Russia’s Invasion of Ukraine and its regulatory impact within the EU: RePowerEU, Fit for 55, and the EU Taxonomy RegulationArticle
The full-scale invasion of Ukraine, launched by Russian President Vladimir Putin on February 24th, has caused millions of Ukrainians to flee to neighbouring countries. European security and stability have not been under such strain for decades. Therefore, the European bloc urgently needs to become more self-reliant and cut ties with a country that completely disregards international human rights law and international humanitarian law. The envisioned plan is to reduce the European Union’s (EU) reliance on imported Russian oil and gas, and instead invest in greener, locally-sourced alternatives.
For EU countries on average, approximately 40% of its gas originates from Russia. This dependence, in total, costs the EU up to $118 million US Dollars per day. In response to Russia’s invasion, the EU has drafted ‘RePowerEU’, a comprehensive strategy that aims to cut the EU’s reliance on Russian fossil fuels by two-thirds within a single year. The initial effort of RePowerEU is focused mostly on gas. In addition to RePowerEU, there are two relevant regulatory frameworks already in place or in the legislative process: the Fit for 55 legislative package and the EU Taxonomy Regulation.
RePowerEU is a plan proposed by the European Commission to make the EU independent from Russian fossil fuels ‘well before’ 2030. The plan rests on two main pillars:
- The diversification of gas supply: the EU intends to import more Liquefied Natural Gas (LNG), as well as regular gas through non-Russian suppliers. Moreover, a plan is in place to increase the use, import, and production of biomethane (made from agricultural and food waste) and hydrogen (generated through wind and solar power).
- The reduction of fossil fuel use: the EU wants to decrease our use of fossil fuels in homes, buildings, industries and systems, by implementing an ambitious strategy to increase energy efficiency, increase renewables and electrifications, and addressing infrastructure.
With regard to the reduction of fossil fuel use, Frans Timmermans, vice President of the European Green Deal, has proposed to add millions of solar panels to rooftops across the EU, as well as increasing heat pump installation. By the end of 2022, 25% of the EU’s energy should come from solar energy.
Ultimately, these measures must remove 155 billion cubic metres (bcm) of fossil gas use within the EU, which is the exact volume that the EU imported from Russia in 2021.
Fit for 55
The Fit for 55 legislative package legally implements the European Green Deal. In response to the invasion of Ukraine, the European Commission President Ursula von der Leyen stated that accelerating the European Green Deal is a strategic investment in the EU’s independence.
The Fit for 55 package has already set out a solid framework for the EU to improve energy efficiency across the bloc, increase the use and production of renewable energy, and to create a more robust infrastructure needed for decarbonisation. The implementation of the Fit for 55 legislative package originally would have reduced fossil gas consumption within the EU by 30% in 2030, which is equivalent to 100 bcm. Note the striking difference with the intended reduction of fossil gas through the measures of the RePowerEU plan.
Continuing with the Fit for 55 package would serve the EU in the medium and long term. In the meantime, certain emergency, short-term measures may need to be adopted under RePowerEU. Ultimately, this makes the EU more independent and self-reliant, in addition to setting out a clear path towards carbon neutrality.
EU Taxonomy for Sustainable Activities
A recent legislative proposal, which has not officially come into force yet, is the EU Taxonomy Regulation (or, EU Taxonomy for sustainable activities). The EU Taxonomy Regulation is a very important and welcome set of rules, as they will increase the transparency of money flows. Money, and a lot of it, is needed to invest in a greener future.
Yet, the EU Taxonomy Regulation has been subject to quite some far-reaching amendments. Among these, was a last-minute decision by the European Commission to include natural gas as a green investment. This implies that billions made available for sustainable impact investments would be able to power plants or heating suppliers that are powered by a fossil gas. However, burning natural gas has a lot more impact on the environment than is generally thought. The inclusion of natural gas under the EU Taxonomy Regulation was the result of intense lobbying, no doubt including Russian providers. Perhaps unsurprisingly, the proposal has been subject to a lot of criticism, from both environmental and political perspectives.
Initially, we thought it unlikely that the European Commission would budge on inclusion of natural gas under the EU Taxonomy. Now experiencing the heavy political and security considerations of an over-reliance on Russian fossil fuels, they might go down a different route. The latest amendment to the EU Taxonomy Regulation that would include natural gas (officially named the Complementary Climate Delegated Act) has not yet been formally adopted at this time.
Short- and long-term impacts
The Russian invasion of Ukraine and the resulting crisis have the potential to accelerate some of the green legislative packages in place in the EU. Yet, it is very likely that in the short term, energy security will come at the expense of decarbonisation, due to the real threat of Russia shutting down exports in retaliation to imposed sanctions. Therefore, the EU should continue rolling out its Fit for 55 legislative package, bearing in mind that some of these measures should be equipped to handle the potential fall-out of emergency measures taken to bridge the gap from Russian fossil fuels to greener alternatives.
An interesting analysis of short- and long-term effects on energy markets as a result of the shifting energy paradigm can be found here.