Analysis: Europe forges ahead with Green New Deal, in contrast to U.S. climate setback
- Decarbonising buildings and energy system key strands to strategy
- Goal is to source 40% of gross energy consumption from renewables by 2030
- Green hydrogen and offshore wind to make big contributions
- High commodity prices pose key challenges for vehicle electrification and battery storage
July 7 - The U.S. Supreme Court dealt a blow to Joe Biden’s climate ambitions at the end of last month, but in Europe it is a very different picture after the European Union managed to overcome energy security concerns by some member states to green-light its ambitious Green New Deal climate plan.
After 16 hours of fraught negotiations, environment ministers from the bloc’s 27 member states supported core parts of the package that the European Commission first proposed last summer, which aims to reduce emissions by 55%, compared with 1990 levels, by 2030 and become carbon-neutral by 2050.
One key measure is a new emissions trading market to cover transport and buildings, though it will be launched in 2027 instead of 2026 as originally proposed.
European Union climate policy chief Frans Timmermans hailed the deal, saying: “The climate crisis and its consequences are clear, and so the policy is unavoidable.”
Interviewed before the deal was struck, Bala Vinayagam, vice president of product management at Schneider Electric's digital power business, pointed out that the bloc already has the lowest CO2 intensity ratio in the world, and is second only to China in terms of its investment in the energy transition. Germany and Spain both racked up more than $10 billion in low-carbon spending last year.
With the Green New Deal, he said, “Europe is paving the path towards a comprehensive energy transition.”
There are two main strands to Europe’s strategy. The first is the Renovation Wave Strategy, with a focus on building efficiency. This initiative will revise the European Commission’s Energy Efficiency Directive, setting an annual renovation goal of 3% for public buildings, paired with the revision of Europe’s Energy Performance of Buildings Directive.
The second initiative is energy system transformation, where the EU plans to increase the electrification of infrastructure with more renewables. The bloc’s goal is to source 40% of gross energy consumption from renewables by 2030. “This ultimately promotes electric vehicle adoption and district heating, but also leverages other technologies like renewable hydrogen, with the EU working to generate 40 gigawatts of renewable hydrogen electrolysers by 2030,” Vinayagam says.
Support for hydrogen is seeing a rush to install gigawatt-scale projects such as HyDeal in Spain, which is planned to have 7.4 GW of electrolysers fed by 9.5 GW of solar power in 2030. And from 2035, a consortium called AquaVentus intends to make “a substantial contribution to the implementation of the German and European hydrogen strategy” with a project that will see one of the world’s largest electrolysis centres coming online.
A successor to AquaSector, a 300 megawatt (MW) project backed by RWE, Shell, Gasunie and Equinor, AquaVentus will see a 10 GW offshore wind energy cluster in the North Sea being used to produce a million tonnes of hydrogen a year. Offshore wind is set to play a major role in electrifying European economies and delivering green hydrogen to replace fossil fuels.
The North Sea today is home to more offshore wind capacity than any other region in the world, with projects such as the 1.3 GW Hornsea Two among the largest on the planet. Europe is also stealing a lead in the nascent floating offshore wind market, with almost 15 GW of capacity optioned via Scotland’s ScotWind solicitation in 2022.
As well as replacing fossil fuels with hydrogen, Europe is moving to reduce emissions from industry through carbon capture and storage. One of the continent’s most ambitious projects is Northern Lights, being developed by a joint venture between Equinor, Shell and TotalEnergies off the coast of Bergen, Norway.
The project, with a total storage capacity of up to 100 million tonnes of CO2, will see 1.5 million tonnes being stored a year on launch in 2024 and up to 5 million tonnes per year from 2026. Also in 2024, the Port of Rotterdam CO₂ Transport Hub and Offshore Storage (Porthos) project will see up to 2.5 million tonnes of CO₂ a year being stored in an empty gas field 20 km from shore.
And from 2026, the Northern Endurance Partnership, featuring BP, Eni, Equinor, National Grid, Shell and Total, will aim to decarbonise half of the UK’s industrial emissions. Elsewhere, Antwerp@C, backed by a partnership led by the Port of Antwerp, aims to capture half the port’s almost 19 million tonnes of annual emissions by 2030.
Finally, the continents is also home to major solar and energy storage developments, such as the 500-megawatt Núñez de Balboa PV plant in Spain and the 150 MW Minety battery project in Wiltshire, England.
Europe’s changing energy mix is leading to new supply chain issues and requirements. As the region seeks to electrify as much of the energy market as possible. “Storage solutions are key to optimising the cost of electrical systems across Europe,” says Laurent Jouvin, director of operations and energy management at Exus Management Partners in Madrid.
Storage “allows countries to reduce their investment in grid resilience while ensuring more renewable assets are installed,” says Jouvin.
However, the batteries for energy storage and vehicle electrification face significant supply chain pressures because of commodity prices. In 2022, for example, the cost of nickel has risen by up to 300% on three years ago. The cost of commodities such as nickel “don’t represent 100% of battery costs, but if something goes up by that much it will have an impact,” says Ben Francis, a director at the infrastructure investment firm Infracapital. “We’ve seen battery costs go up by 20% over the last six months.”
He says commodity prices are “a concern” for European battery manufacturers such as Northvolt of Sweden.
With increasing battery demand for electric vehicles and energy storage, experts foresee the EU will need 18 times more lithium and five times more cobalt in 2030 than it used in 2020. By 2050, it will need 60 times more lithium and 15 times more cobalt. But today Europe only has one lithium mine, in Portugal. Cobalt supplies, meanwhile, are highly concentrated in just a handful of markets, with the Democratic Republic of Congo hosting more than half of global reserves and Australia holding another 20%.
Francis says European companies may be able to avoid some commodity supply chain issues through innovation. One example is Infracapital’s investment in EnergyNest, a company that has developed a concrete-based heat storage system to support the decarbonisation of industrial processes.
Using such technologies to reduce the carbon intensity of European industry could be a game changer, says EnergyNest’s chief executive officer, Christian Thiel. “Once this rolls out, we will be at a completely different level and our industry will be a role model for others,” he says.
Meanwhile, "as we continue to transition from fossil fuels to a diverse array of renewable alternatives, green hydrogen will become highly strategic," says Jouvin at Exus Management Partners. “The ability to incorporate hydrogen into the gas network is key to ensuring European energy independence. An efficient internal gas market supported by hydrogen can act as the best guarantee for energy security across the EU.”
There are still question marks over exactly how green hydrogen might be transported cost-effectively around Europe. From a resource perspective, for example, the Iberian peninsula is well placed to become a major production centre for green hydrogen, but there are doubts over how feasible it would be to export the gas using pipelines or tankers.
Nevertheless, moves to resolve low-carbon supply chain issues are being given a boost by Europe’s need to diversify away from Russian fossil fuel supplies in the wake of the invasion of Ukraine. In electric vehicle charging station numbers, which tripled between 2018 and 2021, Europe is already on track. “Public chargers won't be a block on the EU's combustion car phase-out,” says the European Federation for Transport and Environment.
Getting the supply chain right is critical for Europe as it looks to maintain its leadership in the energy transition. “If we’re going to hit the 2030 targets, we need to be developing hydrogen projects next year which are gigawatts in size,” says Francis at Infracapital. “The problem is, the projects now are only 10, 20, maybe 50 MW. We’re just not doing things at sufficient scale, which means the costs are too high. We’re not developing the technology at scale quick enough.”
The wind energy body WindEurope says policymakers need to act, but not overact. “Investor certainty is essential to mobilise the massive investments needed to improve Europe's energy security,” it says.
With the EU still importing 58% of its energy from abroad, "high electricity prices are really hurting households and industries across Europe,” says WindEurope chief executive Giles Dickson. “The EU and national governments must support vulnerable consumers, but the measures they take must avoid tampering with the very rules of the electricity market. Radical interventions won't address the root of the current problem.”
Instead, “Wrong measures will endanger investor confidence and deter investments in renewables, when renewables are the very energy sources we now need to be investing in,” Dickson says.
In securing commodity supplies, one way that policymakers could help speed up the exploration and development of transition resources required for decarbonisation is through the implementation of more fair and transparent fiscal policies, says the analyst firm Wood Mackenzie.
"The world needs a lot more transition resources, as soon as possible, and this requires a massive injection of investment, spread across the globe,” says Wood Mackenzie senior vice president Graham Kellas. “To ensure this is achieved, and sustained, resource owners and investors need to reconsider their traditional, often adversarial, approach to mining agreements. Win-win solutions may not be easy, but they are achievable. And necessary."
Exploring these issues further will be one of the key objectives of the Reuters Events Energy Transition Europe 2022 conference taking place on November 15 and 16 in London.