Fortum, Statkraft and Vattenfall, the three largest Nordic energy utilities, have put out a statement that welcomes the EU’s revised 2030 climate target of at least -55% as a crucial step on the path towards 2050 climate neutrality, and proposes various steps including a two-step approach for the Commission’s upcoming legislative proposal for the revised EU ETS directive. The statement highlights three key elements with it considers necessary in a swift adjustment of the EU 2030 climate and energy policy framework.
- Strengthening and enlarging the EU ETS (emissions trading system) as a key driver for decarbonisation. It agrees with the Commission's commitment to the EU ETS as the core climate policy instrument. In its view, carbon pricing should be applied as broadly as possible in the economy, possibly supported by other instruments particularly in the non-ETS sectors. It proposes a two-step approach for the Commission’s upcoming legislative proposal for the revised EU ETS directive. Step 1 would be to focus on a swift revision of the current EU ETS, by aligning the Linear Reduction Factor (LRF) with the new EU 2030 climate target from 2023, and securing a strong Market Stability Reserve (MSR) that can tackle unforeseen imbalances and policy overlaps also beyond 2023. This includes a permanent ‘intake rate’ of 24 % and a narrowing of the activation threshold band (400-833 Mt) to reflect gradually declining hedging needs.
Step 2 would be to introduce carbon pricing in other sectors like maritime, heating of buildings and transport, possibly through separate transitional ETS with a plan for future integration under the current EU ETS cap.
- Enhancing electrification to accelerate the decarbonisation of the EU economy. Direct and indirect electrification, the statement says, is not only the most cost-efficient solution and main instrument for decarbonising other sectors, but also contributes to realizing energy efficiency gains and sector integration. Clean hydrogen should complement the use of carbon free electricity specifically in hard-to abate industrial and transport sectors. Substituting fossil fuels with electricity will lead to significant increases in demand for electricity and clean gases.
- Strengthening cost efficiency and markets through technology neutrality. The complementarity of technologies plays a key role in keeping transition costs down and making the energy transition affordable to customers. In this respect, the three utilities suggest the technology neutrality principle in the Taxonomy Regulation should be safeguarded by ensuring that the screening criteria are defined objectively and applied evenly in order to enable a full utilisation of existing and new carbon-free power production assets to cost-efficiently deliver on the EU climate neutrality objective.
It further suggests promoting well-functioning power markets and allowing support for less-mature technologies in a transitional phase, such as Carbon Contracts for Difference to cover the cost gap between conventional and low-carbon technologies, and avoid market distortions stemming from such support. It is also key to maintain the unbundling principle for ownership and operation of storage and supply of required flexibility.
Finally, the demand for carbon free energy carriers should be stimulated in order to speed up investments in generation assets and infrastructure. This implies strengthening of grids and interconnectors across EU regions to enable the full potential of carbon free electricity and clean hydrogen.