REC report

The work of the REC is composed of the efforts of its two Ad Hoc Groups. While originally distinct and separate, the scopes of work of these Groups need to be seen together in the context of the EU’s focus on climate; “Fit for 55” refers to the EU’s commitment to achieve 55% GHG reduction by 2030.

These developments bring new opportunities for the Industrial gases sector but also new regulatory risks for the IG business model. EIGA has always expressed its support for Europe’s climate ambitions, recalling the key role that IG sector should play in the energy transition, given a level playing field between insourced and outsourced production.

Ad Hoc Group R3: Energy & environmental legislation

The origins of R3 lie in the need to deal with one piece of EU legislation, ETS. In July 2021 we will see published a package of draft legislation covering twelve such instruments, all intended to further the EU’s climate objectives. The following are particularly significant for EIGA:

1) Emissions Trading System (ETS)

The ETS Phase 4 started on 1st January, 2021 but is already under review. Proposals that R3 will be watching for in the directive and in subsequent implementing legislation include:

  • Extension of ETS to include the transport sector: implications for growth of hydrogen in mobility

  • Introduction of a carbon border adjustment mechanism (CBAM): implications for free allocation of emission allowances to hydrogen plants and the level playing field with refinery insourcing.

  • Other changes to the ETS (e.g. potential rebasing/adjustment of the linear reduction factor) will have an impact on the number and value of freely allocated EUAs and hence on the health of key customer sectors

  • Definition & treatment of CCU: implications for CO2 markets.

2) Renewable Energy Directive “recast” (RED II)

RED II is to be transposed into Member State legislation by 30 Jun 2021 but is already subject to review:

  • Implementing measures for RED II are not yet published. Their content will be critical in the definition of what is required for hydrogen produced in electrolysers to be certified as “renewable fuel of non-biological origin” (RFNBO)

  • In the review of RED II itself, it may be the case that renewable energy targets will be applied to industry and that the applicability of RFNBOs be extended beyond the current limitation to the transport sector.

  • “Guarantees of origin” for hydrogen and biogas will also be addressed.

3) Hydrogen and Gas Market Decarbonisation Package

EIGA is preparing its response to the public consultation – and for further advocacy - on this measure which will have a profound impact on development of regulated blue/green hydrogen pipelines. EIGA’s position is as follows:

  • EIGA members own and operate the majority of existing hydrogen pipelines.

  • We recognize the importance of developing infrastructure to meet hydrogen demand.

  • Hydrogen serves and will serve several markets: industry (as feedstock), mobility and heating (as fuel). The level of maturity of these markets and their mid-term development perspectives call for separate policy frameworks. In the context of a future regulated public hydrogen infrastructure, there are sound technical and economic reasons for some hydrogen networks to be unregulated.

  • We believe that the technical and business expertise of our members provides us with the legitimacy to participate in the debate.

Ad Hoc Group R4: Sustainable finance and “taxonomy”

On 21st April the European Commission issued two communications intended to direct finance towards activities that support the European Green Deal: the review proposal for the Non-Financial Reporting Directive (now called Corporate Sustainability Reporting Directive) and a delegated act supporting the Sustainable Finance Taxonomy Regulation on climate change mitigation and adaptation.

1) Corporate Sustainability Reporting Directive (CSRD)

The CSRD provides the framework for disclosures of non-financial companies using the taxonomy from 2022 and includes the relevant provisions and templates, although the exact reporting standards still need to be developed before adoption. Compared to the former NFRD the scope of CSRD reporting is extended to include all large undertakings (including non-listed), SMEs (from 2026) and non-EU companies that are listed in EU-regulated markets. Large undertakings include those that exceed at least two of the following criteria: balance sheet total of €20 million; net turnover of €40 million; 250 employees.

  • The proposal will now be scrutinized by the Council and the European Parliament.

  • Transposition by Member States is proposed to be undertaken by 1 December 2022, with reporting to start in calendar year 2023 (2026 for listed SMEs).

2) Taxonomy

The Taxonomy is a list of potentially sustainable activities and the environmental standards that each activity must meet if it is to be considered sustainable. To be on this list and meet the standards is to be considered worthy of public support e.g. in the award of Covid Resilience and Recovery Funds. The list may also be used as an input in the development of other climate policies. Key points to note are as follows:

  • The emission standard set for blue hydrogen in the draft taxonomy is now consistent with the one for green. That standard is, however, challenging for blue hydrogen, especially given the need to include upstream emissions.

  • We have not yet been successful in our efforts to have ASUs included in the taxonomy. We have shared this concern on multiple occasions with the Commission

  • The delegated act is planned to be adopted by the Commission at the end of May, to be followed by a 4-month (extendable) scrutiny period for the Council and European Parliament. Questions have been asked as to whether the intended application date of 1 January 2022 will be met.