Last week marked a milestone moment for the EU advancing its climate change agenda, as the revised Renewable Energy Directive, known as RED III, was formally published in the EU’s Official Journal (1). The Directive is part of the Fit for 55 package of legislative proposals, of the EU policy strategy to reduce net greenhouse gas emissions by 55% by 2030 compared to 1990 levels. RED III aligns with the REPowerEU initiative, which aims to reduce Europe’s dependency on Russian fossil fuels and transition towards renewable energy sources.
Overall Target of 42.5% Renewable Energy by 2030
The core of the Directive is to increase the share of renewable energy in the EU’s gross energy consumption to 42.5% by 2030, with an indicative target of an additional 2.5%. The Directive introduces specific targets for Member States in industry, transport and building (district heating and cooling) sectors.
The collective commitment of all Member States to this common target represents a promising union-wide effort towards a low carbon greener future.The Directive must be integrated into national legal systems and tailored through in-country appropriate policy options. However, certain industry-specific requirements and policies are already included in the Directive.
Renewable Energy Transition: New Regulations for Alternative Fuels
The Directive mandates an annual average increase of at least 1.6% in renewable energy usage within the industrial sector. The realisation of this target will be supported through Member States’ streamlining of administrative permit-granting procedures for renewable energy projects to reduce unnecessary administrative burdens. Additionally, the Directive introduces the concept of “renewables acceleration areas”, which will operate under priority permitting rules.
RED III also imposes stricter rules on alternative fuels:
- Hydrogen: Member States must ensure that the contribution of renewable fuels of non-biological origin (for instance, green hydrogen) used for final energy and non-energy purposes (2) shall be at least 42% of the hydrogen used in industry by 2030, and 60% by 2035.
- Biofuels: RED III is aligned with the provisional agreement reached in May 2023 (3) which called for a gradual shift away from conventional biofuels from food crops to advanced biofuels primarily produced from non-recyclable waste and other alternative renewable fuels (e-fuels) This aligns with the EU’s Biodiversity Strategy for 2030 (4), which advises minimising the use of whole trees and food and feed crops for energy production.
- Biomass: The Directive reinforces sustainability criteria and greenhouse gas reduction requirements for biomass, which might affect biomass supply for industrial users. Moreover, the applicability threshold for these criteria has been reduced from 20 MW to 7,5 MW.
Next Steps: Tax and Legal Considerations for the Energy Transition
RED III represents a call to action for industry players to revise their energy strategies in line with the ongoing energy transition. The new legislative framework presents both challenges and opportunities. Because of the more stringent criteria for alternative fuels, a tax and legal evaluation is of great importance before making investment decisions.
The energy transition requires companies to also consider additional tax implications, such as the impact of Energy Products Taxation and the evolving landscape of carbon taxes, including the Emission Trading System (ETS) and Carbon Border Adjustment Mechanism (CBAM).
This article is made available by PwC for educational purposes only as well as to give you general information and a general understanding of these matters. Any content of this article should not be used as a substitute for competent professional advice.
- “Final energy” refers to the energy delivered for direct consumption, as distinct from primary energy, which accounts for energy used for energy production and losses incurred during transmission on the grid. “Non-energy purposes” refers to fuel used in industrial chemical reactions rather than for energy generation.