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EU measures to guarantee safe and green energy

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From heating to transport, energy is essential to everyday life, but also a major source of emissions. Read about EU solutions to decarbonize the sector, Economy.

Energy is the biggest source of greenhouse gas emissions in the EU, accounting for more than three quarters. It covers electricity production, heating and transport - all essential to everyday life. In order to reach the EU’s ambitious target of climate neutrality by 2050, emissions need to be drastically cut in the energy sector.

In 2021 gas and electricity have hit record prices. The EU is highly dependent on energy imports, especially when it comes to natural gas (90%) and oil (97%), making them vulnerable to disruptions that can increase prices. Better cooperation and interconnections of energy networks with the development of renewable energy sources can help EU countries secure energy supplies.

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Read on to find out about the different proposals the EU is working on to reduce emissions from the energy sector and guarantee a safe supply.

Better connections between EU countries

Connecting energy infrastructure between EU countries can help to secure a diverse supply of energy and better mitigate possible disruptions.

The EU is currently revising rules on the funding of cross-border energy infrastructure projects in order to meet its climate goals. Every two years, a list of key infrastructure projects is selected. These projects can benefit from simplified permits and the right to apply for EU funding.

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Members of Parliament’s energy committee want to stop the EU from funding natural gas projects and instead direct money to hydrogen infrastructure and carbon capture and storage. The Parliament will negotiate the rules with the European Council.

Renewable hydrogen

When hydrogen is used as an energy source, it does not emit greenhouse gases, meaning it could help decarbonise sectors where it is hard to decrease CO2 emissions. It is estimated that hydrogen could supply 20-50% of the EU’s energy demand in transport and 5-20% in industry by 2050.

However, in order to be sustainable, hydrogen must be produced by renewable electricity. MEPs have insisted on the importance of a clear distinction between renewable and low-carbon hydrogen as well as on phasing out fossil-based hydrogen.

Offshore renewable energy

Currently, wind is the only offshore renewable energy source used on a commercial scale, but the EU is looking into other sources, such as tidal and wave power, floating solar energy and algae for biofuels.

The European Commission has proposed an EU strategy to dramatically increase the production of electricity from offshore renewable sources. Offshore wind capacity alone would grow from 12GW today to 300GW by 2050. Parliament will set out its position later.

More ambitious targets

Increasing the share of renewable energy and enhancing energy efficiency are both needed in order to decarbonize the energy sector. Under legislation aiming to deliver the Green Deal’s targets, the Commission has proposed to revise the targets for both renewable energy (currently 32% by 2030) and energy efficiency (32.5% by 2030).

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Defence

Essential infrastructure: New rules to boost co-operation and resilience

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Civil Liberties Committee MEPs endorse new rules to better protect essential services like energy, transport and drinking water.

With 57 votes in favour and six against (no abstentions), the Committee adopted its negotiation position on new rules on EU critical infrastructure entities. MEPs are aiming to better protect essential services (e.g. energy, transport, banking, drinking water and digital infrastructure) by improving member state resilience strategies and risk assessments.

Climate change is included as a potential source of disruption of essential infrastructure, and cyber-security is seen as an important aspect of resilience. As services are increasingly interdependent, the reformed directive requires local authorities to set up a single point of contact responsible for communicating with other jurisdictions. It also creates a new Critical Entities Resilience Group to facilitate communication between stakeholders, with Parliament participating as an observer.

MEPs push for broader scope, more transparency

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MEPs want to see more transparency when disruptions happen, requiring critical entities to inform the general public about incidents or serious risks. They also want to make sure that member states can provide financial support to critical entities, where this is in the public interest, without prejudice to state aid rules.

The Civil Liberties Committee proposes to widen the definition of essential services, so that protecting the environment, public health and safety, and the rule of law are also mentioned.

To make cross-border co-operation frictionless, MEPs finally want service providers to be considered “of European significance” if they offer similar services in at least three member states.

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After the vote, rapporteur Michal Šimečka (Renew, SK) said: "Critical entities provide essential services across the EU, while facing a growing number of both man-made and natural threats. Our ambition is to strengthen their ability to cope with risks to their operations while improving the functioning of the internal market in essential services. We are expected to deliver on a Europe that protects and that means also bolstering the collective resilience of the critical systems underpinning our way of life."

Background

The European Critical Infrastructure (ECI) directive currently covers only two sectors (transport and energy), whereas the reformed directive would expand this to ten (energy, transport, banking, financial market infrastructures, health, drinking water, waste water, digital infrastructure, public administration and space). At the same time, the new directive introduces an all-hazard risk approach, where the ECI was largely focused on terrorism.

Next steps

Before negotiations with the Council can start, the draft negotiating position will need to be endorsed by the whole house in a future session.

Further information 

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Energy

Limited attention to nuclear in Commission’s energy price communication

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FORATOM would have liked to see the 13 October communication from the Commission pay closer attention to the role which low-carbon and dispatchable nuclear can play in mitigating the current energy crisis. By including European nuclear in its toolkit of measures to tackle energy prices, it would have a unique opportunity of limiting its dependence on carbon intensive natural gas imports, thereby reducing its exposure to wholesale price fluctuations and its carbon footprint.

“As highlighted in the communication, the current price increases are being driven by higher natural gas prices on the global market,” said FORATOM Director General Yves Desbazeille. “Therefore, as the EU moves to increase its share of variable renewables, it is essential that EU policy supports other low-carbon European sources to ensure reduced dependency on imports.”

The Communication also highlights the effects which lower availability of renewables has had on the market, leading to supply constraints. Because nuclear can provide both baseload and dispatchable electricity, it acts as a perfect counterbalance at times when renewables are unavailable. As noted in the Communication, nuclear currently accounts for around 25% of the electricity mix in the EU.

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With industrial activity ramping up post COVID, this has led to an increase in demand for energy. “It would be a mistake to treat this as a short-term issue. It is clear that demand for electricity is expected to increase dramatically in the push to decarbonise Europe’s economy,” added Desbazeille. “Therefore, the EU needs to already be putting solutions in place today to ensure that it is able to generate enough low-carbon electricity in Europe to meet growing demand. This means supporting the development of nuclear energy.”

The Communication also makes reference to the sustainable finance taxonomy, reiterating the point that a complementary Delegated Act (CDA) ‘will cover nuclear energy subject to and consistent with the results of the specific review process underway in accordance with the EU Taxonomy Regulation’. As this review is now complete, and the experts have overall concluded that nuclear is taxonomy compliant, we urge the Commission to urgently publish the CDA to avoid nuclear being unfairly penalised.

The European Atomic Forum (FORATOM) is the Brussels-based trade association for the nuclear energy industry in Europe. The membership of FORATOM is made up of 15 national nuclear associations and through these associations, FORATOM represents nearly 3,000 European companies working in the industry and supporting around 1,100,000 jobs.

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Energy

Continuing on Ukraine's path to a green energy future

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Green finance continues to develop at pace in leading economies and emerging markets. However, the climate emergency is also rapidly developing, with wildfires ravaging the globe and torrential flooding sweeping across our neighbours in central Europe, writes Kyrylo Shevchenko, governor of the National Bank of Ukraine.

Rising global food and energy prices, the recovery of the global economy from the COVID-19 crisis, the effects of poorer harvests, and further growth in consumer demand through higher wages are all pushing prices up for both businesses and consumers.

While the pressures of global warming and climate change remain high on the agenda of major global players such as the United States, China, and the UK, this does not mean those in the emerging markets have made reducing their own carbon emissions and reaching their own goals any less of a priority. With COP26 fast approaching, governments are strengthening their commitments to slash carbon emissions in order to protect the environment and ensure that we leave the planet a healthier, more livable place for future generations.

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On the plus side, climate investments also have enormous potential. Indeed, the IFC estimates this potential at USD 23 trillion in emerging markets for the period up to 2030.

The National Bank of Ukraine (NBU) clearly understands that financial market regulators can make an urgent and important contribution to building a better future. Therefore, to send a powerful message to our stakeholders, and to build confidence in our commitment to developing a sustainable economy, we have included the promotion of sustainable finance as one of the key strategic goals in our Strategy 2025. Moreover, for the first time in the history of the NBU we have insisted on inclusion of environmental, social and governance (ESG) considerations in our 2022 Monetary Policy Guidelines.

To fulfil our commitments, in April, the NBU signed a Cooperation Agreement with the World Bank’s International Finance Corporation (IFC), taking what I believe to be the first steps towards a green future for our country.

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Ahead of the signing, we both agreed on the drafting of strategies and standards for sustainable finance in Ukraine, committed to integrating ESG requirements in the corporate governance of banks, and promised to share expertise to build the central bank’s capacity for raising awareness about ESG issues.

In just five months, the NBU has taken major steps towards this goal, developing the basis of a roadmap to expand ESG, as well as the Sustainable Funding Strategy. The strategy, which will launch next month, will encourage those operating in Ukraine’s financial markets to incorporate the NBU’s vision of sustainable funding and ESG best practices in their plans for the years ahead, and to make preparations for regulatory changes.

Complimentary to this, between September and October next year the NBU will introduce new mechanisms in the supervisory and management boards of commercial banks to ensure ESG is a significant element in their strategies.

This will be fundamental to assessing the footprint of financial transactions and the effect of each banks’ operations on the environment and on society.

Perhaps the most important step the NBU is taking from the first half of 2023 will be to require commercial banks to consider ESG risks when deciding whether to provide financing to a potential client.

To bolster this requirement, the NBU will also require ESG reporting from banks, disclosing information to stakeholders about portfolios and operations, including corporate governance.

This move will put Ukraine in the vanguard of transparency when comes to reporting standards. Businesses and the general public will, for the first time, be able to compare the environmental ratings of Ukraine’s banks, allowing them to make more informed decisions, based on their own personal preferences. Environmental protection and greater sustainability can only be achieved if countries, their businesses, and their people work together – and we intend to give this power to Ukrainian citizens.

Whilst regulating the banking sector is the basis of what we do at the NBU, our sustainable development team will also be exploring ways to incorporate and build on green finance practices in the nonbank financial sector.

Our wholehearted commitment to greening Ukraine’s entire financial system has thus never been stronger, and the steps we are taking prove this.

At the same time, the NBU is under no illusions: The climate crisis continues to rapidly affect our planet and our way of life.

We understand that we are still at the very beginning of a long journey towards a sustainable global economy. But by continuing carefully along this path, and learning from our partners, we firmly believe that we can be a leader in the emerging markets space in ESG best practices, which will benefit both Ukraine and the planet.

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