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EU sticks to its Green Deal guns

The bloc’s latest budget revision has linked a post-Covid recovery fund to its cleaner energy vision

The Covid-19 pandemic has hit energy consumption hard in most parts of the world. Europe is no exception—interruptions in industrial and commercial activity and in transportation led to a 5pc drop in the region’s energy demand in the first quarter of 2020, according to the IEA.

Demand data for the second quarter is likely to be even worse. The IEA forecasts that annual global energy demand for the full year will fall by 6pc, “wiping out” the last five years of demand growth.

As nations roll out their post-Covid recovery plans, one common theme has been their acknowledgement that the world cannot simply revert to ‘business as usual’, and that countries have an unparalleled opportunity to re-tool their economies along more sustainable and climate-friendly lines.

Green Deal ambitions

The new EU leadership unveiled late last year its Green Deal, a plan to revamp the region’s economy in line with the 2050 net-zero emissions goal of the Paris Agreement.

Touching all sectors of business activity from industry and agriculture to consumer products, the Green Deal targets the end of carbon-intensive energy and production in Europe through massive support for electrification and smart technologies that would drive carbon emissions towards zero by mid-century.

“The main long-term hope for [natural] gas is as a feedstock for the creation of blue hydrogen with carbon capture and storage” Sikorski, Energy Aspects

As the region has slowly begun to relax its Covid-19 lockdown, the EU revamped its 2021-2027 budget, which supports the Green Deal, and bolted on a €750bn recovery fund to help the region’s economies get back on their feet.

The fund, named Next Generation EU, sticks closely to the themes of the Green Deal. It emphasises green and digital transitions, biodiversity, health and the just transition to a low-carbon future.

The plan proposes €91bn in funding for domestic energy saving such as insulation, rooftop solar and renewable heating; more than €1bn for green hydrogen research; €25bn for renewable energy tenders; €20bn to boost electric and hydrogen vehicle sales and infrastructure; and €40-60bn for zero-emission trains.

Clearly the bloc is not letting go of its climate ambitions. Commission vice-president Frans Timmermans, the EU’s head of climate, still refers to “the climate emergency” and its leadership is firmly committed to rebuilding along sustainable lines.

Low- and zero-carbon fuels such as ‘blue’ hydrogen (based on natural gas using carbon capture and storage) and ‘green’ hydrogen (using electrolysis from renewable energy) have also been frequently mentioned. The former is seen as a bridging technology until the latter can be developed at scale.

“The main long-term hope for [natural] gas is as a feedstock for the creation of blue hydrogen with carbon capture and storage,” says Trevor Sikorski of consultancy Energy Aspects. “However, in itself this is not as good a technological solution as green hydrogen, and big unit cost reductions in electrolysis would make blue hydrogen look less appealing.”

But analysts at consultancy Guidehouse point out that the cost differences between blue and green hydrogen are presently “huge”, and that biomethane, rather than green hydrogen, may be a more cost-effective replacement for natural gas for domestic use. Research published in May by energy technologies consultancy Thunder Said Energy came to a similar conclusion—it ranked biogas slightly cheaper than blue hydrogen and both less than half the cost of green hydrogen. Although gas boilers with carbon offsetting was still comfortably the cheapest solution to decarbonising heat, it concluded.   

Fossil future

In transport, the EU may need to rely largely on fossil fuels for some years to come. As recently as February this year, the Commission was still referring to a 2016 working document that suggested “oil products would still represent 86-87pc of the EU transport sector needs [in 2030]—compared to 94pc today—despite the significant reductions achieved in absolute levels”.

€750bn – EU recovery fund

Others are more optimistic. The coronavirus pandemic has brought about significant changes in attitude and practices in some parts of the region, says Mark Lewis, global head of sustainability research at BNP Paribas Asset Management.

“I do not accept that to get the economy back up to speed requires more fossil fuels,” he says, pointing to a 50pc increase in UK bicycle sales in April. “The answer is not to flood the roads with cars again.

“Even [UK motoring lobby] the Automobile Association has recommended the government not invest £28bn in the road network, but instead improve broadband services to allow more people to work from home.”

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