To increase renewable energy production, RED III seeks to accelerate the granting of permit processes for fast-track deployment and will consider renewable projects to be of ‘overriding public interest’. This means that approvals for new renewable energy plants and the connections to those plants, the grid or storage could be fast-tracked.
At present, the EU needs almost 600 GW of solar PV capacity and over 500 GW of wind capacity to reach its climate change targets. This implies a need to add 48 GW of solar PV and 36 GW of wind capacity annually between now and 2030.14
RED III will interact with the EU Reform of the Electricity Market Design initiative, which seeks to offer protection to consumers and producers to boost renewable energy. Consumers will have the right to multiple contracts, including forward contracts that lock in future prices. Power Purchase Agreements will be promoted to protect against price volatility and boost investment in renewables. There will be public support for renewables through two-way Contracts-for-Difference to provide power producers with price stability and shield industry from price volatility. Member States will be encouraged to channel excess revenues to consumers.
The EU aims to reduce transport-related GHG emissions by 90% by 2050 compared with 1990. Zero-emission vehicles, mainly electric vehicles (EV), are central to achieving this, but the infrastructure for transmission, capacity enhancement and charging must also be widely available. EU estimates identify a need for three million charging points by 203015 – the current number is less than 500,000.16 The entry into force of the AFIR seeks to address this by setting binding deployment targets in EU Member States for recharging stations for cars, vans and heavy-duty vehicles, as well as for hydrogen refuelling. The requirements also apply to maritime ports and airports. The timeline to deploy the targets begins in 2025, with fast charging stations for cars and vans, and the supply of electricity for stationary aircraft at all gates, and extends until 2030, when all the infrastructure prescribed in the regulation will need to be deployed. Member States are required to report to the European Commission how they plan to implement the regulation and report progress by 31 December 2024.
There is therefore likely to be growth in green infrastructure deployment, especially for charging points. In 2024 companies, property owners, public sector authorities, maritime ports and airport operators need to monitor how standards are being implemented by Member States and then begin to consider how they are going to provide charging infrastructure in their own facilities.
New opportunities in carbon removals
At present carbon emitters in mandatory compliance markets such as the EU ETS have only been able to purchase carbon credit allowances to count toward the holder’s GHG emissions. Carbon emitters have also been able to purchase carbon credits in the Voluntary Carbon Market (VCM) to offset their own emissions, especially those that are unavoidable. The main distinction between carbon credit allowances from the EU ETS and carbon credits from the VCM is that the latter have not been legally recognised by the EU. This is mainly due to the lack of mandatory rules to monitor, report and verify carbon removals within the EU for voluntary projects.
In 2024 the EU is expected to approve the Carbon Removal Certification framework, the first EU-wide voluntary initiative to certify high-quality carbon removals. The framework includes carbon farming (for example, forest and soil restoration and wetland management), permanent storage (for example, direct air capture and storage) and carbon storage in long-lasting products and materials (wood-based construction) but excludes carbon capture and storage or carbon capture utilisation. Based on the framework, certification methodologies will be developed for each carbon removal activity. These activities will then be certified by a third party and the removals will be recorded in a publicly accessible central registry.
This framework is likely to change the voluntary carbon market (VCM) dramatically in years to come, as it will counter greenwashing and build trust by ensuring that projects are of high quality and removals are quantified, monitored and verified. This means that in the medium term companies will be able to use carbon removals as part of their overall decarbonisation strategy to reach net zero.
Public policy challenges
To support the transition there are still three areas where further work is needed by regulators, standard setters and the industry: funding gaps, emissions accounting challenges and mitigating emissions beyond a company’s own value chain.
Funding gaps
The European Commission estimates that €1.25 trillion will need to be spent by 2030 to meet the EU’s climate and energy security investment needs.17 This estimate represents an increase of over 65% from the past decade and is expected to come from the private sector, including firms and households.18
An example is the EU’s Net-Zero Industry Act which seeks to achieve at least 40% of its annual green technology needs by 2030. These technologies include solar, heat pumps, onshore and offshore renewable technologies, battery and energy storage technologies and carbon capture and storage. The EU has €250bn in funding available for green measures under the Recovery and Resilience Facility (RRF) and can mobilise over €370bn under InvestEU for net-zero investments.19 But the EU has made it clear that the greater part of the required investments will need to come from private funding.20
Emissions accounting challenges
A significant issue is data accuracy and harmonisation, the lack of which hinders comparability of targets and emission reductions data for Scopes 1, 2 and 3.
Companies in the technology sector have on average 125 tier one suppliers and more than 7,000 across the whole value chain. In the auto industry the value chain is even more complex, as an auto manufacturer can have 250 tier one suppliers but up to 18,000 suppliers across the entire value chain.21
For Scope 3 in particular, the issue becomes more complex when companies have global supply chains. Suppliers in some developing countries have limited access to renewable energy and alternative fuels, preventing them from significantly reducing their Scope 1 and 2 emissions. There is a need to find ways to account for these emissions while working with suppliers and stakeholders to reduce them.
Looking beyond value chain mitigation
To be able to reach net zero, companies should look beyond their value chain by investing in projects or conducting actions that avoid or reduce GHG emissions, including those that remove GHG from the atmosphere or store them. These investments or actions could then be reported by companies as part of their overall decarbonisation strategy. Looking beyond value chain mitigation (BVCM) is relevant for companies as once they have reached the point at which they cannot reduce emissions within the value chain any further (due to cost or technological effectiveness), the only option is to invest in projects that can reduce the remaining emissions. To make BVCM feasible the Science Based Target Initiative is planning to publish guidance in 2024 on minimum benchmarks for credibility and best practices.
The implication of BVCM’s guidance is that companies, especially those from hard-to-abate sectors, can help maximise climate mitigation and support the UN’s Sustainable Development Goals.
What companies should do now
Plan to make significant carbon emission reductions across the value chain
- Identify emissions, set targets and have a comprehensive reduction strategy in place, with emission reduction targets for 2030, 2040 and 2050.
- Establish for the medium term (2030) a clear annual CO2 pathway with milestones, correlated to the projected business growth and emissions trajectory. Quantify the costs of implementing the strategy and evaluate how it will be financed, taking into account carbon price uncertainty.
Reduce their carbon footprint in raw materials, fossil fuels and buildings
- Ensure they have carbon footprint data for their key raw materials and identify lower carbon alternatives to reduce potential carbon taxes and improve the company’s emissions record.
- Reduce consumption of fossil fuels in fleets by increasing use of alternative fuels or switching to zero emission alternatives. Engaging with suppliers of low-carbon transportation options is another alternative.
- Put in place a plan to quantify and reduce building emissions by conducting retrofits and deploying green technologies. Companies also need to understand the energy mix of buildings, fully switching to renewables and ensuring that low carbon materials are sourced for retrofits or new construction.
Focus on electrification, renewables and green infrastructure
- Companies should assess all feasible electric solutions. These solutions include the deployment of charging points for EVs, shore-side electric installations for vessels at ports, electricity supply for aircraft at airports, and the replacement of fuel-power equipment with fully electric options.
- The switch to electric requires the use of a 100% renewable energy supply to fully achieve environmental benefits.
- Companies can deploy wind and solar technologies to produce their own electricity on-site and negotiate long-term contracts for renewable energy supply with utility providers.