EU is ontrack to fully decarbonise power by 2050
The EU is making good progress and remains the leader on decarbonisation. Focus over the past decade has been on renewable power installation which has been a massive success - only 61% of EU electricity was from renewable sources in 2022 with only 39% from fossil fuels. Power generation accounted for c.25% of emissions in 2021. With continued roll-out of renewables, which is now cost competitive with fossil fuel power, the EU is on target to decarbonise its power grid by 2050.
Higher hanging fruit
Next step is to decarbonise building emissions (36% of EU emissions) and transport (25% of EU emissions) - these are more difficult to decarbonise, not least because of the direct impact on end use consumers and businesses in terms of cost, retrofitting and replacement.
Whilst the cost of power decarbonisation was largely invisible to the end user (factored into power prices and paid over time through customer bills), decarbonisation of building emissions and transport has immediate upfront costs. In a period of high inflation, the appetite of consumers to take on extra expenses is extremely low.
In fact, consumers have made clear their unwillingness to bear energy transition costs as witnessed in the support for right wing political parties opposing green transition and advocating for lower consumer costs.
Dilution of green policies for the electorate
Europe has seen a wave of policies or proposals being diluted to keep voters on side including:
- UK deferring ICE vehicle ban from 2030 to 2035
- Germany's plans for building insulation standards have been put on hold (although will likely be revisited), and new heating systems only have to be 65% renewably by 2026-28
- France has drop the proposal requiring a blanket ban of gas boilers from 2026
German domestic political assuaging is resulting in a new budget that could reduce money available for green spending by c.€20 billion. This could delay a number of key initiatives including the establishment of a €20 billion hydrogen grid and €50 billion industrial decarbonisation support programme.
Germany could therefore end up relying more on fines and regulation rather than incentives, which will place additional burdens on households and the private sector. Germany's fiscal balancing act is not unique and other countries in Europe will face or are facing similar issues.
Despite headwinds, sustainability policy is advancing
All elements of the Fit for 55 legislative package have been agreed (55% emissions reduction by 2030) and the corresponding legislation will be finalised ahead of European Parliament elections in June 2024.
RED III was amended to increase the renewables target to 42.5% of the energy mix from 40% previously. RED III came into force on 20 November 2023.
The ETS scheme is being expanded to cover more sectors.
Despite headwinds, sustainability policy in Europe is slowly but surely advancing.
