Green Deal: Consequences for Switzerland

The European Green Deal is to result in climate neutrality by 2050. This will have consequences for Switzerland and its energy industry.

The European Commission published its announcement on the European Green Deal on 11 December 2019: This proposes about 50 measures that are intended to contribute to an EU that is sustainable, conserves resources and is climate neutral. Some measures relate to energy and especially the electricity sector.  

The European Commission will propose a multitude of draft laws in the coming year, among other things on the amendment of the Renewable Energy Directive, the Energy Efficiency Directive, the emission trading system as well as on sector integration, the hydrogen economy and an overhaul of the internal natural gas market. As a result, the parameters and potentially the regulatory gap between Switzerland and the EU will change. This is important with regard to the cooperation of Switzerland and the EU in the electricity sector and a potential electricity agreement.

“The European Union is to become climate neutral by 2050!” – the European Green Deal serves to meet this goal. The political basis for the 2050 goal is a declaration of the heads of state and government of December 2019, according to which Europe is to become the first climate-neutral continent in the world. Only the EU member state Poland brought forward reservations in this regard: the opposition is not of a fundamental nature, but rather refers to the tempo of decarbonisation; whether Poland’s agreement can be secured will emerge in the course of the remaining negotiations.

European Green Deal

The European Green Deal is the most important of the six priorities of the European Commission in the 2019–2024 legislative period. In view of the scope of the package of measures and significance of the numerous individual measures, the European Green Deal will simultaneously determine the framework conditions for the European energy industry in the coming years, possibly for decades. The fact that the planned measures are located in other political areas, but also affect core areas of the electricity industry, constitutes a special challenge. An example of this is the strategy of the EU on sustainable energy, which in part includes very detailed regulations (“delegated act”) on the evaluation of generation technologies, which will have consequences on the (re-)financing of energy projects. However, the regulations were not drawn up by the Directorate General of the European Commission for Energy and above all without transparent integration of the European energy sector.

European Climate Law

The European Climate Law is the centrepiece of the European Green Deal: the European Commission published the corresponding draft legislation on 4 March 2020. It is composed in the form of a regulation directly applicable in the EU member states. The goal is the compulsory and irreversible specification of the climate neutrality of the EU by 2050. The original Commission proposal of the European Climate Law provided for an intermediate goal of 40 per cent lower greenhouse gas emissions by 2030; the comparative standard was 1990. On the occasion of her speech on the state of the European Union on 16 September 2020, Commission president Ursula von der Leyen proposed increasing the intermediate goal to 55 per cent lower greenhouse gas emissions and retrospectively intensified her own draft law.

It should be mentioned here that the increase to 55 per cent was one of the election promises of Ursula von der Leyen to the Green and Social Democratic parliamentary groups in the European Parliament in the run-up to her election. The demand to raise the greenhouse gas reduction goal of the EU by 2030 was even exceeded by the European Parliament as part of the current legislative process: It called for a reduction of greenhouse gas emissions by 60 per cent; in addition, the goal of climate neutrality by 2050 would have to be reached by the EU as a whole as well as in every individual EU member state. To date, the EU member states have not yet committed themselves; a political decision is expected on the occasion of the meeting of the heads of state and government of the EU member states and the European Council on 10 and 11 December 2020.

COVID-19 and financing

Against the background of the ongoing economic crisis caused by the COVID-19 measures, suspension of the European Green Deal was called for in the spring of 2020 by some of the EU member states. In the end, another approach was adopted in connection with the provision of extensive financial aid: the funds provided to overcome the economic crisis are intended to simultaneously serve the conversion of the European Union in the meaning of the European Green Deal. Currently, negotiations are proceeding on a slight increase in the EU budget for the period from 2021 to 2027 (multi-year financial framework) to EUR 1074 billion. However, it must be borne in mind that the second biggest net contributor, the United Kingdom, has fallen away due to Brexit. To compensate for this, the other net contributors must pay higher contributions. As part of the crisis summit meeting in July 2020, an additional EUR 750 billion were approved for the reconstruction of the economy (EU development plan). What is decisive is that at least 30 per cent of the EUR 1800 billion are to go to climate protection or sustainable projects in the meaning of the European Green Deal; politically desired projects can expect considerable subsidies. The multi-year financial framework 2021–2027 and the EU development plan are currently passing through the EU legislative process.

Wave of legislative procedures

Currently, the preparations are ongoing for a wave of legislative procedures to implement the European Green Deal: The publication of the corresponding draft laws by the European Commission is to be expected starting June 2021. Among other things, these include amendments of existing laws, which were most recently amended as part of the Clean Energy Package, for example: the amendment of the Renewable Energy Directive, the amendment of the Energy Efficiency Directive or the amendment of the Building Energy Efficiency Directive. In this connection, the European Commission will probably make use of the amendment clauses included in the Clean Energy Package, in order both to tighten the current renewable energy goal of 32 per cent in the final energy consumption of the EU by 2030 as well as the energy efficiency goal of 32.5 per cent by 2030 compared to 2005.

Other amendments announced for June 2021 relate to the emissions trading system, market stability reserve and Energy Taxation Directive. Here, an extension of the emissions trading system to other areas, such as mobility or buildings is impending, on the one hand, which have so far only made limited contributions to the greenhouse gas reductions of the EU. On the other, the amendment of the market stability reserve is intended to prevent extreme price fluctuations. The amendment of the 2003 Energy Taxation Directive is intended to end competition distortions in favour of fossil fuels. 

In addition, new proposed laws are also to be expected in the following areas: implementation of the hydrogen strategy and development of an EU hydrogen industry, implementation of sector integration, introduction of a border tax adjustment on CO₂ and the implementation of a methane strategy to reduce methane emissions. There are very great expectations of the EU hydrogen industry, which is expected to promote decarbonisation in those areas that cannot directly access renewable energies via electrification. This applies in particular to the fields of heavy industry and heavy transport on the roads, rail, water and in the air. Moreover, the EU assumes that the massive expansion of renewable energies will lead to increased demand for storage solutions. The problem of seasonal storage in particular could be overcome by a potential combination of hydrogen and the existing natural gas infrastructure.

There will also be an overhaul of the EU internal natural gas market and gas market design in this connection in order to facilitate the market launch of sustainable molecules in the widest sense – for example, green hydrogen, biogas, synthetic natural gas – through targeted promotion.

Clean Energy Package implementation

In the impending wave of legislation, one should not ignore that implementation of the Clean Energy Package and the eight laws it includes is still ongoing or impending. For example, there are great challenges in connection with the so-called 70 per cent clause from the Electricity Market Regulation in force since 2020.  

Currently, it is unclear whether and how the EU member states will reach the goal by 2025 of providing 70 per cent of the cross-border capacity for trade. It is also unclear how this will affect the use of the cross-border capacity to Switzerland and the electricity flows in the Swiss power grid.

Other challenges arise for the Swiss electricity industry against the background of the amended version of the Renewable Energy Directive applicable from 1 July 2021: This provides for EU member states only being allowed to recognise guarantees of origin if there is an agreement on the mutual recognition of guarantees of origin. There is no such agreement between Switzerland and the EU and one must assume that the European Commission will link such an agreement politically with the higher question of a framework agreement. As a result, the EU will cease to be an export market for Swiss guarantees of origin from the Swiss electricity industry.

Significance for Switzerland

As part of the European Green Deal, the manner in which Europe does business, lives, resides, eats and moves is to be oriented systematically to the goal of climate neutrality by 2050; the energy sector will play a central role in this. The radical conversion of the energy industry in connection with the extensive government funds provided and in combination with a potential softening of the law on state subsidies could result in further market distortions, which would also affect the Swiss electricity industry as rate taker.

By contrast, the positive aspects include coupling the Swiss emissions trading system with the emissions trading system of the EU: it is proof that the climate policy and goals of Switzerland correspond to the ambitions of the EU. Consequently, a potential border tax adjustment on CO₂ should not apply to Switzerland. At the same time, in connection with the Green Deal there is talk of a climate-neutral continent – which includes Switzerland. There are possibilities for cooperation here. The Swiss electricity industry and its plants – electricity and natural gas grid, generation and storage – as well as their contribution to achieving the energy and climate goals for grid stabilisation and better integration of Italy in the liquid markets of north-western Europe could also be taken into consideration with regard to improved future cooperation.

Author: Eberhard Röhm-Malcotti is Head of EU Energy Policy at Axpo