Under Negotiation

Making sense of the Renewable Energy Directive

To help deliver on the EU’s increasing climate ambitions, including the EU-wide 55% emissions reduction target by 2030 and the target to achieve net neutrality by 2050, the targets set by the RED have been repeatedly increased. As a result, the RED has evolved from RED I to its latest version, RED IV. Starting from a target of 20% RES as a share of total final energy consumption by 2020 set in 2009, RED I was revised as part of the “Clean energy for all Europeans” package in 2018 to include a target of a 32% RES share by 2030, thereby becoming RED II.

In July 2021, as part of the “Fit-for-55” package, RED III was proposed and the target was raised to 40% by 2030. Following the Russian aggression against Ukraine, the Commission proposed a first amendment (RED IV) with a target of 45% as part of its “REPowerEU” plan. In November 2022, the Commission proposed a second amendment for a Council regulation to accelerate RES deployment.

In March 2023, the EU Parliament and the Council reached a tentative agreement to raise the target to a 42.5% RES share by 2030. Member states will need to increase their national contributions in their integrated National Energy and Climate Plans (NECP), which are due to be updated in 2023 and 2024, to collectively achieve the target. Achieving the target would bring EU member states’ total renewable energy generation capacity to 1236 GW by 2030.

RES considered within the RED’s scope include wind, solar, hydro, tidal, geothermal, and biomass. The binding target is supported by differentiated targets for a variety of sectors, such as heating and cooling, industry, and transport. The provisional agreement under RePowerEU also aims to remove barriers to the scale-up of renewable energy generation by making permitting processes for renewable energy installations quicker and easier. To this end, member states will define regions (so-called ‘go-to areas’) with limited environmental risks and high renewable energy generation capability, in which the permitting procedure shall be simplified. 

The RED and its impacts on biomass use

Biomass is considered a RES within the provisional agreement, provided that its use meets several sustainability criteria. These include requirements that woody biomass used in energy generation follows the cascading principle – ensuring that biomass of higher quality should serve purposes demanding higher-quality biomass first – and that forest biomass may not be harvested from areas with particular significance with regard to carbon stocks or biodiversity. Furthermore, no financial support shall be granted when energy facilities use stumps and roots for energy generation (as they are considered important, for example, to protect soil carbon stocks) or when they use high-quality biomass that should be reserved for other use cases under the cascading principle, such as industrial-grade roundwood, veneer logs, and saw logs.

The provisional agreement sets out a new binding combined target of 5.5% for advanced biofuels, generally derived from non-food-based feedstocks, and renewable fuels of non-biological origin, mostly renewable hydrogen and hydrogen-based synthetic fuels, in the share of renewable energy supplied to the transport sector. The increasing need for advanced biofuels that use biomass as a feedstock may conflict with the demand for the lower-quality biomass upon which several CDR methods rely, such as BECCS and biochar.

Where does BECCS fit in?

The recognition of biomass as a renewable energy source affects the feasibility and potential scale of BECCS. BECCS can both provide renewable energy and remove carbon dioxide from the atmosphere. The 2021 proposal states that member states should not support electricity production from installations producing only electricity, as opposed to, for example, installations producing both heat and power), unless these installations are located in regions included in the Just Transition Plan, or if the installations used CCS technologies to capture and store the associated (biogenic) CO2 emissions.

Currently, negative emissions stemming from BECCS cannot contribute towards targets set under any of the three main legislative pillars of EU climate action, namely the EU Emissions Trading System (EU ETS), the Effort Sharing Regulation (ESR), and the LULUCF Regulation.

The RED: Are sustainability criteria enough to ensure the sustainable use of biomass?

The role of biomass within the RED is important. While sustainability criteria exist to prevent the misuse of biomass for energy generation, the demand for biomass may increasingly exceed supply. Some communities might be adversely impacted, especially in terms of resource use and food security. It is therefore critical that future revisions of the RED take these concerns into consideration.

How will it work? 

The Article 6.4 Supervisory Body is responsible for establishing guidance and procedures, approving methodologies, registering projects, issuing credits, and more.

Methodologies may be developed by project participants, host countries, stakeholders, or the Supervisory Body.

The credits are called the Article 6.4 Emission Reductions (A6.4ERs). These are used for both emission reductions and carbon removal. The host country will have to authorise A6.4ERs and account for these by applying corresponding adjustments unless the A6.4 ERs contribute to the national target in the host country (mitigation contribution A6.4ERs). 

Removal activities get a maximum of 15-year crediting periods, renewable twice. The mechanism credits emission reductions and removals by public and private sector actors.

2% of Article 6.4 credits are subject to cancellation (“Overall Mitigation in Global Emissions” clause), 5% of credits are dedicated to the Adaptation Fund (“Share of Proceeds for Adaptation”) and other fees for registration, inclusion, issuance, renewal, and post-registration apply as well (“Share of Proceeds for Administrative Expenses”).  

Many other details are yet to be ironed out, listed in the “Open elements” section below. 

How will removals be covered? 

Whilst the mechanism covers emission reductions and removals, it will likely focus on emission reductions in the coming decade, with interest in removals growing as climate targets get closer to net zero and beyond. 

The Supervisory Body has been tasked with preparing a general framework for including the full spectrum of carbon removal methods under Article 6.4, called “recommendations”, to be approved at CMA5 during COP28.  

For the first time, novel carbon removal methods will be tackled under the Paris Agreement, and the recommendations will set a precedent by establishing broad removals-specific rules under the UN crediting mechanism. 

Open elements 

Two separate ongoing work streams are ironing out the details of the mechanism – (1) the Supervisory Body and (2) the Subsidiary Body for Scientific and Technological Advice (SBSTA) where international climate negotiations under the Paris Agreement are ongoing on the technical elements. 

The Supervisory body has a busy work program for 2023 and has been tasked to prepare several deliverables for adoption for CMA5 (during COP28). This includes recommendations on methodologies (baseline, monitoring methodologies, methodology development process, review), recommendations on activities involving removals (monitoring, reporting, accounting for removals and crediting periods, addressing reversals, avoidance of leakage), transitioning the Clean Development Mechanism into the Article 6.4 mechanism, developing accreditation standard, and designing project activity cycle.

SBSTA is negotiating recommendations on including emission avoidance1 and conservation enhancement activities in the scope of Article 6.4 mechanism, authorisation of credits by host countries, and work on the registry. These discussions are very technical, have continued throughout the Bonn Climate Conference in June 2023, and will be submitted for adoption at CMA5 during COP28.

1 Emission avoidance in this context mainly refers narrowly to reducing emissions from deforestation and forest degradation (REDD+ projects), not to be confused with how the term “emission avoidance” is used in the voluntary carbon markets where some stakeholders use it as a blanket term for emission reductions and avoidance. 

How can stakeholders engage with the Article 6.4 process?   

Documents for stakeholder input will be published at least a week before each Supervisory Body meeting. Any organisation can provide written input before meetings, but only UNFCCC-accredited observer organisations can attend the Supervisory Body meetings. Everyone can follow the live stream and watch recordings of past sessions.

In June 2023, the UNFCCC launched a dedicated Article 6.4 newsletter covering the latest news, calls for inputs and other announcements from the Supervisory Body. 

The negotiations under SBSTA take place in 2-week sessions twice a year during the Bonn Climate Conference and COP. 

As one pillar of a larger Green Deal Industrial Plan, the NZIA is meant to strengthen and support the EU’s capacity to reach its climate goals. It ensures Europe seizes the potential to be a world leader in the global net zero industry in the context of strong support for net zero technologies coming from different parts of the world, such as the United States’ IRA.

(Strategic) net zero technologies

The NZIA proposes key developments for net zero technologies. Two main aspects of the definition are particularly relevant: (1) the definition is not technology-neutral, it identifies key areas to be addressed, and further lists a family of eight strategic net-zero technologies, which benefit from even faster permitting, priority status, and in some circumstance of overriding public interest, and (2) net zero technologies must be at least Technology Readiness Level (TRL)  8. CDR is not explicitly listed as a strategic net zero technology, and the TRL 8 requirement would exclude most CDR methods. However, if based on TRL only, some could fall under the definition of ‘innovative net zero technologies’, e.g., some forms of direct air capture are considered TRL 7. This flaw of the proposal could be addressed by co-legislators by adding carbon removal in the definition of net zero technologies and in the related annex.

CO₂ injection capacity target to incentivise CO₂ storage infrastructure

The NZIA proposes a 50 million tonnes per year of CO₂ injection capacity in the EU by 2030. The act rightly identifies the lack of storage capacity as one of the largest bottlenecks for CO₂ capture investments. One of the key aspects of the act is the transparency of CO₂ storage capacity, including the obligation for member states to make publicly available data on sites that can be permitted on their territory, as well as reporting on CO₂ capture projects in progress, and their needs for injection and storage capacity. The NZIA clarifies that CO₂ injection capacity will also be available to accommodate CDR, but provisions are not proposed to ensure the shared CO₂ infrastructure can efficiently be used to accommodate both CCS and CDR methods. A comprehensive and coordinated approach to carbon management that considers both CCS and CDR is needed to ensure that limited CO₂ storage capacity is used effectively to reach the EU’s climate neutrality targets. The target will need to be continuously reassessed to meet the storage needs in the EU, especially beyond 2030. Furthermore, separate provisions to ensure adequate transport infrastructure should be foreseen. The European Commission estimates that about 550 million tonnes of CO2 may need to be captured annually by 2050 to meet the net zero objective.

Oil and gas producers’ responsibility to develop the EU  CO₂ injection capacity has the potential to be a world-leading initiative

The NZIA Article 18 introduces an innovative obligation on oil and gas producers to take responsibility for building EU CO2 storage infrastructure subject to the EU’s injection capacity target. This obligation could introduce an element of producer responsibility for fossil fuel producers in a similar way as producers of packaging, car tires, and other products are required by law to take responsibility for the environmental footprint of end-of-life disposal. If confirmed, this provision would also allow the development of open carbon storage sources by mapping and hosting transparent, open data on carbon storage resources, much of which is held today by private companies. Critical details of this obligation, such as how different sources of CO₂ for storage are prioritised or barred, which entities, beyond oil and gas producers, are required to build the CO₂ infrastructure, and the procedures to determine their location remain open and need further attention.

Fresh funding is needed

The proposal establishes new initiatives, such as the “Net Zero Europe Platform”, that will discuss the financial needs of the net zero strategic projects and could be key in advising how the financing of these projects can be achieved. Beyond this, the NZIA is anchored in already existing funding mechanisms such as Innovation Fund, InvestEU, Horizon Europe, Important Projects of Common European Interest (IPCEI), the Recovery and Resilience Facility, and Cohesion Policy programmes. Clarity on new and additional funding will be key, as bigger goals will require bigger means that can support the variety of CDR methods at different TRL stages.

Aim of the file

The CRCF will be the EU’s first certification framework that focuses exclusively on carbon removals. The stated goal of the file is a certification framework which creates trust in the quality and reliability of certified carbon removals among carbon removal providers, certificate buyers, and the public. The proposed framework also aims to increase transparency in the field of carbon removal certification, by creating public registries and methodologies for a wide variety of carbon removal methods, while also outlining requirements for monitoring, reporting and verification. As a result, interest and willingness to fund carbon removal activities and purchase certificates are expected to increase, leading to an expansion of carbon removal activities by current and potential operators. If adopted by co-legislators, the framework will form the basis of recognising and rewarding land managers, industry, and other carbon removal activity operators for high-quality carbon removals and their contribution to reaching the EU’s climate change mitigation goals.

Meaning for climate goals

By establishing this framework, the European Union works towards reaching its goal of climate neutrality in 2050 and net-negative emissions thereafter, both of which will rely heavily on significantly upscaling carbon removal. As the first legislative file focusing primarily on carbon removals, it also contains a definition of which, in the current proposal, also includes emissions reductions. Furthermore, the proposal does not provide any rules around the potential uses of certificates. Potential uses envisioned by the Commission range from the use of certificates to access funding from policies, such as the CAP, to the use on voluntary carbon markets.

Room for improvement

• Eliminate ambiguity as to what is and is not a removal
  The current definition of carbon removals in the proposal also includes emissions reductions from biogenic carbon pools, and is not aligned with broad scientific consensus (see e.g., IPCC definition). In order to avoid conflation of emissions reductions and removals, and to allow the CRCF to become a global model for carbon removal certification, emissions reductions need to be excluded from the definition.
• Ensure a strict separation between higher-durability and lower-durability removals
  The currently proposed storage categories do not clearly differentiate CDR methods based on their carbon storage durability nor separate biological from geochemical storage media. Separation of these storage media is essential as the need and difficulty of MRV vary significantly between CDR methods based on their storage media.
• Equip the framework to track how carbon removal is used so inappropriate claims can be policed
  The CRCF requires provisions determining permitted uses of carbon removal certificates and certified units, to prevent mitigation deterrence, greenwashing and the erosion of public trust, especially regarding compensation claims for fossil fuel emissions based on lower-durability removal certificates. The current proposal lacks guardrails as to which claims can be made based on the characteristics of generated certificates and the CDR methods used to generate them.

Policy Landscape

The Green Claims Directive complements the Empowering Consumers Directive published by the European Commission on 30 March 2022 within the EU Together, they aim to improve the circularity of the EU’s economy and achieve climate neutrality. They respectively set requirements to substantiate environmental claims made to consumers and and other commercial practices.

Apart from the French ministerial decree n°2022-538, the Green Claims Directive is a first of its kind in the specificity with which it regulates environmental claims and addresses climate-neutrality claims. The French decree regulates advertising claims based on emission compensation projects. It has different requirements surrounding emissions reporting, compensation data, and net zero plans.

Aim

The Green Claims Directive proposal addresses the issue of greenwashing, increasingly prevalent in recent years. It seeks to standardise environmental claims and labels to improve transparency and credibility for consumers. The proposal aims to use delegated and implementing acts in the future to address substantiation methodologies for specific product groups and evolving commercial practices.

The preamble of the proposal states that climate-related claims are prone to being unclear and misleading, as they are often based on offsetting greenhouse gas (GHG) emissions through carbon credits of low environmental integrity and credibility, generated outside the company’s value chain and calculated based on methodologies that vary widely in transparency, accuracy, and consistency. Offsetting can also deter traders from reducing emissions in their own operations and value chains.

However, credible net zero claims have the potential to incentivise and drive the development of safe, just and sustainable carbon removals to transition towards real climate neutrality. Claims based on offsetting must be regulated through a robust and science-based system to prevent greenwashing.

Room for improvement

Unfortunately, the Green Claims Directive as it currently stands does not establish the necessary measures to do so:

• The Directive does not align with scientific consensus as it allows offsetting through emissions reductions and avoidance to substantiate carbon neutrality claims. The IPCC’s definition of net zero is clear: balancing emissions with physical removals. Accordingly, offsetting projects that avoid emissions, but do not physically remove and store carbon, must be barred from use in substantiating claims about net climate impacts.
• The proposal rightly requires companies to report GHG emissions separately from offsetting data, to disclose the share of their total emissions that are addressed through offsetting and whether these come from emission reductions or removals. This isn’t enough to monitor whether the claimed climate impacts are real There is a need for more extensive disclosure on the types of carbon credits companies are purchasing (avoidance, reduction, removals), which emissions they are claiming compensation for, and the methodologies used to ensure integrity and correct accounting.
• The proposal allows all types of offsetting without any clear criteria for which emissions they can compensate for, nor which climate claims they can substantiate. However, not all carbon storage is equal in terms of capacity, duration or reversal risk. This means that long-lived fossil fuel emissions otherwise impossible to abate can only be balanced by removals with high-durability storage in the geosphere where the carbon came from. Lower-durability removal and storage of carbon into the biosphere must be accelerated for its own sake, to halt and reverse the loss of ecosystems and natural carbon stocks but cannot be eligible to compensate for fossil fuel emissions. Failing to enshrine this non-fungibility principle in EU law would allow companies to continue offsetting their long-lived emissions through shorter-term carbon storage with higher risks of reversal.
• Although the Directive encourages companies to use offsetting only for residual emissions, it provides no robust definition for what constitutes these residual or ‘hard-to-abate’ emissions. Without a sector-specific and measurable definition, companies can weaken emission cutting efforts by manipulating the boundary between ‘emissions that must be reduced’ and ‘emissions that physical removals can offset’. The EU will need to establish a transparent process for classifying emissions as difficult-to-decarbonise.
• The proposal excludes from its scope environmental claims and labels substantiated by rules in the Carbon Removal Certification Framework (CRCF). However, the proposal for the CRCF has no rules for claim substantiation. Instead, the Green Claims Directive could establish guardrails for legitimate net zero claims, which could be substantiated through the purchase of high-quality carbon removal credits certified under the CRCF.

Giving teeth to EU environmental rules

The proposed Nature Restoration Law sits at the intersection between European climate and biodiversity policies, demonstrating the interconnected nature of these crises. If passed, the Law would contribute toward the EU’s delivery of its 2050 climate neutrality target, especially if the range of ecosystems in scope remains as broad and numerous as proposed. Many ecosystems constitute natural carbon sinks; restoring them can help draw down more carbon from the atmosphere and the Law’s legally binding targets will prioritise the restoration of those that have the highest potential to capture and store carbon. According to the Commission, restoring degraded ecosystems such as forests through management and afforestation has the capability to remove approximately 500 Mt CO2e annually by 2050.

In general, this law would add rigor to the EU’s existing environmental law regime. To date, the efficacy of these schemes has suffered from lack of targets, deadlines and procedural clarity. The EU has, so far, failed to meet its voluntary goals (for example, the Convention on Biological Diversity’s voluntary target to restore at least 15% of its degraded ecosystems by 2020 was missed).

Another advantage of the law would be new data sources that will be gathered as part of the national Restoration Plans and reports, such as mapping any agricultural and forest areas that need restoration that would highlight areas of carbon depletion, which may help fill data gaps on terrestrial carbon flows.

Additionality and the CRCF

It is still unclear how the Nature Restoration Law would intersect with the EU Carbon Removal Certification Framework (CRCF). The Commission has proposed that carbon farming through restoration of peatlands and other ecosystems be eligible for certification under CRCF. However, the introduction of the Nature Restoration Law will have implications for the additionality rules in the CRCF, which state that carbon removal activities must exceed standard practices and legal requirements to be certified. By changing legalities and norms governing nature restoration, and by extension terrestrial and aquatic carbon-enhancing practices, the Nature Restoration Law might limit which carbon farming projects can be certified under the CRCF.

Status of the stakeholder debate

There is a strong case for increased ambition for the Nature Restoration Law. Parliament’s rapporteur, MEP César Luena, is advocating for raising the proposed target of restoring 20% of the EU’s land and seas by 2030 to 30% in line with the global decision adopted in December at the COP15 UN Biodiversity Conference in Montreal. Additionally, under the current proposal, the majority of the restoration action is postponed until after 2030; it takes time for the carbon benefits of nature restoration measures to materialise. Hence, policy-makers should bring the timeline forward to ensure these measures contribute to the EU’s net zero and biodiversity goals.

Questions remain as to how much flexibility Member States will have in their implementation of the law. Some are particularly concerned about the impact of this regulation on farmers and foresters and, by extension, European food security and sovereignty (although the perceived trade-off between ecological restoration and EU food security has been challenged). For example, farmers and foresters may be obligated to transition to more sustainable practices, which may result in additional costs. Several voices in the Parliament’s Agriculture Committee argue that the proposed law should better integrate the interests of farmers by excluding agriculture from the scope, or ensuring nature restoration is economically attractive to farmers with new non-CAP financing.

There are similar concerns as to whether the new regulation adequately accounts for the socioeconomic role of forests. The proposed law aims to legally protect all remaining primary and old-growth forests. This stipulation is a particularly contentious issue for Nordic and Baltic countries with large forestry sectors. The European Landowners’ Organisation (ELO) decries the lack of new financing or market-based incentives for forest owners to preserve their land under the new law.

Overall, policymakers should assess the existing EU funding available for nature restoration and what further financial support is needed while also establishing dialogue and coordination with landowners and farmers. For example, the ENVI Committee’s report could require the Commission to reflect on the creation of a dedicated nature restoration fund. Policymakers should also not overlook the  potential for new green jobs to be created as a result of the regulation.