The upcoming ‘Fit for 55’ package of EU regulations will have a vital role to play to support the creation and deployment of clean energy innovation, writes Peter Sweatman.
Peter Sweatman is the CEO of Climate Strategy & Partners, a leading climate consultancy based in Madrid. Thomas Pellerin-Carlin is the director of the Jacques Delors Energy Centre at the Paris-based Think Tank Jacques Delors Institute.
When a company like Royal Dutch Shell loses a landmark legal case ordering it to reduce emissions in line with the Paris Agreement, and when climate campaigners are elected onto Exxon’s board – both of which happened last week – there is a sense that with fossil fuels, the tide is turning.
While ordering fossil fuel companies to clean up their act is necessary to address climate change, that on its own is insufficient to accelerate clean alternatives like solar, wind, renewable hydrogen and building energy efficiency.
Silence is also a poor option. This was illustrated by the conclusions of the European Council on climate change, which with their absence of substance rang hollow and were another missed opportunity. With the usually conservative International Energy Agency (IEA) publishing a new Net Zero by 2050 Roadmap that explicitly calls on Governments to accelerate clean energy innovation, this gap is all the more evident.
The IEA said governments must invest $90 billion to build a global portfolio of clean tech demonstration projects. Today, the IEA can only identify $25 billion budgeted. Without such innovation investments the 9 million clean energy jobs IEA sees post-2020 could be short-lived.
With so much at stake in such a compressed time frame, 14 organisations recently wrote an urgent letter to the European Commission Executive Vice-Presidents presenting 30 policy actions to help sharpen the focus on climate-related innovation in the European Union’s Fit for 55 legislative proposals, which are due in July.
The policy actions spelled out in the letter can help compress to the innovation cycle for technologies and industries including carbon capture from cement production, electrolytic hydrogen-based ammonia, low‐emissions ammonia‐fuelled ships, hydrogen‐based steel production, direct air capture of CO2, plant-based proteins, solid state batteries and refrigerant‐free cooling. The goal is to have the innovation cycle for these technologies churn 20-40% faster than what occurred with solar panels.
One recurring theme among these proposals is the vital role of EU regulation to support the creation and deployment of clean energy innovation. In areas like buildings where clean energy solutions can already be deployed at scale, the Fit for 55 regulations should provide scale through measures like minimum energy performance requirements. In other areas, EU regulations should create adopt stringent regulation that provides time, flexibility and regulatory sandboxes that allow clean economy innovators to test in this decade the solutions that we need to deploy at scale in the next decade.
Fossil fuel subsidies also need to be phased out. These include several subsidies in the Common Agricultural Policy, which do not consider the latest science on net greenhouse gas sinks, and free emissions allowances that disincentivise clean energy innovation. Such phase-outs should be combined with investments by channelling the any revenue generated or money saved into the Innovation Fund and to fund EU-level Carbon Contracts for Difference. These will support the first generation of commercial climate-neutral industrial production and demonstration sites, as called for by the IEA.
The market potential for the leaders in clean technology-led, net-zero goods and services is expected to be at least €800 billion annually from 2030-50, according to CapGemini Invent.
European firms like the automaker Scania know this. That’s why they are already leading the way. Alongside venture capital firms, Scania has invested in H2 Green Steel, which plans to build the world’s largest green steel plant near a major Swedish port with abundant, local renewable energy supplies. This $2.5 billion project will be powered by a hydrogen electrolyser 40-50 times bigger than any other on the market, and by 2030 the plant expects to produce 5 million tons of green steel annually.
Despite such projects, just 7% of global cleantech growth equity funding goes to EU companies today. There is a clear role for green recovery funds and the European Investment Bank to stimulate and support the creation of more cleantech growth equity funds. In addition, a legal framework for investors to create cross-border venture capital funds and increasing alternative asset class limits for EU pension funds would help address this gap and support promising companies scale-up in multiple EU locations.
Being fit for 1.5 degrees means more than just a 55% emissions reduction for Europe by 2030. In all cases, it requires an “all of the above” approach to innovation as well. Technology, product, business model and societal innovation are all required to deliver the EU Green Deal. That’s why this July, the European Commission’s must ensure that its Fit for 55 package is as strong and ambitious as we need it to be to avoid a climate disaster.