Third Time is the Charm: RED III – The Latest Revision to the Renewable Energy Directive Sets Ever More Ambitious Climate Goals

December 22, 2023

On October 9, 2023, the Council of the European Union (the “Council”) announced it had adopted the revised Renewable Energy Directive (the “Directive” or “RED III”).[1]

The amended text revises targets for renewable energy consumption and aims to continue the development of clean energy, particularly in the transport and industrial sectors of the EU. It also seeks to make the EU more competitive on global renewable energy markets.  The Directive seeks to achieve this by setting, amongst others, the following goals:

  • Implementing binding targets in the transport sector;
  • Increasing the annual use of renewable energy in industrial sectors;
  • Promoting renewable energy for buildings, heating and cooling; and,
  • Providing a simplified regulatory environment.

The revised Directive stems from an alignment with the existing “Fit for 55” package,[2] aimed at climate neutrality by 2050, and the REPowerEU plan,[3] which focuses on the EU’s energy independence from Russian fossil fuels. The Directive reflects this in its ambitious target to increase the share of renewable energy within total energy consumption in the EU to 42.5% by 2030.  It also sets an additional 2.5% indicative top up.[4]  The previous Directive set the target at 32%.[5]

1. Binding targets in the transport sector

RED III introduces new energy thresholds for organizations providing services for the transportation of people and goods. Previously, Member States needed to ensure that by 2030, 14% of all energy supplied to the sector was renewable energy.  Now, Member States have the option to choose between two binding targets:

  • Raise the required minimum share of renewable fuels and renewable electricity supplied to the sector to at least 29% by 2030, or
  • Require a reduction in greenhouse gas intensity of at least 14.5% by 2030.

This change affects any firm that supplies fuel to transport providers.

The concept of “renewable fuels of non-biological origin” (RFNBOs) is an important one included throughout the Directive.  By 2025, 1% of all energy supplied to the transport sector must be from RFNBOs and advanced biofuels and biogas.  This was also the target in the previous Directive.  However, by 2030, this threshold increases to 5.5%, of which at least 1 percentage point must come from RFNBOs.[6]

The RFNBOs are mostly renewable hydrogen and hydrogen-based synthetic fuels, or other liquid and gaseous fuels that are not derived from biomass.[7]  The targets for RFNBOs are grouped with targets for advanced biofuels and biogas produced in the transport sector.  These are generally derived from non-food-based feedstocks. RED III sets the same target as its predecessor for the supply of RFNBOs and advanced biofuels and biogas to the transport sector for 2025, but significantly increases the thresholds to be met by 2030.

The abovementioned 1% threshold is less impactful than it sounds. First, all RFNBOs used in achieving this target will be double counted.[8]  Second, there is a similar multiplier in effect for the aviation and shipping sectors, meaning every unit of RFNBOs used will be counted as 1.5 units towards the target.[9] This is attributed to the difficulty in electrifying these modes of transport.

Member States may exempt fuel suppliers who provide electricity or RFNBOs from the above requirement.[10]  They can also set differentiated targets for advanced biofuels, biogas, and RFNBOs at a national level to promote and expand development of these fuels.[11]  A requirement unique to Member States with maritime ports is also included.[12] 

Article 15 RED III, amending article 25(4), now requires Member States to establish a mechanism allowing fuel suppliers to exchange credits for supplying renewable energy to the transport sector.[13]  Economic operators that supply renewable electricity to electric vehicles shall receive credits which can be sold to fuel suppliers. Public charging points will be included, and Member States can decide whether to extend this mechanism to private charging stations if the renewable electricity can be shown to supply electric vehicles only.

2. Increasing the annual use of renewable energy in industrial sectors

“Industry” in the Directive includes an array of services such as construction and information service activities. Article 12 RED III, amending Article 22a on “mainstreaming renewable energy in industry”, aims to encourage Member States to increase the share of renewable sources in the industry sector by 1.6% as an annual average for the periods 2021-2025 and 2026-2030.

Waste heat and cold – generated as a by-product without being used to heat or cool processes and buildings – may be counted towards this annual increase up to a limit of 0.4%, under certain conditions.[14] If electrification is deemed to be a cost-effective option, the renewable-based electrification of industry should be promoted.  Renewable energy alternatives to fossil fuels for use in industrial heating (in which the temperature is below 200 °C) should be made economically viable and technically feasible.[15] 

Article 12 RED III sets targets to increase the consumption of RFNBOs as a share of overall hydrogen consumed in the industry sector.[16]  Any hydrogen utilized as intermediate products, produced by decarbonizing industrial residual gas, or, produced or derived from by-products will not be included in such calculations.

Each Member State will also be required to report the level of RFNBOs it expects to import and export in its integrated national climate energy progress report.[17]  This exercise will assist the Commission’s development of a Union strategy for imported and domestic hydrogen.  The aim is to promote the European hydrogen market and overall domestic hydrogen production in the Union.

Article 22(b) is amended so that Member States can reduce the required contribution of RFNBOs in industry by 20% in 2030 if they satisfies these two conditions:[18]

  1. The Member State’s national contribution is expected to meet the binding overall EU target, and
  2. The share of hydrogen produced from fossil fuels is no more than 23% in 2030 and no more than 20% in 2035.
3. Further accelerating changes to building requirements

The revised Directive sets out a number of changes for building requirements, specifically for heating and cooling.  The new rules set an indicative target of at least a 49% renewable energy share in buildings by 2030.[19] 

Renewable energy targets for the heating and cooling sector will also increase as the Directive sets obligations on a national level.[20] At Union level, the aim is to reach an average increase of 1.8% annually by 2030.[21]

Member States should implement two or more measures from the list of twelve measures in Article 13 of RED III, amending Article 23 to facilitate increasing the share of renewable energy in heating and cooling.[22] These measures include, for example, the installation of highly efficient renewable heating and cooling systems in building, or the promotion of renewables heating and cooling purchase agreements for corporate and collective small consumers. Member States will complement this with appropriate legal frameworks to increase the share of energy from renewable sources produced on-site or nearby, as well as renewable energy taken from the grid in the building stock.

4. A simplified regulatory environment

RED III further streamlines, and heavily revises the permit-granting procedure. The aim is to reduce the administrative burden in establishing renewable energy projects and related grid infrastructure.

The revised Directive introduces “renewables acceleration areas”. Member States need to define these areas where permit-granting procedure will be accelerated to less than a year for new projects, and less than six months for repowering projects. Specifically, the applications for projects in these areas shall be exempted from environmental impact assessment requirements. In identifying such areas, Member States should prioritize, among others, artificial and built surfaces, transport infrastructure and their direct surroundings, industrial sites, and degraded land not usable for agriculture.[23]

Finally, the deployment of renewables will be classified as “overriding public interest”. This limits the possibility of legal objections to new installations.[24]

Conclusion

Overall, RED III will impose a number of increased targets on Member States.  This will result in new requirements on companies operating in the transport, industrial, and building sectors.  Companies moving towards renewable resources can take advantage of the new Directive by aligning their energy consumption goals.  They may reap rewards such as the streamlined planning processes or the credit exchange mechanism in the transport sector.

[1]             Council Press Release of October 9, 2023, available at: https://www.consilium.europa.eu/en/press/press-releases/2023/10/09/renewable-energy-council-adopts-new-rules/. Directive of the European Parliament and of the Council amending Directive (EU) 2018/2001, Regulation (EU) 2018/1999 and Directive 98/70/EC as regards the promotion of energy from renewable sources, and repealing Council Directive (EU) 2015/652.

[2]             Council’s “Fit for 55” legislation package aimed at reducing net greenhouse gas emissions by at least 55% by 203, available at: https://www.consilium.europa.eu/en/policies/green-deal/fit-for-55-the-eu-plan-for-a-green-transition/

[3]             Commission’s REPowerEU plan to save energy, produce clean energy, and diversify energy supplies in the wake of Russia’s invasion of Ukraine, available at: https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal/repowereu-affordable-secure-and-sustainable-energy-europe_en

[4]           This indicative top up obliges the Member States to collectively “endeavor” to reach a 45% target, 2.5% beyond the mandatory threshold.

[5]           RED II Article 3(1).

[6]           RED III, Article 15, amending Article 25(1)(b).

[7]           RED III Article 1(1)(g).

[8]           RED III, Article 17, amending Article 27(2)(c). This was introduced to partly compensate for the higher cost of RFNBOs compared to biofuels, meaning that every 1 MJ of RFNBO can be counted as 2MJ in reaching the 1% target.

[9]           RED III, Article 17, amending Article 27(2)(e). This was an increased multiplier on RFNBOs relating to aviation and shipping, up from 1.2. This increase, combined with the double counting scenario, will result in the actual volume of RFNBOs delivered to transport being much less than the 1% target.

[10]          RED III, Article 15, amending Article 25(3)(a).

[11]          RED III, Article 15, amending Article 25(1), paragraph 2.

[12]          RED III, Article 15(1), Article 25(1), paragraph 3 obliges Member States with maritime ports to “endeavor” to ensure the share of RFNBOs supplied to the maritime transport sector is 1.2%.

[13]          RED III, Article 15, amending Article 25(4).

[14]          RED III, Article 12, amending Article 22a(1), paragraph 2.  Heating and cooling networks which supply heat to only one building or where all heat and cold is consumed only on-site will be excluded from the 1.6% average.

[15]          RED III, Article 12, amending Article 22a(1), paragraph 4.

[16]          RED III, Article 12, amending Article 22a(1), paragraph 5 obliges Member States to ensure that RFNBOs consumed in industry should be at least 42% of all hydrogen used by 2030, and 60% by 2035.

[17]          The integrated national climate energy progress reports were introduced by the Regulation on the governance of the energy union and climate action. They play an important role in monitoring Member States’ advancement in reaching the targets set by the Directive.  The reports, submitted every two years, will outline the policies and measures planned or taken by Member States to realize the goals as mandated by the Directive.

[18]          RED III, Article 12, amending Article 22b(1).

[19]          RED III Article 6, amending Article 15a(1).

[20]          RED III Article 13, amending Article 23(a)(1) sets targets that will gradually rise with a binding increase of 0.8% per year until 2026 and 1.1% from 2026 to 2030.

[21]          RED III, Recital 65.

[22]            RED III Article 13, amending Article 23(c).

[24]          RED III, Article 7 amending Article 16f.