Today, Czechia takes over the Presidency of the Council of the European Union (Czech EU Presidency) from France. The Czech EU Presidency has rightly identified energy security as one of its priorities, following Russia’s invasion of Ukraine, but also states that these energy security concerns are ‘currently more pressing than the energy transition’.
The clean energy transition can go hand in hand with decreasing dependence on Russian fossil fuels. The current crisis provides an opportunity to accelerate further systemic changes, redirect finance towards sustainable activities, and ensure policy consistency through a just transition. Accelerating the clean energy transition will also help investors to access and increase the size of investment opportunities – for instance by allocating capital toward sustainable infrastructure, and funding or engaging with companies.
On 18 May, the European Commission published the REPowerEU plan that contains a suite of concrete measures to phase out Russian fossil fuels by 2027 and boost the EU’s renewable energy production and energy efficiency measures. The plan complements and reinforces key climate and energy legislative files that are currently being negotiated within the EU as part of the Fit for 55 package. The REPowerEU’s central objective of “fast forwarding the clean transition” will benefit the growing number of investors that have made climate commitments.
As highlighted in PRI Investor priorities for the EU Green Deal report and EU Delivering net zero emissions in the European Union report, investors have a key role to play in the achievement of the EU Green Deal and the REPowerEU action plan. They contribute to the energy transition by allocating capital to energy infrastructure projects. They also fund and engage with companies in economic sectors that have a critical role in the energy transition. Yet, one of the key challenges for investors remains the identification and lack of availability of investment opportunities that contribute to the goals of the Paris Agreement. A change in real-economy policy will help investors to access and increase the size of investment opportunities.
The PRI is working to help investors protect portfolios from risks and to expose them to opportunities in the shift to a low-carbon global economy. In light of this, the PRI has set out recommendations for climate-related policy changes in the EU.
For the EU to achieve its Green Deal and remain on a pathway compatible with its net-zero by 2050 commitment, it is vital for the European Commission to:
Prioritise energy efficiency measures. Prioritising energy efficiency measures provides a key lever to reducing the EU’s dependency on fossil fuels and improve its resilience towards energy market shocks. PRI welcomes the European Commission proposal to put forward an EU Save Energy plan and to amend the Energy Efficiency Directive (EED) to require EU countries to collectively ensure an additional reduction of energy consumption of 13% by 2030, compared to 9% in the current revision proposal. Accompanying this headline goal with annual energy savings targets for Member States and public bodies will ensure that the EU’s ambition is more likely to be realised.
Increase renewables and sustainable energy capacity in the EU. Renewable energy deployment is crucial to reduce dependency on fossil fuel and meet climate targets. PRI welcomes the European Commission suggestion to increase the overall EU renewable energy target to 45% by 2030 from 40%, as part of the review of the Renewable Energy Directive (future REDIII). Clear definitions and social safeguard for renewable energy sources, especially for bioenergy production from biomass and green hydrogen, will allow the renewables target to be achieved using the most sustainable technologies.
An ambitious EU ETS and CBAM. An EU ETS with ambitious emission reduction targets, provided that measures are taken to ensure a just transition, will increase market transparency and investors’ confidence in the low-carbon transition. A rapid phase-out of free allowances, complemented by the swift implementation of a Carbon Border Adjustment Mechanism (CBAM) that is in line with international rules (WTO), will incentivise industry decarbonisation,.
Avoid further fossil fuel lock in. The EU impact assessment on 2030 climate and energy targets and the IEA net zero roadmap evidence that no new investments in fossil fuel supply infrastructure are needed in the mid-term. However, the REPowerEU plan identifies that 10 billion EUR investments are required for ’a sufficient level of gas infrastructure’ by 2030 as well as 2 billion EUR for oil security of supply: various gas pipelines and LNG terminals are identified as Projects of Common Interest that the EU should pursue. European policy makers can avoid stranded assets by assessing all energy infrastructure investments against the Paris climate goals and the EU climate and energy targets for 2030 and 2050, and by recognising the declining role for gas in the net-zero transition.
Assess global impact of diversifying supply on low-income countries climate objectives. The EU diversification choices can impact other regions’ climate targets. For instance, low-income countries’ transition pathways could be disrupted if they find themselves competing with Europe for alternatives to Russian gas supplies and be forced to shift back to coal if they cannot access LNG. This could have serious consequences on the Paris Agreement objectives and jeopardize a rapid, orderly and just transition to a low-carbon economy globally.
Encourage ambition from Member States: Member States can follow the European Commission’s request of updating Recovery and Resilience Plans in order to access funding for their sustainable energy-supply infrastructure. Member States also have the prerogative to define their energy mixes and should be encouraged to support the implementation of the EU proposal by setting up ambitious national strategies through updated National Energy and Climate Plans. The EU Climate Law adopted in June 2021 states that each Member State has the responsibility individually to reach net zero by 2050, mainly by cutting emissions, investing in low-carbon technologies and protecting the natural environment.
Elise Attal, Head of EU Policy at the Principles for Responsible Investment, comments: “The REPowerEU plan and related Fit for 55 package are an opportunity to raise the EU ambition on climate and energy policy and strengthen the sense of urgency to finance a green energy transition. It provides investors with clearer indications of which infrastructure investments are needed to reduce reliance on Russian fossil fuels. Investors now need to join the dots with their own investment strategies, to avoid stranded assets and ensure that capital is directed towards the technologies that will help meet the EU climate neutrality goals by 2050”.
About the PRI
The Principles for Responsible Investment (PRI) is the world’s leading proponent of responsible investment. Supported by the United Nations, it works to understand the investment implications of environmental, social and governance (ESG) factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions. The PRI acts in the long-term interests of its signatories, of the financial markets and economies in which they operate and ultimately of the environment and society as a whole. Launched in New York in 2006, the PRI has grown to more than 4,800 signatories, managing over $121 trillion AUM.