Proposal for a brief explanation of the blog series: in this blog series, Chatham Partners Experts, Marieke Lüdecke, Dr Christos Paraschiakos, Hannah Randau and Jonas Versen, offer insights into fascinating questions regarding green fuels, with a particular focus on their practical implementation and significance for market players. Chatham Partners is a law firm specialising in energy, infrastructure and property projects with particular expertise in EU and antitrust law. Today’s post marks the start of the blog series. The next post will look at similarities and differences with regard to imports vs. EU production of green fuels.
The opportunity for the European Parliament (EP) and Council to object to the European Commission’s (Commission) two so-called Delegated Acts (DAs) on ‘green hydrogen’ expired on Tuesday. The DAs have therefore cleared the final critical hurdle, more than a year late. These DAs state when hydrogen generated from electricity is regarded as ‘renewable’. The hydrogen industry has waited a long time for this, in order to provide legal certainty for investments.
The reason for the delay was the dispute regarding the wording of the requirements. It remains to be seen whether all the legal issues surrounding the production of green hydrogen have now been clarified.
Starting point: RED II and RFNBO
With the introduction of the term Renewable fuels of non-biological origin (RFNBO), the Renewable Energy Directive 2018 (RED II) set the scene for the DAs. Initially, RED II only identified the transport sector as the application area for RFNBO. The wording of the RFNBO requirements was vague: RFNBO produced using mains power will be regarded as completely renewable if ‘appropriate criteria’ are met. RFNBO should also achieve a greenhouse gas saving of 70%. The Commission should determine detailed requirements by late 2021. Many questions therefore remained unanswered, despite the legislators’ welcome progress.
The end of this story is clear: following several draft versions, the Commission adopted the two DAs and notified the EP and Council of this on 13 February 2023. Neither the EP nor Council have objected to the DAs within the four-month deadline. So nothing now stands in the way of the DAs coming into force following an announcement in the Official Journal.
Not one, but two DAs
Reports regarding the DAs’ lengthy and bumpy journey occasionally omitted to mention the fact that the Commission hadn’t approved one, but two DAs: the ‘first’ DA defines when hydrogen and hydrogen-based fuels are regarded as RFNBO. Specific points apply when using mains power:
- If the electricity is obtained from the grid, hydrogen producers must meet detailed requirements. In particular, these requirements ensure that RFNBO is produced from ‘additional’ renewable electricity, i.e. from new production capacities, and at the same time and in the same place as the electricity used.
- Exceptions apply if the share of renewable energies in the network to which the electrolyser is connected is particularly high (> 90%), or the procurement of renewable electricity prevents redispatch. If the electricity mix in the bidding zone is particularly low-emission (< 18g CO2eq / MJ), some of the regulations are also eased.
- Finally, transitional requirements apply: by 2029, the simultaneity of electricity and hydrogen production will be recorded monthly, and then hourly. If electrolysers become operational before 2028, the renewable electricity can also come from existing plants – up to and including 2037. Therefore, the requirements for hydrogen producers will gradually become stricter. At the same time, early investments in as yet (even) more expensive green hydrogen will be rewarded.
The ‘second’ DA specifies how producers of hydrogen (derivates) should calculate the required 70% greenhouse gas saving of RFNBO. In principle, they must consider the entire life cycle of the fuel, excluding the production and installation of the electrolyser.
- If the (mains) electricity meets the requirements of the ‘first’ DA, it will have an advantage: its emissions factor will be zero. Otherwise, producers must take particular care to ensure that the 70% saving target is met.
- Finally, the requirements regarding permissible CO2 sources are particularly relevant for e-methanol and other CO2-containing energy sources. CO2 of fossil origin may only be used under certain conditions and only for a transitional period.
Outlook: action required by member states and the Commission
When the DAs come into force shortly, investors will finally get the security they have long demanded. For many projects, the final investment decision will now be much sooner. The DAs only formally apply to the transport sector. However, the EP and Council are close to completing an amendment to RED II(I), after which, the RFNBO requirements should apply to all sectors.
The member states must now implement the requirements. The German government must adapt GHG quota trading in the transport sector and design a similar system for industry. It also needs to clarify how the necessary RFNBO certification will work. So far, private stakeholders have primarily been involved with this. We will report on this later in this blog series.
There are still unanswered questions regarding the use of RFNBO in maritime transport, aviation and other sectors that are subject to emissions trading. The Commission has been asked to clarify these. Hopefully without any delays this time.