effective in reaching the increased climate ambitions. Feedback received through the open public consultation highlights broad support for increase of climate and renewable energy targets with 80% of respondents in favour of an increase at least to the level of the CTP and higher.

6.1.3.2 Nature and delivery of the target

Once the EU target has been raised, automatically an ambition gap emerges as the collective sum of the national contributions currently documented in the NECPs are no longer sufficiently ambitious to achieve the EU target.

Option 0 would imply no change and continue relying on the current Energy Union Governance process, which is an important foundation for achieving the renewables target. In the first iteration of the review process of national plans completed in 2020 this proved to be effective in achieving a sufficiently high collective ambition for reaching the previous 2030 RES targets. Under the Governance Regulation the Member States must submit their draft updates to their NECPs by June 2023.

In that draft NECP update Member States can already show their national contribution to a new increased 2030 target and give some elements of how they are planning to reach the higher target. By the submission of the final updated NECPs by end June 2024 the Member States will be able to present concrete measures leading to more ambitious RES achievement.

However, there is no guarantee that such a process will deliver the EU-wide renewables target; it is rather likely that an ambition gap remains once this has been completed. In this case, further measures may need to be considered. One option could be that any Member State with contributions below the level calculated under the RES formula are requested to either increase the ambition level of their national contributions, as under the current Governance Regulation, or make a proportionate payment to the Union Renewable Energy Financing Mechanism 85 . Based on the total Member States payments and the expected contribution from those, the mechanism would be assigned a renewable energy target which would close (part of) the EU ambition gap. Given the competitive nature of the mechanism (EU-wide tenders) this could also increase cost-effectiveness of reaching Member States contributions and thus the overall EU renewables target (see also section 6.8.1 on cross-border cooperation. Furthermore, sector-specific EU-wide targets and measures can be strengthened to the extent needed to close the ambition gap, for example requiring higher RES shares in heating and cooling, transport or electricity specifically after co-legislation through the governance process either at EU or Member State level.

An alternative option to having gap filling instruments would be to return to a system of binding national targets for Member States as per Option 1. This would be the most effective option to help ensure target achievement. However, while a majority of OPC respondents supported this, Member States are not likely to support any change to the political agreement in 2018 also because an EU-level target has proven to be sufficient to reach the old 2030 objective. 

The results of the modelling scenarios can help identify some important features regarding the projected contributions Member States could make to achieve the 2030 target. The table below illustrates the overall renewables shares across all Member States for a range of different scenarios based on modelling together with those emanating from the updated formula parameters specifically for a 40% EU RES Share target.

Table 11 - Renewable shares per Member States under various criteria; Source, EUROSTAT, PRIMES,EC calculations

6.1.4.Administrative impacts

The impacts of an increased EU RES target on administrative burden will be limited as there would be no recurring administrative requirements introduced by an increasing the RES target. It would require Member States to update their renewable contributions in the national plans update under the governance framework. The administrative costs for all policy options can be estimated to be low or even close to zero as these targets can be monitored through official statistics (renewable energy shares including sectoral and absolute amounts per technology) which are already readily available at national level and from Eurostat. However, limited resources at the level of Member States to develop new official statistics, combined with the absence of a formal legal basis for countries to report data on the share of renewables to Eurostat, may be an obstacle to monitoring renewable energy improvements in detail.

6.1.5.Coherence

Different combinations of policy instruments considered in the different scenarios achieving the same 55% GHG target deliver only limited differences in energy savings and renewable energy shares thus confirming the CTP findings about rather convergent pathways that represent cost-effective solutions.

Table 12 - Interaction of the 2030 GHG ambition with renewable energy share and energy savings

The REF and MIX-LD scenario show clearly that without an increase of renewable energy to at least a binding 38-40% EU target there is a risk of not achieving the higher climate target ambition. In REG and MIX scenario increased regulatory action is needed for achieving the necessary share while in MIX-CP very high carbon price on fossil fuels (also in buildings and road transport) plays a crucial role but also potentially exacerbates distributional impacts on poorer households. Absence of regulatory drivers representing RED revision in the context of MIX scenario leads to 1.2 p.p. gap for GHG 55% target as illustrated by MIX-LD variant.

Neither the overall level of ambition nor any changes to the policy architecture that are under consideration in this impact assessment would take place in a policy vacuum. They are bound to interact with existing and planned pricing and non-pricing mechanisms to reduce GHG emissions as well as with policies promoting energy efficiency. Assessing the interplay of various elements of a changed policy architecture – in particular the option of an expanded ETS – with existing related EU-level and national level policies is key and reflected in the core scenario design.

As explained above, it is clear that the increased deployment of renewables must contribute to the achievement of the increased 2030 EU climate target in a cost-efficient manner. Furthermore, concrete policy measures in the field of renewables can help to address existing market barriers, increase investors’ confidence in new technologies and redress distributional impacts. A generic target of GHG reduction is not enough to promote renewables, while increasing the share of renewable energy is essential to reducing GHG emissions. REDII is the instrument promoting the uptake of renewable energy by targeted measures, including targets (and sub-targets, e.g. for innovative technologies/fuels), covering different sectors and addressing different market failures/non-market barriers (e.g. in terms of infrastructure, development of innovative technologies, creation of lead markets, capacity building together with increasing consumer acceptance).

The revision of RED is a precondition for fulfilment of increased ESR national targets as necessary to achieve the increased climate target. The REDII revision will ensure that Member States have the right incentives and enabling framework to deploy much more renewables in the heating, cooling and transport sectors. The uptake of renewables now has been already a key avenue to meet the increased national ESR targets. Furthermore, the revision of REDII can have many positive synergies with other elements of “Fit for 55” package as explained in section 1.2. The most relevant interactions are with the Emissions Trading System, in the option which extends it to buildings and transport.

The CTP analysis clearly showed that strengthening of regulatory measures promoting renewables works in synergy with carbon pricing as discussed (see also section 5.2) and this finding is also confirmed in the “Fit for 55” core scenarios. Such synergies are even stronger in the field of energy efficiency as discussed in the EED IA. In the field of renewables, the regulatory measures such as targets for innovative fuels or sectoral targets ensure that all sectors and all technologies contribute to increased climate ambition. Also a number of regulatory measures (on PPAs, wind offshore, renewable and low carbon fuel certification) establish an enabling framework that is essential for investments to happen. Finally, a number of measures are proposed to Member States in the field of H&C respecting national competences and yet providing a clear indication of effective measures. All these measures enable balanced pathways towards an increased climate target in 2030 and avoid the very high carbon price of the MIX-CP scenario (80€/t of CO2eq in buildings and road transport) that could further aggravate energy poverty and increase distributional impacts.

When considering the nature of the target, Option 0 combined with the governance system would guarantee that the EU target would be met while with leaving enough flexibility to Member States in setting and adjusting their national targets/contributions. The Governance process also has the merit of increasing the economic efficiency of its implementation, in that the need to consult neighbouring Member States as part of the establishment of national plans means that decisions about managing energy demand and deciding on supply options would be better coordinated among Member States across the internal energy market rather than done in isolation.

On the other hand, national binding targets (Option 1) can be a strong driver for national action, ensuring political accountability and commitment to deliver results while providing flexibility to choose and apply the most suitable tools to achieve the target. However, important synergies in policy making on EU level (e.g. cross-border cooperation) could be lost. Regarding coherence with other legislation this approach would run counter to the recently established Governance framework and might lead to increases in administrative costs linked to fragmented EU action and potential harm to businesses operating across the internal market limiting the economic efficiency of this approach.

Another important element is the coherence between the overall EU RES target and the specific sub-targets specifically in sectors where renewable energy or renewable based fuels is still lacking, thus hindering further system integration. These targets and benchmarks, generally build on the current policy design in REDII while the level of ambition is consistent and coherent with other legislative instruments under the ‘Fit for 55 package’ also providing investor certainty and spur innovation. The assessment of the nature and design is assessed in the specific sections.

6.1.6.Stakeholders’ Opinions

6.2. Heating and Cooling 

The options are assessed against the objectives established in section 4.2. The impacts have been assessed via ‘Fit for 55’ core scenarios complemented by additional modelling, analysis and case studies carried out for this Impact Assessment. Further elaboration of impacts of specific measures that can complement options on the target are set out in Annex 7. The options complement carbon price mechanisms and energy efficiency measures (addressed under the EED, EPBD reviews and the eco-design and labelling framework).

6.2.1Target(s) and measures

The increase in RES H&C shares between 2009 and 2019 was only 5.3 p.p. 86 with the EU expected to achieve a 23.4% RES-H&C share by 2020. However, the situation varies significantly in Member States, with the share in Nordic and Baltic Member States reaching as high as 55-70% RES H&C share in 2020, and in the Netherlands, Belgium and Ireland as low as 6-8%. This reflects different starting points, different potentials and thus national fuel mixes as well as the use of collective heating and cooling systems vis-á-vis individual ones.

In CTP scenarios, the RES-H&C levels were projected to attain between 38-41% under policy scenarios. The results of “Fit for 55” core scenarios are in agreement with the CTP analysis as projected RES H&C shares are: 36-41%. MIX-H2 variant would be also within this range with no uptake of RFNBOS projected in buildings but some uptake in the industry. See section 6.6.

As shown in the figure below, a strong increase compared to REF of ambient heat from heat pumps and renewable derived heat consumption in district heating and cooling networks, buildings and industry is needed.

Figure 9 - Decomposition of the renewables share in heating and cooling; Source EUROSTAT, PRIMES

The rationale for further action is that with the implementation of current practices (option 0), the EU is projected to only reach 33% RES in H&C in 2030, contributing to the achievement of 33.2% in the overall RES-share projected in REF, therefore hampering reaching the higher GHG ambition in 2030 in a cost-effective way, which was also highlighted by the dedicated variants in the impact assessment. MIX-LD variant assessing impacts of the absence of revision of RED shows a gap of 2.9% percentage point (pp) to the necessary RES-H&C share. The fulfilment of the baseline binding target only by Member States would thus not be sufficient.

Buildings have the largest share in overall heating and cooling consumption. Currently millions and millions of boilers burning fossil fuels (natural gas, coal and heating oil) are installed in buildings. Around 88% of heating is supplied from individual boilers in a highly decentralised and distributed way. Around 12% of buildings are serviced from district heating systems. District heating is also mostly based on fossil fuels 87 . The current share of renewables in the EU overall buildings stock 88 is only 23.5% 89 , mostly representing biomass stoves and boilers. Heat pumps utilising ambient and geothermal energy constitute yet only 2.5% and solar thermal around 1.2%. More details are found in Annex 7 in the buildings section.

The key trend that can be observed historically and confirmed by the CTP modelling exercises, on which this IA is based, is that buildings will experience a rapid growth of electricity consumption, mostly coming from renewable sources and a decrease of fossil fuels (notably gas). As discussed in the in-depth analysis accompanying the Clean Planet for All Communication, electrification of demand combined with decarbonised electricity supply and self-generation of renewables are fundamental drivers in reaching climate neutrality by 2050 90 . Electrification is driven by rapid deployment of electric heating, most notably heat pumps, leading to efficiency gains in production and further integration of variable renewable electricity. The increased efficiency of the use of electricity in buildings is well illustrated by the limited growth in absolute electricity consumption. For specific details on the fuel mix of space heating and the share of energy carriers please see the buildings section in Annex 7.

Figure 10 - Final energy consumption in buildings; Source PRIMES

Buildings have a large potential to contribute effectively to GHG reduction through increased energy efficiency and renewable energy. The share of renewables in buildings is expected to reach more than 49% in 2030 mostly through direct renewable heat, such as solar thermal, geothermal, and bioenergy, and through a threefold increase of renewable electrification and ambient energy (see figure below). The increased renewable share also reflects reduced demand from increased energy efficiency. The aim of Option 3d) under the H&C options is to assess the need to include a minimum level of renewable energy in buildings that would complement Option 2 on the list of measures in conjunction primarily with the EPBD, the revision of which is scheduled for the end of 2021.

Figure 11 - Final renewable energy consumption in total building stock (ktoes); Source PRIMES

6.2.1.1.Impacts projected by the core scenarios and variants

Environmental impacts

A potentially significant environmental impact of increased renewable energy in heating and cooling, together with other measures targeted at renewable heating and cooling, is pollution from inefficient biomass use. This impact is dependent on the extent biomass is used to replace fossil fuels in heating, the type of biomass and whether best available and state-of the art technologies are used, as these factor can minimise such emission. These impacts are better addressed through existing horizontal legislation as explained in more detail in Section 6.7 under bioenergy. The impact of increasing GHG ambition and increased RES-H&C on biomass deployment, the MIX scenario shows the aggregated final energy use for heating and cooling in the residential sector at EU-level.

The figure below depicts the potential evolution of the fuel mix used at residential level. The outcome of this analysis is that the biomass use remains constant (and even decreases in absolute terms) between 2020 and 2030, while oil and solid fuel use substantially decrease. This is also due to additional energy efficiency measures, extension of carbon pricing to buildings and further electrification in the heating and cooling sector. The overall combined impacts of policies targeting heating and cooling on the environment is expected to be positive. As a result significant reductions of CO2 emissions are achieved in both residential and services sector as illustrated in the table below.

Table 13 - GHG emission reduction in buildings in 2030; Source: PRIMES

Figure 12 - Final energy per energy carrier in residential heating and cooling demand; Source PRIMES

Economic (including Energy System) and social impacts

Fuel prices and energy expenditure

A potentially important impact of additional measures in heating and cooling would be the energy prices for households specifically for heating and cooling requirements. Using the core scenario results, the expected evolution of energy prices 91 at household level, shows an overall increase of energy prices between 2021 and 2030 (around 39% on average 92 ) as shown in the figure below. Electricity (more than 60% based on renewables) and biomass energy prices are set for a limited increase (10% and 19% respectively). This increase is partially due to market developments, and partially due to climate and energy policies. The impact assessment carried out for the CTP showed that the scenario relying on high carbon pricing only, has the highest negative impact on low income households. 93 The scenario results in terms of social and distributional impacts across the core scenarios are discussed in section 6.1.2.3 and 6.1.2.4.

However, the distributional impacts could be at least to some extent addressed if the revenues from carbon pricing used in buildings would support low income consumers to decrease their energy bills, by e.g. focusing on these target groups with deep renovation programmes, or provide subsidies for the replacement of old and inefficient heating appliances (by renewable-based technologies such as solar thermal or geothermal based technologies which do not entail fuel prices), or providing lump sum support (possibly linked to the deployment of renewables). These targeted use of ETS revenues could offer an opportunity to accelerate both energy efficiency and renewable technologies such as heat pumps for space heating and cooling in buildings abating also air pollution especially in cities. Such programmes should be adapted to overcome the lack of capital and other barriers that may exist. The distribution of the costs and benefits of a binding H&C RES target across Member States will depend to a large extent on how a MS intends to design its framework in order to meet the target.

Figure 13 - Evolution of end user energy prices for households in scenario MIX; Source PRIMES

Modern renewable heating systems (geothermal and air/water source heat pumps, solar thermal) do not need fuel input for heating and energy consumption is limited to auxiliary energy to drive e.g. heat pumps and control systems. These manifest in positive disposable income effects from lower operating costs, reduced fuel expenditure and stable prices unaffected by global price fluctuation. While some of the renewable heat appliances require higher upfront costs, they reduce household expenditure once installed, and over their lifetime (20 years) they result in significant savings and increased disposable income. When this target under Option 3d) and the complementing list of measures under Option 2 are combined with stronger carbon pricing, as in the MIX scenario, the value of initial upfront investment decreases in relative terms and the pay-back time shortens improving the cost-benefit ratio for consumers.

In addition, some of the renewable heating appliances have lower upfront costs at installation and lower levelised cost of heat (LCOH) 94 than the reference gas (condensing) boilers (most used at EU) which varies from country to country 95 . Renewable solutions, such as heat pumps using ambient and geothermal energy, solar thermal and biomass are already competitive with the dominant gas and oil boilers. The fact that LCOH of renewable heating technologies is often already lower than that of fossil fuels, yet their market take-up remains subdued demonstrates that other, non-market barriers, such as lack of information, lack of coordination and level-playing field are at work. The list of measures under Options 2 is thus necessary to complement both the target under Option 3d) and increased carbon prices.

6.2.1.2.Impacts and analysis not based on modelling

GHG reduction:

The switch from fossil fuels to renewable heating is the main way to reduce GHG and other air pollutant emissions. Most renewable heating solutions achieve below 100 gram CO2/kWh emissions compared to fossil fuels ranging from 240 gram CO2/kWh to above 400 CO2/kWh 96 .

Transitioning their heating and cooling systems away from fossil fuels is a key component of national strategies to achieve GHG reduction in a few Member States, which have elaborated such strategies in line with their EU and Paris agreement obligations. Among these Member States, the Netherlands, France and Germany conducted in-depth analysis and public consultation on how to pave the way towards heat decarbonisation, while Poland set a more limited objective, focussing on phasing out coal as a major source of GHG emissions and air pollution. These national strategies foresee a considerable increase of the share of renewable energy sources, while the approach to decarbonise the heating sector differs between the strategies. The Netherlands propose a district approach, in which municipalities take the lead in the transformation through “heat visions”, which are developed at municipal level. The decarbonisation measures proposed in the strategies of France and Germany largely address building owners as well as professionals in the building sector. All national strategies place heating decarbonisation in buildings and renewable space heating at their core. While the strategies do not provide quantitative targets for individual renewable heat technologies, they foresee subsidy schemes and regulatory measures (RES-quota) to increase the share of renewable energies for heating.

Examples of national strategies are listed in the table below:  

Air pollution reduction

One of the expected impacts of the proposed Option 3d) combined with Option 2, is the significant reduction in air pollution and CO2 emissions.

Switching for renewables from fossils in heating has been and is the main way to ensure clean air. 97 This impact has been demonstrated by the results of national strategies and case studies.

One such examples is that of Poland, where coal based heating is a source of emissions of sulphur compounds, nitrogen, benzopyrene and dust, as well as carbon dioxide. The main reason for poor air quality in Poland is emissions from individual sources (apart from transport) of heat generation in over 5 million buildings. Pollutants are introduced into the atmosphere from low chimneys in areas with residential buildings. Approximately 3.5 million of these buildings are supplied with heat from low-efficiency coal-fired sources. Old, energy inefficient boilers and furnaces fired with poor fuel are the main cause of smog production.

To resolve this environmental and health crisis, the "Clean Heat 2030” strategy for Poland examined how to make heating no longer a source of smog in Poland by 2030 in a cost-effective and socially acceptable way 98 . According to the analysis, health costs of pollutants can be reduced by 50% within a decade and dust emissions from individual heating by 91%. At the same time, CO2 emissions from heating will fall by 30%. The report refers to the whole area of heating, both district heating and individual heating systems. Even with a conservative approach, the external costs of smog in Poland today exceed PLN 16 billion annually. These heat production costs are not included in the production price. Poles, however, bear these costs by paying for them with poorer health and suffering the consequences of climate change. The report suggests the elimination of solid fuels from individual heating by 2030. Domestic coal-fired furnaces should be replaced, depending on local conditions, by connection to district heating networks and on the long-term by the electrification of heating. The authors calculated that the share of heat cost in the household budget may increase by up to 2 percentage points in the short term and it will start to decrease in the long term. 

Cooling

The global energy demand for cooling is growing rapidly. Cooling accounts for around 4% of final energy demand in the EU, with about 130 TWh for space cooling and about 190 TWh for process cooling 99 . Cooling is currently 99% electricity-driven, such that unlike heating, cooling typically does not involve the direct use of fossil fuels. 99% of cooling is provided by electric driven vapour compression systems (heat pumps and reversible heat pumps). Only 1% is supplied by gas or heat driven cooling generators (absorption cooling) used mainly in industry and district cooling systems. More information is included in Annex 7.

Cooling demand in buildings currently accounts for around 2% of final energy consumption in the EU, and process cooling in industry is an additional 2% 100 . Cooling demand is rapidly growing due to higher living standards, higher building energy performance standards and climate change. Space cooling (SC) in residential and service sector consumes 81.5 TWh per year 101 . Just a few countries account for the absolute majority of the final SC consumption amount of the entire EU27+UK. Spain, Italy, France, UK, and Greece come out to account for more than 80% of Europe’s final SC consumption for the residential and service sectors. For countries such as Malta and Cyprus, cooling accounts for 25% and 40% in their heating and cooling mix and more than 16% and 13%, respectively, in their total final energy consumption.

The definition and calculation methodology of renewable cooling has not yet been established due to so far relatively low statistical weight of cooling in overall EU energy consumption (even if in specific countries this share can be significant). REDII specifies that the Commission shall adopt delegated acts to supplement the Directive at the latest by 31 of December 2021, including a methodology for calculating the amount of renewable energy utilized for cooling and district cooling (DC), a definition for renewable cooling, and amend the directive accordingly. In order not to prejudge the outcome of the delegated acts, no specific options were included for cooling options design.

NECPs assessment

According to the NECP assessment 102 EU 27 anticipate a share of renewable energy in the heating and cooling sector of 23% in 2020 and 33% in 2030. The 33% RES H&C share in 2030 was facilitated by more than 10% decrease in the final energy consumption for H&C projected by Member States from 2020 to 2030 in EU27 103 .

The share of renewable energy is above 50% by 2020 in 5 MS (Denmark, Estonia, Finland, Lithuania, and Latvia) 104 . In Sweden, this share is above 60% 105 . Several countries report a low share of RES in the H&C sector and in three Member States the share of renewables is below 10%. In this regard, the assessment clearly shows the diverse nature of Member States energy systems and their starting points. Although Member States demonstrated significant efforts to decarbonise the H&C sector in their NECPs, there were still many aspects that were not properly incorporated by all Member States and measures were not sufficiently presented. As a result, there is a wide variation in effort levels and contribution across Member States and the burden is not shared equally in proportion of cost-effective potentials and GDP. More details are found in Annex 7.

Furthermore given the importance of the H&C sectors in the EU’s final energy consumption, no action in this sector will clearly not deliver on the general and specific objective of this IA.

6.2.1.3.Effectiveness

The default Option 0 ‘No changes’ is the baseline and would result in the EU RES H&C share that would be in line with the -55% GHG target remaining aspirational and not reflected in the legislation with delivery of the overall RES ambition relying on other sectors or other instruments to deliver.

Option 1 ‘Non-regulatory measures’ – Guidance and Best Practice Exchange

This option involves only the use of non-regulatory measures. These offer the possibility to enhance the correct implementation of REDII in a more harmonised manner by diffusing a common understanding and best practices. The main instrument for this would be the Concerted Action of Member States for the Renewable Energy Directive, which is a dedicated forum for informal discussion and to share best practices on implementation.

These measures would at best help reaching full delivery of the current targets and better implementation of measures. However, the current target is indicative and all measures are optional. There would not be legal possibility to enforce implementation in case of those Member States that despite receiving guidance and learning best practices would opt for low implementation efforts and low prioritisation of heating and cooling. Maintaining the current indicative target and optional measures would not raise the level of renewables sufficiently enough and would not incentivise a step change towards carbon-neutrality. The option entails the risk of carbon lock-in, the continuation of business-as-usual and failure of heating and cooling to contribute to carbon-neutrality. This would put the burden on other sectors and force a much higher carbon price on consumers and businesses. The cost-effective achievement of the 55% would suffer. There would be a risk to derail CTP and EGD due to the large weight of this sector in the EU overall energy consumption.

This likelihood of such risks is demonstrated by the low ambition of the NECPs, where half of the Member States failed to include trajectories and measures in line with the current provisions.

Option 2 ‘Extend the current list of measures of Article 23(4) in REDII’

This options introduces additional generic measures, which have proven to be essential building blocks of successfully renewable mainstreaming and decarbonisation of heating and cooling.

Option 2 complements Option 3 on possible target design options. The list is not binding and its main purpose is to provide templates how increased ambition in deploying renewable heating and cooling could be achieved. Since the proposed additional measures are reflecting best practices of effective heat decarbonisation, national implementation strategies will likely use many if not all the measures in the list. The generic and essential nature of the measures in the list ensures that sufficient freedom is left for Member States to adapt those to their specific national circumstances based on subsidiarity.

Without specific measures to increase renewable’s competitiveness in both industry and building, the risk remains high that renewable would not be taken up in the H&C sector. The alternative to enforce the uptake of renewables via specific instruments would be increasing carbon pricing significantly. However due to low elasticity of demand for heating, which is a basic necessity for both consumers and industry, and the fact that once investment decision is taken, it cannot be corrected cost-effectively during the lifetime of a heating asset (appliance, generation unit or infrastructure), high carbon pricing would not be an effective drivers for a long time after a purchase and would thus lead to significant wealth transfer from consumers without producing the desired outcome.

The extended list of measures are accompanying measures necessary to guide the transition process to the medium goal of 55 GHG reduction and end goal of full decarbonisation of heating and cooling. These extended list of measures are to guide actions to realise the cost-effective renewable share in heating and cooling and thus are a necessary complement of Option 3 on target. The list of measures together with a specific heating and cooling target and in synergy with strengthened but not excessive carbon pricing, strengthened energy efficiency measures under the EED and EPBD, complemented with a revised ETD together as a package lead to the most cost-effective and cost-balanced delivery of the 55% GHG and carbon-neutrality by 2050.

   Specific Measures:

Option 2-A1 Capacity building for national/local authorities to plan/implement renewable projects and infrastructures, national and local heat planning

One of the challenges for Member States is to transition their heating systems from high carbon to renewable and low-carbon heating at least and with minimum resources use. Local municipalities are at the forefront of this transition due to the local nature of heating, as they will have to translate the high-level EU and national objectives into concrete projects and actions. Municipalities and cities thus need to be to map the availability of local renewable and other carbon-neutral, provide a regulatory and project development framework for their mobilization, align spatial plans, coordinate with building refurbishment and with all actors involved. They are the key to ensure that local energy planning and ensuing actions, investment, projects are aligned with national energy objectives. This requires specific capacities in planning and developing renewable projects and infrastructures and coordinate among all interested actors. Option 2-A1 enables national and local authorities to gain the knowledge and skills required for integrating renewables in heating and cooling, to make plans, develop, finance and implement projects or programmes and to coordinate the many local actors. Their capacity should also cover awareness raising campaign, training and qualification.

Coordinated infrastructure planning with more involvement of local and regional authorities could result in important economic savings and avoid issues of mis-planning, mis-communication, misinformation and lack of understanding of the local particularities, needs and opportunities resulting in inefficiencies and enhanced energy system integration. It provides an enabling tool for higher ambition in renewable heating and cooling, and increases the effectiveness of other measures, not only planned replacement or targets but also with carbon pricing instruments. Heat planning enables coordination with the Long-term Building Renovation Strategies (Article 2a of the revised EPBD) and the Comprehensive Heating and Cooling Assessments (Article 14 of the EED and Article 15(7) of REDII) where MS integrated planning remains low 106 . There are currently very limited integrated planning in the MS, according to the JRC in 2018 only 26% 107  of European cities had a climate action plan or an energy transition strategy 108   109 .

This shows that MS action alone would probably not have been sufficient to contribute to deploy renewable in the H&C. Therefore, by reason of the effects of the variant, EU action would have an added value, at least to incite MS to take think about integrated planning. This option thus is also key to ensure effective coherence also with the EED and EPBD and effectiveness of carbon pricing.

Option 2a)-A2: Risk mitigation framework to reduce cost of capital for renewable heat projects

Investing in new heating and cooling systems entails risks for large and small projects alike. For large projects project developers may have difficulties convincing banks and financial institutions about their loan repayment capacity or would not easily be willing to assume all the risk and uncertain or longer repayment time that the market generally allows. For small investors, banks and financial institutions may not be willing to lend due to high administrative costs and limited return, in turn small projects may face high transaction costs.

The option would effectively address risks inherent to large heat generation and heat infrastructure projects, as well as investments in individual heating systems by households and small businesses representing small capital volumes. 110

Although, there are currently no dedicated financing instruments for H&C at EU level, many generic energy subsidies and grants are available and can be accessed for the purpose of financing H&C initiatives 111 . Given the lack of dedicated instruments, stakeholders need to have a good understanding of the different financial instruments available to exploit them for the purpose of financing green and low-carbon H&C projects. EU action is required to deliver economies of scale and Union-wide coverage as well as to ensure a competitive single market for energy at least to incite MS to take the required action.

Carbon pricing increases the attractiveness of renewable options in H&C by increasing the revenue streams (or decreasing the operating cost compared to a fossil reference). With adequate and stable carbon prices, the cost of de-risking instruments would reduce accordingly (e.g. risk insurance would be reduced to reflect the risk). Such risk mitigation framework should recall that stable and visible energy price evolution (incl. the carbon pricing components) would have a key role in mitigating the risk.

Option 2a)-A3: Heat purchase agreements for corporate and collective small consumers

Heat purchase agreements can be an important tool to support the creation of heat markets and are currently used much less frequently than power purchase agreements. A recent study shows that a business model based on heat purchase agreements could be used to lower the barriers to heat pump adoption associated with their high upfront costs. The study is the first to consider economic analysis of heat purchase agreements as a third-party ownership model for electric heat pumps. 112  

For the MS, the operating cost would be limited to the administrative costs to develop such global framework and the cost for covering (backstopping) pilot or demonstration projects 113 (such as for the case of Bristol Energy). After such trial/demonstration period, operating costs would be tackled by market actors, such as heat/fuel suppliers, to integrate directly in their new business models. This could also provide some commercial advantages compared to formal suppliers not adapting their business models to the needs of the transition to a low carbon heating and cooling system (driving more energy efficiency and renewable, with energy utilities and other suppliers delivering new services).

The example of Bristol Energy highlights a very big opportunity associated with this option – consumer empowerment and increased awareness. Some of the key aspects highlighted during a workshop held on September, 2019 on the topic of “heat as a service”, point out to consumer distrust due to lack of information and the underdeveloped stage of this concept. In particular consumers would be interested in having flexible contracts of no longer than 1-2 years and to be able to “roll-over” unused usage under the “Energy as a Service” contracts (similarity with mobile phone plans). Further, consumers need to be able to easily quantify the benefits and risks of taking up an offer and how the technology and service is performing in real word scenarios. The design of these instruments would be left to the MS, to comply with the implementation of the market design at national level, and possibly with building codes or requirements (addressing comfort), as inviting MS to develop such schemes would incentivise their development.

Furthermore, the success of this option is dependent on the development of adequate heat network infrastructure, increased digitalisation of buildings and smart meter roll out. By tackling these issues, authorities will support different professionals to developing new business models, helping coordination between heat markets, electricity market, building design and performance. Carbon pricing would also directly have an influence on supporting such heating purchase agreement framework, increasing the attractiveness for renewables H&C, and the interest to develop adequate business models, possibly based on a service concept.

Option 2a)-A4: Planned heating system replacement schemes:

The proposed options on targets for heating and cooling combined with the options proposed for supporting measures (planned heating systems replacement) would ensure that the upcoming replacement cycle is well-used to trigger a switch from fossil fuels to renewables and other carbon-neutral solutions, and prevent the installation of new fossil appliances, which due to the long lifetime of these assets, would result in carbon lock-in. This option would be effective to ensure several goals. It would help accelerate and wide the deployment of renewables in heating and cooling, and buildings. If applied together with heat planning, it could also ensure level playing field between individual and district heating and cooling solutions depending on whichever is the most cost-effective.

The option on planned renovation is effective to ensure alignment with the CTP, which foresees the need for annual 4% replacement rate of heating systems in building. Since the existing fossil heating systems would be largely replaced with heat pumps and connection to modern district heating systems would grow, planned replacement would also be effective in facilitating ESI and electrification. According to ESI, in buildings, electrification is expected to play a central role, in particular through the roll-out of heat pumps for space heating and cooling.

According to JRC’s NECP assessment, measures related to phasing out of fossil fuels in the heating sector were expressed by eight member states, meaning these are probably already considered as non-regret instruments. In addition to Austria and Germany, Ireland has also set up such scheme.

These schemes are concrete, driven by national or regional authorities, already implemented with success and sometimes could be considered as the key pillar of decarbonising the H&C, depending on Member States strategy. As these schemes would depend on many national/local factors, more requirements from the EU would be counterproductive, although the EU could support the sharing of best practices, and possibly provide some guidance.

Option 2a)-A5: Update of the qualification and certification requirements of installers (article 18 and annex VI), and enabling framework/obligation for technology providers and vendors, that trained and qualified installers are available in sufficient numbers to service the required growth in renewable heating and cooling installations in buildings and industry.

Investment in the training of skilled workers, the development of training courses, investing in teaching resources for disseminating green skills and integration of climate, environment and green energy knowledge in scholarship are measures where the initial costs associated with development and implementation of such efforts is expected to result in broader knowledge dissemination and awareness. Several literature studies highlight the importance of awareness raising and information dissemination in achieving energy efficiency and renewable resources measures 114 .

Furthermore, given that replacement of heating and cooling equipment is often a result of an emergency (e.g. boiler breakdown), a lack of knowledge and information on the part of the installer when having to make a swift decision on how to replace a broken installation could result in technology lock-in 115 and significant associated costs. Thus, enhancing the skills and knowledge of installers and therefore removing a possible inclination towards the well-known (fossil based) solutions should increase the extent to which actual substitution opportunities are recognised and selected. Hence, a possible decision-bias towards fossil-based solutions would be reduced and the competitive position of RES compared to fossil-based solutions improved, by increasing significantly investor’s confidence, and hence certainty.

Furthermore, skills is an important area where the EU could ensure competitiveness. Increasing the qualification and training installers would create more experience and share of practice that would also benefit the manufacturer, and further RD&I.

6.2.1.4.Administrative burden and compliance costs

It is not expected that the target design as such would result in additional administrative burden or increased compliance costs for Member States as no new obligations or additional reporting would be required from the Member States compared to the current Article 23 of RED II or the Governance framework.

As stated in Section 6.2.1.3, depending on the measures the Member States use to reach the target there could be additional administrative burden, for example a scheme to subsidise the replacement of heating systems would involve checking applications and that the criteria for funding were met. Replacement schemes would mainly impact building owners (landlord and tenant), while tenants would be impacted to a limited extent. Administrative burden and associated costs will vary per Member State depending on the extent of multi-level governance between different levels of government (national, regional, and municipal), the choice and level of ambition of the phase-out and the existing administrative framework in place among many other variables. More details are found in the Annex 7. 

Targets: RES H&C target and renewable share in buildings and industry

Option 3 ‘Level and nature of the targets’

Option 3 explores three different target designs (3a)-3c) for the overall heating and cooling target, which are mutually exclusive, and add a fourth target design, 3d)which is an indicative benchmark to specifically monitor efforts in buildings and industry, which is complementary with the overall H&C target designs.

Options 3a-3c assess the need to either increase or reinforce the ambition for the RES H&C related target(s). A key issue for the design of the legislation is how to provide sufficient incentives for continued delivery of national commitments and sufficiently ambitious pledges for increased mainstreaming of renewables in the heating and cooling sector. Beyond the target an extended list of measures to support higher ambitions are assessed below and in Annex 7.

Option 3a would transform the current 1.1%-pp annual increase target design as per Article 23 into a minimum baseline complementing it with indicative additional efforts tailored to each Member State to reach the desired RES H&C shares in agreement with the CTP and confirmed by the modelling work carried out in this impact assessment. In this regard the revised Renewables Directive could include indicative figures for Member States RES H&C shares to take into account when updating their contributions to the EU renewables target under the governance framework in the NECPs by June 2023. This would provide a positive incentive framework in the heating and cooling sector. 

The option would incentivise the mainstreaming of renewables in the heating and cooling sector in some Member States 116 and avoid lock-in of fossil fuel technologies and ultimately stranded assets in the future. In addition, Option 3a) allows for burden sharing in mainstreaming the renewable energy deployment in the H&C sectors.

The Table below illustrates the 2020-2030 average renewable heating and cooling shares across all Member States in REF and the range for the core scenarios. Furthermore, the table includes the respective effort needed by each Member State that would close effectively the gap between the modelling work carried out in this impact assessment and the estimated figure of RES H&C share at EU, if Member States fulfil the 1.1% mandatory RES H&C shares 117 to reach the desired RES H&C levels in the core scenarios to be added to REF20. The gap has been redistributed based equally on Member States cost-effective potential from core scenarios and their GDP 118 .

Table 14 - 2020-2030 average and 2030 RES H&C figures for different scenarios per MS; PRIMES EC own calculations

Option 3b proposes to raise the current 1.1 pp annual increase to the level of core scenarios 119 and make it binding. This would apply to all Member States equally. Although this option would be the most effective option to help ensure target achievement and eliminate distortion between Member States, this option is not considered proportionate and would go beyond cost-optimality for some Member States, specifically those having already high RES H&C shares in 2020, above 50% and 60% respectively 120 .

Option 3c would propose a binding EU H&C RES share. This would provide greater certainty that the EU reaches the desired level of RES shares in H&C, however it does not exclude the risk of free riding by Member States, who may choose to do little and instead rely on the efforts of others.

Option 3d would put forward an (indicative) EU RES benchmark of 49% for the EU building stock 121 and industry. This would add visibility and prioritisation of the need to step up the integration of renewable energy in buildings as part of increasing their energy performance, in particular in the context of the Renovation Wave objective to at least double the building renovation rate, as heating system replacement and modernisation and are the easiest and most cost effective to implement during and as part of building renovation. In addition, this option is also to ensure that at least a 4% replacement rate of fossil based, old and obsolete heating systems with renewable based heating, as indicated by the CTP is realised. The indicative RES benchmark would leave maximum flexibility for Member States how to achieve it. It would build on the current requirement for ensuring a minimum level of renewables in buildings. Its effectiveness would be ensured with alignment with the review of the EPBD addressing gradual fossil phase-out from heating systems tailored to main building archetypes. It will support the EGD carbon neutrality goal, consistent with ESI and interact with the EPBD goal to decarbonise the EU building stock by 2050 as enshrined in the EPBD. Complementarity and no duplication is ensured as REDII relates to the overall EU building stock, while EPBD addresses energy performance at building level and by main building archetypes. The added value of the option for heating and cooling to signal the level to which renewable heating and cooling supply (sources, technologies, infrastructures) should be scaled up for buildings. The EPBD on the other would address how to make buildings fit for renewables, as most renewables can work optimally only with high energy performance buildings (sufficient insulation and adaptation of the internal energy distribution in technical building systems.

Furthermore under this option, an (indicative) EU RES benchmark in Industry of 1.1% annual increase per year, reflecting the different starting points of the different MS and following the logic of the heating and cooling target 2020-2030 would be put forward. Industrial investment cycles are relatively long, and can set the direction for a company for multiple decades. A benchmark to increase the share of renewables in industrial consumption would increase renewables, which could take place through different pathways and energy carriers (including energy efficiency measures, direct use of renewables, electrification, and renewable fuels, including renewable hydrogen) and integrate industry further to the energy system. Setting such benchmarks early would provide a long-term direction to the industry, and ensure that any existing investments are in line with our long-term objectives of climate neutrality.

6.2.1.5.Coherence

The assessment of the above options is closely interrelated with measures on energy efficiency and energy performance in buildings, which are respectively addressed in the initiatives for the revision of the EED and the EPBD. In addition, policy interactions also exist with policies covering GHG emissions (Effort Sharing Regulation but also by the horizontal EU carbon pricing instruments, such as the EU Emissions Trading System). However, the impact of carbon pricing on renewable shares and renewable deployment and respective impacts on energy costs is diverging and could cause high distributional impacts when they fully materialise. The revision of RED is also a precondition for the fulfilment of increased ESR national targets. The Member States will need to deploy much more renewables in the heating, cooling (and transport sectors) in order to meet the increased national ESR targets. Therefore re-enforcing the current heating and cooling target which covers all energy users (industrial, residential and tertiary) and updating the illustrative policies measures remains necessary and consistent.

Thus energy efficiency and carbon pricing can also play a role in increasing the share and deployment of renewables in heating and cooling. However, energy savings should mostly affect non-renewable heating, while the overall consumption of renewables in final heat remains constant with the rest of the effort supported mostly by heat pumps. Carbon pricing alone could increase direct renewable deployment as incentive fuel switching and allow for a fairer competition of innovative solutions in markets. However carbon prices might need to be very high to achieve the outcome, a risk which modelling and the resulting carbon price of EUR 80 in MIX CP indicate too. As highlighted in the assessment of the measures, carbon pricing alone cannot overcome all barriers such as unfit infrastructure planning, building codes and products standards, lack of skilled workforce for installation and maintenance, lack of public and private financing instruments, and lack of internalisation of CO2 costs in heating fuels for the heating and cooling sector as a whole also due its fragmented nature. Such barriers hampers renewable uptake but also ESI. This translates into low replacement rates of the EU fossil heating stocks, low development and modernisation of district heating/cooling networks, and low building refurbishment rates. With the Renovation Wave initiative, the Commission will ensure that the building framework is fit for a higher penetration of renewable supply in buildings from all types of renewable sources and carriers, both via individual appliances and district heating. It will also support training programmes under the Updated Skills Agenda. This option is also coherent with and effective to implement the Renovation Wave initiative, as it ensures a higher penetration of renewables in buildings.

Furthermore measures such as local planning has synergies and is coherent with Article 14 of the EED on comprehensive heating and cooling assessments and with the long-term building renovation strategies under Article 2a of the revised EPBD. It is also coherent with and fulfils actions of the Energy System Integration Strategy while risk mitigation is already available under the EED and the EPBD and new instruments under the Resilience and Recovery Funds and new EU budget.

In this regard, a fixed renewable energy heating and cooling target complimented by further policy intervention would not only provide additional incentives to fuel-switching from fossil to renewable energy in buildings but also in industry. It would also address persisting non-market barriers that carbon pricing alone cannot fully address.

6.2.1.6.Stakeholders’ Opinions

6.2.2 District heating and Cooling

Modern renewable-based efficient district heating and cooling (DHC) is at the very centre of heat decarbonisation and an integrated energy system 122 . The current provisions under REDII require Member States to endeavour to increase the share of renewables by an annual average 1%-point increase or implement network access for renewables, waste heat and cogeneration. Several drawbacks remain allowing ‘de-facto’ 100% fossil systems continue indefinitely in the future. Consumer information and rights also need to be improved.

Updated and strengthened measures are needed to ensure cost-effective contribution and align DHC with the Green Deal, the Energy System Integration and the Hydrogen Strategies and the Renovation Wave. In particular, the Energy System Integration Strategy calls to accelerate investment in smart, highly-efficient, renewables-based district heating and cooling networks, if appropriate by proposing stronger obligations through the revision of REDII and the EED. The energy system integration potential of DHC 123 would not materialise by lack of a clear EU framework guiding local actors and encouraging their efforts to link district heating networks with renewable electricity, waste heat and renewable gases’ deployment. Consumer information as regards the climate performance of these systems should in parallel be improved to ensure level playing field, greater transparency and fair competition with alternatives. The proposed measures are necessary to ensure that the next inevitable and imminent investment cycle in district heating is not wasted, but instead directed towards future proof solutions when replacing the current old and obsolete heat generation units (around two thirds of the generation assets). The Renovation Wave highlights the role of district approaches as they can transform entire neighbourhoods and create new business opportunities. Synergies between business renovation and the roll-out of modern district heating systems become evident when scaled up to district and community approaches. Aggregating projects at this level may lead to zero-energy or even positive energy districts (e.g. advanced district heating and cooling systems with large potential for renewables and waste-heat recovery). These offer cheaper ways to decarbonise heating and cooling and increase system efficiencies at an industrial scale by fuel switch, increased flexibility and thermal storage. Additional positive impacts including creating space for nature and mobility, contribute addressing socio-economic issues.

Current situation

District heating is present everywhere but in a few Member States in Europe. It has significant heat market shares in Northern, Central- and Eastern Europe and in the Baltic States. District heating is growing in Western Europe and the northern regions of Southern European countries. There is no district heating in Cyprus and Malta, while in Portugal and Spain district heating is marginal and limited to a few systems. At EU level, the share of district heating is 12%. The fuel mix of district heating varies from Member State to Member State, as illustrated by the figure below 124 .

Figure 14 - District heating fuel mix and cogeneration share in 2018 (Source: Study by Tilia under ENER/C1/2018-496)

As shown in the figure below, natural gas is the major source of heat used. In many countries the share is around 60% and more in Member States such as Bulgaria, Croatia, Hungary, Italy, Netherlands, and Romania. Biomass, biofuels, and renewable waste are the second most used source of heat in the Member States with significant shares in many countries such as Austria, France, Scandinavian and Baltic countries. Coal and peat, as a third most used source of heat, has a high share in Poland, Czech Republic, Greece, Germany, Slovakia, and Slovenia.

In aggregate, natural gas has the highest share in the EU-27 district heating fuel mix accounting for 30.1% followed by biomass, biofuels, and renewable waste with a share of 26.9%, and coal and peat with a share of 26.7% (see figure below). In total, two-thirds of the district heat supply is generated with fossil fuels in the EU-27 Member States.

Figure 15 - EU-27 District heating supply fuel mix in 2018(Source: Study by Tilia under ENER/C1/2018-496)

The decomposition of RES used for district heating reveals that bioenergy fuels (biomass, biofuels and renewable waste) are currently by far the main renewable sources (see figure above). In the EU-27 they constitute almost 88% of the renewable heat produced, followed by industrial excess heat (waste heat) with 6%, heat pumps with 4%, geothermal with 2% and solar thermal with a negligible share of around 0,5%.

6.2.1.1.Impacts projected by core scenarios

There was no specific modelling for the full district heating and cooling supply chain however the figure below presents the evolution of the energy mix in district heating.

Figure 16 - Fuel input in district heating units and total production of derived heat in distribution networks (in ktoe); Source PRIMES

The key trend that can be observed is a decrease of fossil fuels (notably oil and solids). Although gas remains stable between 2015 and 2025, increasing energy efficiency, renewable policies and further sector integration coupled with more ambitious climate policies (increased ETS price signal and extension of ETS to buildings) help in the overall efficiency and fuel switching in this sector. Biomass increases from 2010 but remains constant after 2015 and reduces marginally until 2030. Electricity and other renewable sources such as geothermal and solar have been increasing since 2015 to more than 40% of fuel input in DH units in 2030. When it comes to heat supplied and consumed through DH networks, the renewables shares increase to more than 50% in 2030 (at least 2.1 pp yearly increase between 2020 and 2030) which strengthens the case of a greener, smart and integrated district heating networks.

6.2.1.2.Impacts and analysis not based on modelling

GHG reduction and energy saving:

The deployment of renewables via district heating in cities and heat pumps in rural areas combined with energy savings results in significant greenhouse gas greenhouse gas (GHG) emissions reduction and primary energy savings as demonstrated by several studies. The Heat Roadmap Europe projects concluded that a reduction by 80-95% compared to 1990 levels was possible by 2050, entailing also a reduction of 13% or 120 TWh in primary energy consumption and cost reduction of 6 billion EUR compared to alternative decarbonisation scenarios 125 . More information on case studies on efficient renewable based and smart DHC systems are found in Annex 7.

Modern district heating and cooling can be an effective cost-effective solution to integrate renewables at large scale in heating and cooling serving buildings and small enterprises alike. This is demonstrated by the Action Plan of France with 25 actions to be implemented as of 2020 126 .

Figure 17 - French 2030 objectives in DH development (total and low-carbon/green)

A host of innovative district heating and cooling systems already operating in the EU demonstrating that modern low temperature district heating systems are able to integrate renewable energy into heating and cooling at large scale at moderate and low cost and are competitive vis-à-vis fossil fuels. A list of such systems is presented in the figure below indicating the renewables’ shares in this systems, the types of renewables used and the installed capacities for district heating and district cooling. More details and examples are found in the Annex 7.

Figure 18 - disaggregation of DHC systems, including energy carriers; Source https://heatroadmap.eu/

The potential of district heating as a key heat transition instrument has been demonstrated in the Heat Roadmap Europe study 127 , which looked at the decarbonisation potential by DH and its cost and benefits in 14 Member States. It concluded that the European energy systems could be decarbonised by 2050 by expanding district heating in urban areas to meet up to 50% of heat demand. The Heat Roadmap Europe (HRE4) project drew up low-carbon heating and cooling strategies for 14 EU countries. The figure below illustrates the number of new DHC systems to be developed across the 14 Member States of the HRE4. 

Figure 19 - Approximate newly established and total amount of district heating systems in the 14 countries of HRE4 and Denmark needed for fulfilling the potential of distribution grid investments below 4 EUR/GJ; Source: Heat Roadmap Europe 128

Based on the Pan-European Thermal Atlas (PETA) 129 geographical information system, the study conducted by HRE4 identified prospective supply districts areas with a potential for district heating. An annualised distribution grid investment cost of 4 EUR/GJ was used as the minimum threshold, in addition to a minimum heat demand density of 20 TJ/km2. A potential of around 25,000 areas in the EU was identified, allowing to reach the target of a 50% district heating share by 2050. This is a 7-fold increase in the number of district heating systems across Europe compared to the situation in 2019 130 .

Replacement costs are mitigated by the fact that only around one third of oil and gas boilers and CHP units are relatively new. More than one third is beyond that lifetime and almost one third is in the second part of the lifetime. That means that two third of the capacity will need to be replaced in the next 5-8 years. The figure below shows the age.

Figure 20 - Installed capacity by age (GWh) District heating and supply; Source [ongoing ENER/C1/2018-494 Renewable Space Heating Study ]

Carbon pricing could result intrinsically in cost-optimal emission reductions in the buildings. Hence, pushing for emission reductions through specific measures such as forcing RES deployment will be less cost-effective as long as the carbon price is not high enough to enable H&C RES to become competitive in DHC.

However, the currently limited uptake of renewables to support the DHC to reduce their emissions can be linked to the low competitive advantage of renewable fuels (due to the current low carbon price level, and to the other more cost effective solutions such as fuel switch – from coal/oil and natural gas), and to the lack of knowledge and risk management compared to individual fossil based appliances. With an increasing carbon price, renewables may become more attractive and deploy without any further intervention or policy action than carbon pricing. However there is probably no such guarantee without additional intervention in the frame of the RED, either with additional measures, or with a specific target for H&C in DHC.

The table below provides a comparison of upfront costs, O&M costs, payback periods and number of jobs created per MW for both fossil-based DHC and renewable supply of heat in DH networks.

Table 15: Comparison of Financial data for different DHC supply technologies 131

Without specific measures to increase renewable’s competitiveness, the risk remains high that renewable would not take up in the DHC. The two options would then be either to increase carbon pricing significantly (which is out of scope), or to enforce the uptake of renewables via specific instruments. In the first, accompanying measures would be necessary to guide the integration of renewable in all DHC. In the second, accompanying measures will also be necessary, in addition to specific renewable targets.

More details on cost –effectiveness of DHC are found in the Annex 7.

6.2.1.3.Effectiveness

Measures

Option 0 and Option 1 would not be effective to drive that step change needed for district heating and cooling to update its fossil fuels and conventional biomass based business model, contribute to the heating and cooling target and develop its full potential for renewable energy, energy efficiency and sector integration. Information for consumers on the energy performance and renewables shares would remain limited. District heating would keep enjoy monopoly positions without increased accountability to consumer and shielded fully from competition, while its market share could potentially expand. 100% fossil district heating could continue indefinitely and receive public support.

Option 2 on strengthened existing measures would be effective to ensure the necessary minimum adjustments on consumer information, renewable heat suppliers’ network access and to update ESI measures in line with the Energy system integration strategy.

Option 2b)-B0: Align the definition of ‘efficient district heating and cooling with the CTP and EGD.

The option would ensure that district heating systems adopt a higher standard, gradually evolve to become strong contributor for renewable mainstreaming, GHG reduction and savings objectives in energy supply and buildings. It would also ensure that public support is directed for district heating system investing in modernisation and new systems developed according to a new business model aligned with CTP and EGD.

The current definition is spelled out in Article 2(41) of the EED and integrated into REDII by reference in its Article 2(20). This definition provides the criterion as regards which DHC systems should allow disconnection, network access or should align with the 1 ppt annual renewable increase rate under REDII. The current definition makes it possible for 100% fossil fuel systems to be qualified efficient indefinitely in the future. The review of the definition is an option under the EED review and therefore is not proposed as an option under the REDII review. Full consistency of the EED review should be ensured with the REDII review.

Option 2b)-B1: Eliminate exceptions and make access to networks mandatory for renewables and other carbon-neutral sources (waste heat), including from prosumers, in large DHC networks (Please refer to Annex 7 for the detailed description of this option).

The option aims to ensure minimum competition in district heating systems, which are natural integrated monopolies. The lack of EU level minimum access rights would risk locking out renewable and other carbon-neutral energy suppliers, while allowing incumbent operators to continue the current fossil based business models indefinitely in the future shielded from competitive pressures. However, considering the specificities of DHC systems with unique and specific adaptation features to local circumstances, as well as technical constraints (already recognised in the current provisions), third party access should not cover small networks and its design should remain adaptable and minimally harmonised at EU level.

The option would cover only large systems as network access to small systems by third party suppliers is less or not economic and is technically difficult to implement. It would not impose disproportionate administrative and compliance burdens and would be effective to trigger more competition and thus bring on the market more renewable heat and cold supply.

The option builds on the current provisions. It would thus not entail significant additional administrative and compliance costs. As described in the introduction, such network access is in one form or another already is in place in large systems. Connection of prosumers is also possible already in some systems, enhancing consumer rights and promoting active consumers.

Via stimulating more renewable heat and cold supply and increase efficiency – and in conjunction with the option on corporate and collective consumer heat purchase agreements - the option is in line with the CTP, the EPBD and the EED.

Option 2b)-B2 Enhanced ESI between DHC systems and other energy networks

This option would be effective to expand and replicate the already existing examples of smart district heating systems, which operate as local ESI hubs and contribute to ESI and the cost-effective deployment of renewables, including renewable electricity. The model of cooperation with the electricity DSOs and TSOs is well-developed and commercially attractive in those few Member States 132 , where the regulatory framework is sufficiently adapted. It allows DHC systems to provide balancing services to the electricity grid by absorbing surplus variable renewable electricity through demand response/management measures and thermal storage. They can also feed electricity back to the electric grid from their CHP units, when renewable electricity (wind and solar) is scarce. 133

Option 2b)-B3 Enhance ESI for waste heat and cold use via a coordination framework for key actors

This option has similar objective as above in terms of ESI and would also be effective in facilitating the reuse of waste heat from industrial sites and data centres, through a coordination framework coupled with possible options on strengthened requirements for connection to district heating networks, energy performance accounting and contractual frameworks, as part of the revision of the Renewable Energy Directive and of the Energy Efficiency Directive (June 2021) as stipulated by ESI.

Option 2b)-B4 Strengthen information provisions for consumers, such as:

orequirement to include a specific RES share and a numerical energy performance number (PEF) in the information district heating/cooling systems provide to consumer (e.g. on bills, suppliers/regulators’ websites);

oEnergy label (voluntary or mandatory) for DHC systems.

The option in the first bullet point on increasing information to consumers about the performance of district heating and cooling system is highly effective to ensure that district heating and cooling providers become more transparent, strengthen consumer rights and improve consumer perception and acceptance. The option foresees the inclusion of clear and simple numerical values on RES share and primary energy factor. Since this builds on and merely complement the current provisions, the administrative burden is limited.

Target options

Option 3a, leaving the current, optional and indicative target unchanged. Since only eight countries addressed Article 24(4a) - which lays down the optional indicative 1 percentage point increase target for DHC -, in their NECPs, continuing with the current provisions would not be effective to increase renewables, waste heat and energy efficiency in existing district heating systems, and would leave new DHC developments without clear direction, while other sectors would carry higher burden. This would not ensure that district heating and cooling contributed to the deployment of renewables in heating and cooling in line with the CTP and EGD. It would not be effective to make these networks contribute to the increased deployment of renewables and ESI in line with their cost effective potentials.

Option 3b) by adding an indicative EU renewable target for renewables’ share in DHC would set a clear yardstick against which the development of district heating and cooling systems could be evaluated and their compatibility with the CTP and EGD could be measured. This could be a significant improvement in the effectiveness of current framework and would provide clear signals for investors. Option 3b) would also inspire the development of new networks as regards the level of renewables desired in their generation mix. While it may not be enough to change in existing DHC network, combined with an appropriately strong overall heating and cooling target to which DHC would contribute, it would be effective to ensure that old systems transform and new systems develop sufficiently to harness the full cost-effective potential of modern DHC for the large scale integration of renewables in heating and cooling. Since this option does not impose specific obligation on Member States, the administrative cost would be minimal, while the Governance framework already in place could provide the implementation and monitoring framework with no additional cost.

Option 3c) by increasing the indicative 1%-point annual increase target to 2.1 percentage point annual increase in agreement with the CTP and the modelling work carried out in this impact assessment. The increase would provide a clear signal as regards the needed level of contribution in renewables’ deployment from district heating systems. This would ensure coherence with the overall renewable framework and ensures a level playing field with individual heating systems to contribute to heating and cooling decarbonisation. While in itself Option 3c) may not be enough to drive change to the extent cost-effective, combined with an appropriately strong overall heating and cooling target to which DHC would contribute, it would be effective in ensuring that these systems participate in renewable deployment and sector integration, and harness their cost-effective potential for large scale renewable integration in heating and cooling. As this option builds on current provisions, the administrative cost would be minimal.

Option 3d) by increasing the current 1%-point increase target to 2.1 percentage point annual increase and making it binding would be effective in ensuring DHC participation in renewable deployment. However, due to the uniformly binding nature of an increased target relevant for all existing systems, it may be disproportionate for those systems that already have high renewable shares and could also lead to the dismantling of those systems where a binding higher increase would impose high investment costs in a relatively short time. Since this options builds on current measures, there would be no additional administrative costs; however due to the binding nature, compliance costs could be significant.

6.2.1.4.Administrative burden and compliance costs

Option 2b)-B0 aligns the definition with the European Green Deal thus providing clear direction and provide certainty for policy makers and investors. It does not impose new administrative burden and compliance cost as it defines the type of systems that are to be promoted, included via public budgets and state-aid. Option 2b-B2 represent a clarification of the current provisions rather than a new measures. On the other hand, Option 2b-B3 extends the current coordination and common assessment requirements from the electricity grid to other energy grids. Such data would not be complicated to gather and disclose for the most efficient and smart systems, which could also be an incentive to upgrade DHC. Option 2b-B4 could be effective, however entails more administrative burden, as such harmonised label does not yet exist. However although, setting up a labelling scheme may be complex and long, especially in the case of a mandatory scheme. If the labelling remains voluntary, the administrative burden could be reduced significantly. Support from EU-funded projects such as EcoHeat4Cities can also decrease the administrative burden by providing capacity building and information.

Options 3a-3d will not increase administrative cost but will have compliance cost for DHC systems, as they will have to gradually transform. However, combined with the ETS, EED and EPBD reviews, clear targets and policy direction will provide benefits for DHC systems, notably by raising their competitiveness in the green economy, consumer acceptance and market share.

Member States are already required to report in their NECPs on their measures to increase renewables in district heating and cooling in terms of how it will contribute to the annual increase of 1%ppt. No significant increase in administrative burden or compliance costs is therefore expected from Options 2 and 3 apart from the creation of a possible energy label.

6.2.1.5.Coherence of the target options

All but Option 3a) are coherent with the Energy System Integration Strategy, which calls to accelerate investment in smart, highly-efficient, renewables-based district heating and cooling networks, if appropriate by proposing stronger obligations through the revision of REDII. The proposed Union target for share of renewables in district heating and cooling is coherent with, and a logical corollary of, the target for heating and cooling. The level and nature of the targets will be aligned. Promoting district heating and cooling systems is also linked to the requirements under the EPBD, as such systems work best in energy efficient buildings, the renovation rate of which is addressed in the Renovation Wave and the EBPD revision.

A specific target for the H&C in DHC remains important and would complement carbon pricing instruments and market stimuli, by providing the needed trend to fully decarbonise DHC. Having in mind the full decarbonisation of the DHC by 2050, such target also supports overcoming no-economic barriers, such as the basic lack of awareness (e.g. in the industry where renewable is not associated to the core business), the administrative barriers, the lack of information (to final consumers) and public perception, the high upfront investments. However, a DHC RES target without a strong policy framework setting up a real level playing for renewable would lead to disproportionate costs and loss of value, putting the existing assets at risk.

6.2.1.6.Stakeholders’ Opinions

6.3.Transport

The quantitative assessment of policy options for transport is aligned to the CTP analysis but differs to the extent that it takes better into account the policies and objectives formulated by the Member States in their NECPs, which leads to an increase of the RES-T share to 21% in the Baseline (CTP BSL projected 18%). Further, the options consider the dedicated measures under the ReFuelEU Aviation and FuelEU Maritime proposals.

Based on the current RES-T 134 target calculation, the core scenarios lead to 27-29% RES-T shares (applying the accounting methodology set out in current legislation) with the REG scenario having the highest share thanks to strong energy efficiency measures.

Figure 21 - RES-T share in core scenarios; Source PRIMES

As shown in the figure above, renewable electricity would contribute around 10-12% for the target in the core scenarios (against 8% in REF), chiefly due to higher uptake of new electric vehicles driven by assumptions on vehicles standards. Liquid and gaseous biofuels have the biggest role in achievement of high RES-T shares and increase most in the core scenarios, representing in all core scenarios a share of 17%, compared to 13% in REF. With conventional biofuels and Annex IX part B biofuels capped, it is advanced biofuels that represent the highest share (8-9%).

The allocation of fuels between transport modes varies across transport modes. The maritime and aviation sectors, which mostly do not have electricity as decarbonisation option, rely chiefly on biofuels and, to lower extent, on innovative renewable and low-carbon fuels (including RFNBOs). Advanced biofuels and, in the longer run innovative renewable and low-carbon fuels would become even more important in these sectors post-2030 as the use of oil would be incompatible with carbon neutrality objectives and only limited possibilities for negative emissions are projected in most of scenarios. In other transport modes like road transport, other alternative like electrification already exist (especially for light duty vehicles), with lower environmental impacts (e.g. land use, air pollution).

6.1.7.Impacts projected by the core scenarios and MIX-H2 variant

Economic (including Energy System) and social impacts

The figures below shows the change in the transport fuel mix resulting from all drivers present in the core scenarios as well as in MIX-H2 variant discussed in Section 6.6. The growth in electrification and uptake of biofuels are the most visible trends.

They figures show not only the increase in penetration of alternative fuels but also the reduction of transport energy demand due to vehicle and overall transport system efficiency. Overall transport demand is also shown in the first figure - including international aviation and international maritime transport.

The second figure shows the share of alternative fuels 135 , including natural gas. The alternative fuels are projected to represent 13% of transport energy demand in REF by 2030. Not considering multipliers present in the RES-T formula around 7% of all transport fuels in 2030 would be of biological origin - driven by ambitious Member States plans to expand the use of advanced biofuels as put forward in the NECPs.

In the core scenarios the share of alternative fuels would go up to 15-16% by 2030. Biofuels and bio-methane would represent up to 8% in all core scenarios thanks to dedicated fuel policies, including for aviation and maritime navigation. E-fuels would represent 0.2-0.4% of the transport energy demand. Dedicated variant MIX-H2 (discussed in the Section 6.6) shows a possibility for a higher penetration of RFNBOs in 2030.

Figure 22 - Energy consumption in transport (incl. international aviation and maritime) in the EU; Source PRIMES

Figure 23 - Share of alternative fuels in Transport (incl. aviation and maritime navigation); Source PRIMES

The increase in ambition of the core scenarios in terms of alternative fuels uptake would lead to a moderate increase (compared to REF) of transport energy cost in private consumption - see table below. This increase would be most pronounced in the MIX-CP scenarios which has the highest mark-up in terms of carbon pricing on fossil fuels and the least ambitious energy efficiency measures.

Table 16 – Costs related to energy use in transport; Source PRIMES