Sisendi küsimine

Saatja: Annaliisa Jäme <[email protected]> Saadetud: 04.08.2020 07:55 Adressaat: <[email protected]> Teema: RE: ELi energiasüsteemi integreerimise strateegia ja ELi vesinikustrateegia - Eesti seisukohtade kujundamiseks sisendi küsimine Manused: hydrogen_strategy.pdf; Kaasatud huvigrupid.docx; energy_system_integration_strategy_.pdf Tere taas! Juhtus nii, et ELi energiasüsteemi integreerimise strateegia ning vesinikustrateegia jäid manusesse lisamata. Seega lisasin kõik manused uuesti. Strateegiad on kättesaadavad ka siit: https://ec.europa.eu/energy/sites/ener/files/energy_system_integration_strategy_.pdf https://ec.europa.eu/energy/sites/ener/files/hydrogen_strategy.pdf Aitäh tähelepanelikele viitajatele! Head! Annaliisa Jäme Peaspetsialist | EL ja rahvusvahelise koostöö osakond Senior Officer | EU and International Co-operation Department +372 626 2914 | +372 56936067 | [email protected] | http://www.envir.ee/ Keskkonnaministeerium | Ministry of the Environment of Estonia | Narva mnt 7a, 15172 Tallinn, Eesti From: Annaliisa Jäme Sent: Monday, August 3, 2020 5:38 PM To: '[email protected]' <[email protected]> Subject: ELi energiasüsteemi integreerimise strateegia ja ELi vesinikustrateegia - Eesti seisukohtade kujundamiseks sisendi küsimine Tere! Euroopa Komisjon avaldas 8. juulil ELi energiasüsteemi integreerimise strateegia kliimaneutraalse majanduse hoogustamiseks ning vesinikustrateegia kliimaneutraalse Euroopa jaoks (mõlemad lisatud manusesse). Strateegiad toetavad Euroopa Liidu üleminekut puhtale energiasüsteemile ja kliimaneutraalsele majandusele aastaks 2050. Euroopa Komisjoni sõnul panevad strateegiad aluse tõhusamale ja paremini ühendatud energiasektorile. Lisaks aitavad need kaasa roheleppe eesmärkide saavutamisele kulutõhusal moel. Energiasüsteemide integreerimise strateegiaga luuakse taastuvenergia kasutamisele ülemineku raamistik. Sektorite vahele tuleb luua uusi ühendusi ja kasutada ära tehnoloogia arengut. Strateegias on esitatud 38 meedet paremini lõimitud energiasüsteemi loomiseks. ELi vesinikustrateegias käsitletakse selle potentsiaali reaalset kasutamist investeeringute, reguleerimise, turu arendamise ning teadusuuringute ja innovatsiooni abil. Üleminek vesinikutehnoloogia integreerimisele peaks toimuma kolmes etapis. Oleme ühiselt (Keskkonnaministeerium ning Majandus- ja Kommunikatsiooniministeerium) koostamas Vabariigi Valitsuse seisukohti mõlemale strateegiale. Kuna strateegiad on omavahel tugevalt seotud, siis tehakse kahe strateegia kohta ühised seisukohad. Eesti seisukohad on kavas kinnitada Vabariigi Valitsuses ja Riigikogus selle aasta oktoobris. Ootame seisukohtade kujundamisele Teie sisendeid 31. augustiks aadressile: [email protected] Oleme kokku pannud mõned küsimused, mis võiksid abiks olla sisendi koostamisele: 1) Millised peaksid teie arvates olema lähiaastate Eesti peamised eesmärgid ja tegevused, et kiirendada energiasüsteemi integreerimist ja taastuvkütuste, sh rohelise vesiniku kasutuselevõttu kulutõhusal viisil nii lühi kui keskpikas perspektiivis, et tagada süsinikuvaba kuid ka turupõhise energiamajandus? Palun põhjendage oma seisukohta. 2) Millistel taastuvenergia tehnoloogiatel (tooted/teenused) ja taastuvkütustel näete Eestis suuremat rolli ja lisandväärtust nii lühi kui keskpikas perspektiivis. Milliseid kompetentse peaks Eestis eelisarendama? Miks? 3) Mis on peamised takistused, mis ei võimalda seatud eesmärkideni jõudmist? Täiendav info: planeerime huvigruppidele suunatud online infoseminari sh paneelarutelu 11. augustil kell 10.00-12.30. Täpsema teabe infoseminari kohta edastame lähipäevil, kuid saate juba aja kalendris broneerida. Manusest on leitav kaasatud huvigruppide nimekiri. Aktiivsele osalusele lootma jäädes Keskkonnaministeerium ning Majandus- ja Kommunikatsiooniministeerium Annaliisa Jäme Peaspetsialist | EL ja rahvusvahelise koostöö osakond Senior Officer | EU and International Co-operation Department +372 626 2914 | +372 56936067 | [email protected] | http://www.envir.ee/ Keskkonnaministeerium | Ministry of the Environment of Estonia | Narva mnt 7a, 15172 Tallinn, Eesti EUROPEAN COMMISSION Brussels, 8.7.2020 COM(2020) 299 final COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Powering a climate-neutral economy: An EU Strategy for Energy System Integration EN EN 1. AN INTEGRATED ENERGY SYSTEM FOR A CLIMATE-NEUTRAL EUROPE The European Green Deal1 puts the EU on a path to climate neutrality by 2050, through the deep decarbonisation of all sectors of the economy, and higher greenhouse gas emission reductions for 2030. The energy system is crucial to deliver on these goals. The recent decline in the cost of renewable energy technologies, the digitalisation of our economy and emerging technologies in batteries, heat pumps, electric vehicles or hydrogen offer an opportunity to accelerate, over the next two decades, a profound transformation of our energy system and its structure. Europe’s energy future must rely on an ever growing share of geographically distributed renewable energies, integrate different energy carriers flexibly, while remaining resource- efficient and avoiding pollution and biodiversity loss. Today’s energy system is still built on several parallel, vertical energy value chains, which rigidly link specific energy resources with specific end-use sectors. For instance, petroleum products are predominant in the transport sector and as feedstock for industry. Coal and natural gas are mainly used to produce electricity and heating. Electricity and gas networks are planned and managed independently from each other. Market rules are also largely specific to different sectors. This model of separate silos cannot deliver a climate neutral economy. It is technically and economically inefficient, and leads to substantial losses in the form of waste heat and low energy efficiency. Energy system integration – the coordinated planning and operation of the energy system ‘as a whole’, across multiple energy carriers, infrastructures, and consumption sectors – is the pathway towards an effective, affordable and deep decarbonisation of the European economy in line with the Paris Agreement and the UN’s 2030 Agenda for Sustainable Development. Declining costs for renewable energy technologies, market developments, rapid innovation regarding storage systems, electric vehicles, as well as digitalisation are all factors leading naturally towards greater energy system integration in Europe. However, we have to go one step further and connect the missing links in the energy system in order to achieve higher decarbonisation objectives for 2030 and climate neutrality by 2050 – and do it in manner that is both cost effective and consistent with the European Green Deal’s green oath to “do no harm”. Relying on greater use of clean and innovative processes and tools, the path towards system integration will also trigger new investments, jobs and growth, and strengthen EU industrial leadership at a global level. It can also be a building block of the economic recovery in the aftermath of COVID-19 crisis. The Commission’s recovery plan2 presented on 27 May 2020 highlights the need to better integrate the energy system, as part of its efforts to unlock investment in key clean technologies and value chains and increase economy-wide resilience. In addition, the EU sustainable finance taxonomy will guide investment in these activities to ensure they are in line with our long-term ambitions3. An integrated energy system will minimise the costs of transition towards climate neutrality for consumers and open new opportunities for reducing their energy bills and active participation in the market. 1 COM(2019) 640 final. 2 ‘Europe's moment: Repair and Prepare for the Next Generation’, COM(2020) 456 final. 3 Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 1 The Clean Energy Package4, adopted in 2018, provides a basis for better integration across infrastructure, energy carriers and sectors; however, regulatory and practical barriers remain. Without robust policy action, the energy system of 2030 will be more akin to that of 2020 than a reflection of what is needed to achieve climate neutrality by 2050. This Strategy sets out a vision on how to accelerate the transition towards a more integrated energy system, one that supports a climate neutral economy at the least cost across sectors – while strengthening energy security, protecting health and the environment, and promoting growth, innovation and global industrial leadership. Turning this vision into a reality requires resolute action, now. Investments in energy infrastructure typically have an economic life of 20 to 60 years. The steps taken in the next five-to-ten years will be crucial for building an energy system that drives Europe towards climate neutrality in 2050. Thus, this Strategy proposes concrete policy and legislative measures at EU level to gradually shape a new integrated energy system, while respecting the differing starting points of Member States. It contributes to the work of the Commission on a comprehensive plan to increase the EU 2030 climate target to at least 50% and towards 55% in a responsible way and identifies follow-up proposals that will be prepared as part of the legislative reviews of June 2021, announced in the European Green Deal. The parallel Communication ‘A hydrogen strategy for a climate-neutral Europe’5 complements this Strategy to elaborate in more detail on the opportunities and necessary measures to scale up the uptake of hydrogen in the context of an integrated energy system. 2. ENERGY SYSTEM INTEGRATION AND ITS BENEFITS TO COST-EFFECTIVE DECARBONISATION 2.1. What is energy system integration? Energy system integration refers to the planning and operating of the energy system “as a whole”, across multiple energy carriers, infrastructures, and consumption sectors, by creating stronger links between them with the objective of delivering low-carbon, reliable and resource-efficient energy services, at the least possible cost for society. It encompasses three complementary and mutually reinforcing concepts. First, a more ‘circular’ energy system, with energy efficiency at its core, in which the least energy intensive choices are prioritised, unavoidable waste streams are reused for energy purposes, and synergies are exploited across sectors. This is happening already in combined heat and power plants or through the use of certain waste and residues. There is however further potential, for example, in reusing waste heat from industrial processes, data centres, or energy produced from bio-waste or in wastewater treatment plants. Second, a greater direct electrification of end-use sectors. The rapid growth and cost competitiveness of renewable electricity production can service a growing share of energy 4 https://ec.europa.eu/energy/topics/energy-strategy/clean-energy-all-europeans_en. 5 COM(2020) 301 final. 2 demand – for instance using heat pumps for space heating or low-temperature industrial processes, electric vehicles for transport, or electric furnaces in certain industries. Third, the use of renewable and low-carbon fuels, including hydrogen, for end-use applications where direct heating or electrification are not feasible, not efficient or have higher costs. Renewable gases and liquids produced from biomass, or renewable and low- carbon hydrogen can offer solutions allowing to store the energy produced from variable renewable sources, exploiting synergies between the electricity sector, gas sector and end-use sectors. Examples include using renewable hydrogen in industrial processes and heavy-duty road and rail transport, synthetic fuels produced from renewable electricity in aviation and maritime transport, or biomass in the sectors where it has the biggest added value. A more integrated system will also be a ‘multi-directional’ system in which consumers play an active role in energy supply. ‘Vertically’, decentralised production units and customers contribute actively to the overall balance and flexibility of the system – for instance, biomethane produced from organic waste injected in gas networks at a local level, or “vehicle-to-grid” services. ‘Horizontally’, exchanges of energy increasingly take place between consuming sectors – for instance, energy customers exchanging heat in smart district heating and cooling systems, or feeding in the electricity that they produce individually or as part of energy communities. 2.2. What are the benefits of energy system integration? Energy system integration helps to reduce greenhouse gas emissions in sectors that are more difficult to decarbonise, for instance by using renewable electricity in buildings and road transport, or renewable and low carbon fuels in maritime, aviation, or certain industrial processes. It could also ensure a more efficient use of energy sources, reducing the amount of energy needed and related climate and environmental impacts. In certain end-uses, new fuels will likely be required that use significant amounts of energy to be produced, such as hydrogen or synthetic fuels. At the same time, the electrification of a large share of our consumption can cut primary energy demand by a third6 thanks to the efficiency of electrical end-use technologies. Also, 29% of industrial energy demand dissipates as waste heat, which can be reduced or reused. Small- and medium size enterprises can create synergies by both improving energy efficiency and increasing the use of renewable resources and waste heat. Overall, the transition to a more integrated energy system is projected to reduce gross inland consumption by a third by 20507, whilst supporting an increase in GDP of two thirds8. 6 For example, electric vehicles have an efficiency of around 60% compared to 20% for combustion engines on a tank-to-wheel basis, and heat pumps can deliver heat with three times less energy input than boilers. 7 See COM(2018) 773 final, A Clean Planet for all. A European long-term strategic vision for a prosperous, modern, competitive and climate neutral economy. In-depth analysis in support of the Commission communication (LTS), figure 18: -21% in the 1.5TECH and -32% in the 1.5LIFE. 8 See LTS, figure 92: 2050 GDP between 166% and 174% of 2015 or between GDP 154% and 161% of 2020 GDP. 3 Beyond energy and greenhouse gases emissions savings, it would also reduce air pollution and the energy water footprint9, which is essential for climate adaptation, for health and to preserve natural resources. Energy system integration will also strengthen the competitiveness of the European economy by promoting more sustainable and efficient technologies and solutions across industrial ecosystems related to the energy transition, their standardisation and market uptake. Specialised companies will provide services locally and create more regional economic benefits. This creates an opportunity for the Union to maintain and leverage its leadership in clean technologies such as smart grid technologies and district heating system, and lead on new, more efficient and complex technologies and processes that are expected to play a growing role in the energy systems worldwide, such as batteries or hydrogen technologies. Territories, regions and Member States facing the biggest transition challenges will be supported by the Just Transition Mechanism and, as part of it, the Just Transition Fund. Moreover, better integration will provide additional flexibility for the overall management of the energy system and thus help to integrate increased shares of variable renewable energy production. It will also boost storage technologies: pumped hydropower, grid-scale batteries and electrolysers provide flexibility in the electricity sector. Home batteries and electric vehicles (‘behind-the-meter’) in buildings can help manage better the distribution grids. By 2050, electric vehicles could provide up to 20% of the flexibility required on a daily basis10. Thermal storage at factory-level can provide flexibility in the industrial sector. Through the closer integration of the power and heat sector, electric heat appliances could already make use of real time electricity prices to smarten demand response. Hybrid heat pumps11 and smart district heating also provide opportunities for arbitrage between electricity and gas markets. Moreover, electrolysers can transform renewable electricity into renewable hydrogen, providing long-term storage and buffering capability, and further integrating the electricity and gases markets. Finally, by linking up the different energy carriers and through localised production, self- production and smart use of distributed energy supply, system integration can also contribute to greater consumer empowerment, improved resilience and security of supply. Some of the technologies needed in an integrated energy system will require large amounts of raw materials, including some listed on the EU list of critical raw materials. But replacing imported natural gas and petroleum products with locally produced renewable electricity, gases and liquids, combined with the greater implementation of circular models, will first and foremost reduce the import bill and lessen dependency on external fossil fuel supplies, creating a more resilient European economy. 3. MAKING IT HAPPEN - AN ACTION PLAN TO ACCELERATE THE CLEAN ENERGY TRANSITION THROUGH ENERGY SYSTEM INTEGRATION This strategy identifies six pillars where coordinated measures are outlined to address existing barriers for energy system integration. 9 The water footprint of EU energy production was in 2015 198 km3 or 1068 litres per person and per day, or 242 km3 or 1301 litres per person and per day including energy imports. Source: JRC, Water – Energy Nexus in Europe, 2019. 10 According to METIS-2 S6 Study, baseline scenario (186TWh of 951TWh of total daily flexibility needs) would be provided by e-vehicles. Study to be published. 11 Heat pumps coupled with a boiler. 4  3.1. A more circular energy system, with ‘energy-efficiency-first’ at its core Applying the energy-efficiency-first principle across sectoral policies is at the core of system integration. Energy efficiency reduces the overall investments needs and costs associated with energy production, infrastructure and use. It also reduces the related land and material resources use, and associated pollution and biodiversity losses. At the same time, system integration can help the EU achieve greater energy efficiency, through a more circular use of available resources and by switching to more efficient energy technologies. For instance, electric vehicles show much higher energy efficiency than combustion engines; and replacing a fossil-fuel based boiler with a heat pump using renewable electricity saves two thirds of primary energy12. The first challenge is to apply the energy-efficiency-first principle consistently across the whole energy system. This includes giving priority to demand-side solutions whenever they are more cost effective than investments in energy supply infrastructure in meeting policy objectives, but also properly factoring in energy efficiency in generation adequacy assessments. The Energy Efficiency Directive13 and Energy Performance of Buildings Directive14 already provide incentives for customers, but not enough for the full supply chain. Further measures are needed to ensure that customers’ decisions to save, switch or share energy properly reflect the life cycle energy use and footprint of the different energy carriers, including extraction, production and reuse or recycling of raw materials, conversion, transformation, transportation and storage of energy, and the growing share of renewables in electricity supply. In certain industries for which the shift from fossil fuels towards electricity will result in more consumption, trade-offs will have to be carefully considered. In this context, the Primary Energy Factor (PEF)15 is an important tool to facilitate comparisons of savings across energy carriers. Most renewables are 100% efficient and have a low PEF. The PEF should reflect the real savings brought about by renewable electricity and heat. The Commission will review the level of the PEF and assess whether current provisions in EU legislation ensure an adequate application of the PEF by Member States. The upcoming ‘Renovation Wave’ initiative, announced in the European Green Deal, will also propose concrete actions to accelerate the uptake of energy and resource efficiency measures and of renewables in buildings across the EU in the next few years. The second challenge is that local energy sources are insufficiently or not effectively used in our buildings and communities. Applying the principle of circularity in line with the new Circular Economy Action Plan16, a big, yet largely unused potential is the reuse of waste heat from industrial sites, data centres, or other sources. Energy reuse can take place on-site (for example through the re-integration of process heat within manufacturing plants) or via a district heating and cooling network. The Energy Efficiency and Renewable Energy 12 Kavvadias, K., Jimenez Navarro, J. and Thomassen, G., Decarbonising the EU heating sector: Integration of the power and heating sector, 2019. 13 Directive (EU) 2018/ 2002. 14 Directive (EU) 2018/844. 15 The primary energy factor indicates the amount of primary energy used to generate a unit of final energy (electrical or thermal), allowing a comparison of the primary energy consumption of products with the same functionality using different energy carriers. It shall be revised periodically according to Annex IV of the Energy Efficiency Directive. 16 COM(2020) 98 final. 5 Directives already contain provisions targeting this potential, but there is a need to further strengthen the regulatory framework to lift barriers hampering the wider application of these solutions. These barriers include insufficient awareness and knowledge about these solutions, the reluctance of companies to enter into a new business that is not their core activity, a lack of regulatory and contractual frameworks to share the costs and benefits of new investments, and barriers related to planning, transaction costs, and pricing signals. As regards data centres specifically, the Digital Strategy17 has announced the ambition to make them climate-neutral and highly energy-efficient by no later than 2030; a greater re-use of their waste heat will significantly contribute to that objective. A third challenge is linked to the untapped use of wastewater18 and biological waste and residues for bioenergy production, including biogas. Biogas can be exploited on-site to reduce fossil fuel consumption, or upgraded to biomethane to allow injection into the natural gas grid or use in transport. Also, some farm infrastructures are suitable for an integrated production of solar-origin electricity and heat, creating the potential for renewable energy self-consumption and injection into the grid. The implementation of the new Circular Economy Action Plan and waste legislation and sustainable agriculture and forestry management systems could result in increased sustainable production of bioenergy from wastewater, waste and residues19. More efforts are needed to take advantage of the full potential for energy system integration, exploiting synergies and avoiding trade-offs. In agriculture, through the Common Agriculture Policy, farmers could be incentivised to contribute to a greater mobilisation of sustainable biomass for energy. Renewable energy communities can provide a sound framework for the use of such energy in a local context. Key actions To better apply the energy-efficiency-first principle:  Issue guidance to Member States on how to make the energy-efficiency-first principle operational across the energy system when implementing EU and national legislation (by 2021).  Further promote the energy-efficiency-first principle in all upcoming relevant methodologies (e.g. in the context of the European resource adequacy assessment) and legislative revisions (e.g. of the TEN-E Regulation20).  Review the Primary Energy Factor, in order to fully recognise energy efficiency savings via renewable electricity and heat, as part of the review of the Energy Efficiency Directive (June 2021). To build a more circular energy system:  Facilitate the reuse of waste heat from industrial sites and data centres, through strengthened requirements for connection to district heating networks, energy 17 C(2018) 7118 final. 18 Wastewater treatment plants represent almost 1% of electricity consumption in Europe. This consumption can be reduced with more efficient technologies, and energy can be better recovered from those plants. 19 The overall potential for increased biogas production from waste and residues remains high and, if fully exploited, could lead to biogas and biomethane production levels in 2030 of 2.7–3.7% of the EU’s energy consumption in 2030. See CE Delft, Eclareon, Wageningen Research, Optimal use of biogas from waste streams. An assessment of the potential of biogas from digestion in the EU beyond 2020, 2017. 20 Regulation on Trans-European Networks in Energy, Regulation (EU) 347/2013. 6  performance accounting and contractual frameworks, as part of the revision of the Renewable Energy Directive and of the Energy Efficiency Directive (June 2021).  Incentivise the mobilisation of biological waste and residues from agriculture, food and forestry sectors and support capacity-building for rural circular energy communities through the new Common Agriculture Policy, Structural Funds and the new LIFE programme (from 2021 onwards). 3.2. Accelerating the electrification of energy demand, building on a largely renewables-based power system Electricity demand is projected to increase significantly on a pathway towards climate neutrality, with the share of electricity in final energy consumption growing from 23% today to around 30% in 2030, and towards 50% by 205021. In comparison, that share has only increased by 5 percentage points over the last thirty years. This growing electricity demand will have to be largely based on renewable energy. By 2030, the share of renewable energy in the electricity mix should double to 55-60%, and projections show a share of around 84% by 2050. The remaining gap should be covered by other low-carbon options22. Significant cost reductions in renewable power generation technologies have occurred in the last decades and are expected to continue – providing prospects that market forces will increasingly deliver investments. However, given the scale of the investments needed, it is urgent to tackle the barriers that still prevent a massive roll-out of renewable electricity, across all technologies. These include underdeveloped supply chains, the need for more and smarter grid infrastructure at national and cross-border level, the lack of public acceptance, administrative barriers and lengthy permitting (including for repowering), financing, the need for public or private long-term hedging options, or high costs for some less mature technologies. The need for increased electricity supply can, alongside other relevant onshore renewable power technologies such as solar or wind energy, partly be met by offshore renewable energy production. The potential of offshore wind energy in the EU is between 300-450 GW by 205023, against today's capacity of some 12 GW24. This represents a huge opportunity for the EU industry to become the global leader in offshore technology, but will require considerable efforts to increase the European industrial capacity and build new value chains. Offshore electricity production also creates an opportunity for the nearby localisation of electrolysers for hydrogen production, including the possible reuse of the existing infrastructure of depleted natural gas fields. In addition, the development of solar energy will be further facilitated. In the short term, the Commission will use the new recovery instrument Next Generation EU to support the continued deployment of renewable energy. It will assess opportunities to 21 LTS, figure 20, looking at the 1.5LIFE and 1.5TECH scenarios for 2050. 22 LTS, figure 23, looking at the 1.5LIFE and 1.5TECH scenarios for 2050. 23 LTS, figure 24, including the UK. 24 20 GW including the UK. 7 channel EU funds through, or in combination with, the new EU renewable energy financing mechanism25. On the demand side, certain incentives to electrification are provided for instance through the sectoral targets set out in the Renewable Energy Directive, and in transport through CO2 standards for vehicles, in the Alternative Fuel Infrastructure Directive and the Clean Vehicles Directive26. But challenges for increased electrification remain and differ per sector and across Member States and more needs to be done. In buildings, electrification is expected to play a central role, in particular through the roll-out of heat pumps for space heating and cooling. In the residential sector, the share of electricity in heating demand should grow to 40% by 2030 and to 50-70% by 2050; in the services sector, these shares are expected to be around 65% by 2030 and 80% by 205027. Large-scale heat pumps will play a relevant role in district heating and cooling. The most important barrier is the relatively higher level of taxes and levies applied to the electricity, and the lower levels of taxation for fossil fuels (oil, gas and coal) used in the heating sector, leading to lack of level playing field. Progress is also hampered by a number of other barriers, including unfit infrastructure planning, building codes and products standards, lack of skilled workforce for installation and maintenance, lack of public and private financing instruments, and lack of internalisation of CO2 costs in heating fuels. This translates into low replacement rates of the EU fossil heating stocks, low development and modernisation of district heating/cooling networks, and low building refurbishment rates. With the Renovation Wave initiative, the Commission will ensure a higher penetration of renewables in buildings. It will also support training programmes under the Updated Skills Agenda. In industry, heat represents more than 60% of energy use. Industrial heat pumps can help decarbonise the low temperature heat supply within industries, and can be coupled with waste heat recovery. Other technologies are being developed for higher temperature heating (such as microwave or ultrasound) and for electrifying processes by electrochemistry. Barriers to deployment include lack of information and long pay-back, due to the high price of electricity relative to gas and the high abatement cost associated with these technologies, relative to current CO2 prices. Changes in the production process leading to higher costs could also affect the competitiveness of sectors exposed to international competition. EU support could help develop a number of flagship projects and demonstrate innovative electricity-based processes. Furthermore, the industrial supply chain for these technologies is not sufficiently mature and the integration of these electrification technologies into industrial processes requires training and new skills. The Commission will explore, together with industry, ways to address these issues. In transport28, the Sustainable and Smart Mobility Strategy is foreseen for later this year, and will set out how our transport system needs to decarbonise and modernise to reduce its emissions by 90% in 205029. Electric mobility is key, and will accelerate decarbonisation and reduce pollution, especially in our cities, and new mobility services will increase the efficiency of the transport system and reduce congestion. The rapidly falling cost of electric 25 https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12369-Union-renewable-Financing- mechanism 26 Directive (EU) 2019/1161 on the promotion of clean and energy-efficient road transport vehicles. 27 LTS, figure 42. 28 Including mobile machinery. 29 LTS 8 vehicles means that they could be competitive with combustion engine vehicles around 2025, on a total cost of ownership basis30. The European Green Deal points to the need of stepping up the roll out of recharging infrastructure, starting with the ambitious objective of having at least one million publicly accessible recharging and refuelling points by 2025, as well as the use of on-shore power supply in ports. To that end the Commission will mobilise InvestEU – which will be reinforced and include a new Strategic Investment Facility – and the Connecting Europe Facility funding to broaden the coverage of the charging infrastructure network. Support through the Recovery and Resilience Facility and through Cohesion Policy to clean vehicles and alternative fuels infrastructure will be a priority as part of the strengthened focus on delivering the European Green Deal in our regions and cities, including in public buildings, offices, depots and private dwellings. The Renovation Wave initiative also offers opportunities to promote electric chargers and electric vehicle charging stations. The Commission will also propose to revise the Alternative Fuels Infrastructure Directive and the TEN-T Regulation – also assessing how to further strengthen synergies between the TEN- T and TEN-E policies. The Commission will accompany the continued support under the Connecting Europe Facility with a further mapping of funding opportunities and regulatory initiatives for the roll-out of recharging infrastructure. The Commission will also tackle challenges to make electro-mobility more attractive to the user such as the non-transparent pricing at public charging stations and the persistent lack of cross-border interoperability of charging services. Measures are also needed to boost the use of renewable electricity at ports, to facilitate the electrification of road freight transport. Further electrification of railways could be explored taking into account its economic viability31. Overall, a growing use of electricity in end-use sectors will mean a need to keep under review the adequacy of renewable electricity supply, to ensure that it can match the scale required to support the decarbonisation of the abovementioned sectors. Electrification can present challenges for the management of the electricity system. Regional and cross-border coordination between Member States will become increasingly important. This will be addressed by the development of Regional Coordination Centres32 in 2022, allowing for more robust security analysis, emergency and outage coordination and common infrastructure planning, and the deployment of storage and other flexibility options. The Commission will support the uptake of energy storage through full implementation of the Clean Energy Package and in the upcoming legislative reviews, including the review of the TEN-E Regulation. Challenges are also expected at a more local level. For instance, the full electrification of passenger road transport will require in parts of the Union upgrades to the local grid infrastructure. At the same time, it can create opportunities for providing storage and flexibility to the system33. In particular, smart charging and so-called Vehicle-to-Grid (V2G) services will be essential to manage grid congestion and limit costly investments in grid capacity. The Electricity Directive contains a number of provisions that lay the basis for enabling smart charging and the development of V2G services, but challenges still remain, for instance regarding the deployment of smart recharging points, common standards and communication protocols, grid charges, taxation and access to the in-vehicle data. The 30 See for instance BNEF, Electric Vehicle Outlook, 2020. 31 Over 50% of the rail network and around 80% of the rail traffic is already electrified. 32 Regulation (EU) 2019/943. 33 See Trinomics, Energy storage – Contribution to the security of the electricity supply in Europe, 2020. 9 development of a new Network Code on Demand Side Flexibility as well as the review of the Alternative Fuels Infrastructure Directive both present opportunities to create a robust framework for the successful integration of demand-side flexibility in general, and electric vehicles in particular. Electrification efforts of areas not connected to the continental grid, such as the Outermost Regions, some islands, or remote or sparsely populated areas present specific challenges. Technical and financial support for energy system integration is particularly relevant for a cost-effective transition in these regions. Key actions To ensure continued growth in the supply of renewable electricity:  Through the Offshore Renewable Strategy and follow-up regulatory and financing actions, ensure the cost-effective planning and deployment of offshore renewable electricity, taking into account the potential for on-site or nearby hydrogen production, and strengthen EU's industrial leadership in offshore technologies (2020).  Explore establishing minimum mandatory green public procurement (GPP) criteria and targets in relation to renewable electricity, possibly as part of the revision of the Renewable Energy Directive (June 2021), supported by capacity building financing under the LIFE programme.  Tackle remaining barriers to a high level of renewable electricity supply that matches the expected growth in demand in end-use sectors, including through the review of the Renewable Energy Directive (June 2021). To further accelerate the electrification of energy consumption:  As part of the Renovation Wave initiative, promote the further electrification of buildings’ heating (in particular through heat pumps), the deployment of on-buildings renewable energy, and the roll-out of electric vehicle charging points (from 2020 onwards) , using all available EU funding, including the Cohesion Fund and InvestEU.  Develop more specific measures for the use of renewable electricity in transport, as well as for heating and cooling in buildings and industry, in particular through the revision of the Renewable Energy Directive, and building on its sectoral targets (June 2021).  Finance pilot projects for the electrification of low-temperature process heat in industrial sectors through Horizon Europe and the Innovation Fund (by 2021).  Assess options to support the further decarbonisation of industrial processes, including through electrification and energy efficiency, in the revision of the Industrial Emissions Directive (2021)34.  Propose to revise CO2 emission standards for cars and vans to ensure a clear pathway from 2025 onwards towards zero-emission mobility (June 2021). To accelerate the roll-out of electric vehicle infrastructure and ensure the integration of new loads:  Support the roll-out of 1 million charging points by 2025, using available EU funding, 10  including the Cohesion Fund, InvestEU and Connecting Europe Facility funding, and communicate regularly on the funding opportunities and regulatory environment to roll out a charging infrastructure network (from 2020 onwards).  Use the upcoming revision of the Alternative Fuels Infrastructure Directive to accelerate the roll-out of the alternative fuels infrastructure, including for electric vehicles, strengthen interoperability requirements, ensure adequate customer information, cross- border usability of charging infrastructure, and the efficient integration of electric vehicles in the electricity system (by 2021).  Take up corresponding requirements for charging and refuelling infrastructure in the revision of the Regulation for the Trans-European Transport network (TEN-T) (by 2021) and explore greater synergies through the revision of the TEN-E Regulation in view of possible energy network related support for cross border high capacity recharging as well as possibly hydrogen refuelling infrastructure (by 2020).  Develop a Network Code on Demand Side Flexibility35 to unlock the potential of electric vehicles, heat pumps and other electricity consumption to contribute to the flexibility of the energy system (starting end-2021). 3.3. Promote renewable and low-carbon fuels, including hydrogen, for hard- to-decarbonise sectors While direct electrification and renewable heat present the most cost-effective and energy- efficient decarbonisation options in many cases, there are a number of end-use applications where they might not be feasible or have higher costs. In such cases, a number of renewable or low-carbon fuels could be used, such as sustainable biogas, biomethane and biofuels, renewable and low-carbon hydrogen or synthetic fuels. These cases include a number of industrial processes, but also transport modes such as aviation and maritime, where sustainable alternative fuels such as advanced liquid biofuels and synthetic fuels will have an essential role to play. Rapid action is necessary: for example, in aviation, only around 0.05% of total jet fuel consumption comes from liquid biofuels. Unlocking the potential of renewable fuels produced from sustainable biomass Today, biofuels36, biogas and biomethane37 account for only 3.5% of all gases and fuels consumption38 and are largely based on food and feed crops. Their full potential should be achieved in a sustainable manner, which mitigates climate, pollution and biodiversity risks 39. Biofuels will have an important role to play, notably in hard-to-decarbonise transport modes, such as aviation or maritime – including through hybridisation projects linking biofuels and renewable hydrogen production. The Commission will in particular explore how to support to 35 Under Regulation (EU) 2019/943. 36 Biofuels are liquid fuels produced from biomass, through a variety of processes and using a variety of feedstock, such as biodiesel, bioethanol and Hydrotreated Vegetable Oils (HVO). 37 Biogas is a gaseous mixture (primarily methane and carbon dioxide) produced from biomass, through the decomposition of organic matter in the absence of oxygen (anaerobically). Biogas can be used directly as a fuel, or be purified or “upgraded” into biomethane, which can thus be used for the same applications as natural gas and injected into the gas grid. 38 Source: Eurostat. 39 Directive 2018/2001 establishes a cap to first generation biofuels and limitations to high Indirect Land Use Change (ILUC) risk food and feedstocks, while reinforcing and extending sustainability criteria. 11 the quick development of innovative low-carbon fuels such as advanced biofuels, alongside synthetic fuels, across the whole value chain of the industry in Europe, leading to better coordination of the market actors and rapid increase of production capacity. Biomethane can contribute to the decarbonisation of the gas supply. However, the deployment of biofuels and biogases has so far been hampered by regulatory uncertainty. The revised Renewable Energy Directive has taken a first step to address these issues by introducing a target of 3.5% for the consumption of advanced biofuels and biogas in transport40. The 6% greenhouse gas emission target of the Fuel Quality Directive also supports the deployment of biofuels. In addition, the Communication ‘The role of Waste to Energy in the circular economy’41 clarifies which waste-to-energy approaches are more sustainable, including for the production of biomethane, while the Biodiversity Strategy underlines that the use of whole trees and food and feed crops for energy production should be minimised. The revision of the Renewable Energy Directive, as well as the Commission initiatives to boost the supply and uptake of sustainable aviation and maritime fuels announced in the European Green Deal, will present opportunities for further targeted support to accelerate the development of the market for biofuels and biogases. Promoting the use of renewable hydrogen in hard-to-decarbonise sectors Today, hydrogen contributes less than 2% of Europe’s energy consumption42, and is almost exclusively produced from unabated fossil fuels. Hydrogen has an important role to play in reducing emissions in hard-to-decarbonise sectors, in particular as a fuel in certain transport applications (heavy-duty road transport, captive fleets of buses, or non-electrified rail transport, maritime transport and inland waterways) and as a fuel or feedstock in certain industrial processes (steel, refining or chemical industries – including to produce ‘green fertilisers’ for agriculture). Carbon dioxide in reaction with hydrogen can also be further processed into synthetic fuels, such as synthetic kerosene in aviation. In addition, hydrogen brings other environmental co-benefits, such as the lack of air pollutant emissions. Hydrogen produced through electrolysis using renewable electricity can play a particularly important “nodal” role in an integrated energy system, where it can help integrate large shares of variable renewable generation, by offloading grids in times of abundant supply, and providing long term storage to the energy system. It can also allow local renewable electricity production to be used in a range of additional end-use applications. The Hydrogen Strategy, adopted today, presents measures to create the conditions for hydrogen to contribute to decarbonising the economy in a cost-effective way, addressing the whole hydrogen value chain to support economic growth and recovery. The priority for the EU is to develop hydrogen production from renewable electricity which is the cleanest solution. In a transitional phase however, other forms of low-carbon hydrogen are needed to replace existing hydrogen and kick-start an economy of scale. In addition to providing financial support in certain end-use applications, the Commission will consider establishing 40 The use of “advanced” biofuels and biogas (gained from certain residues and by-products from agriculture and forestry activities, industrial and municipal waste in full respect of the waste hierarchy, and other ligno- cellulosic material) is encouraged under the Directive 2018/2001. Biofuels and biogas need to meet sustainability requirements to be statistically accounted as renewable under that Directive. 41 COM(2017) 034 final. 42 Calculated on the basis of production data provided by Fuel Cells and Hydrogen Joint Undertaking, includes the use of hydrogen as a feedstock; FCHJI, Hydrogen roadmap, 2019. 12 minimum shares or quotas of renewable hydrogen in specific end-use sectors. Renewable and low-carbon fuels (including hydrogen) can be promoted most effectively if they can be easily distinguished from more polluting energy sources. Therefore, the Commission will work to introduce a comprehensive terminology and a European certification system covering all renewable and low carbon fuels43. Such a system, based notably on full life cycle greenhouse gas emissions savings, will allow for more informed choices when deciding on policy options at the EU or national level. Enabling carbon capture, storage and use to support deep decarbonisation, including synthetic fuels Even a fully integrated energy system cannot completely eliminate CO2 emissions from all parts of the economy. Together with alternative process technologies, carbon capture and storage (CCS) is likely to play a role in a climate-neutral energy system. In particular CCS can address hard-to-abate emissions in certain industrial processes, thus enabling these industries to have a place in a climate neutral economy and maintaining industrial jobs in Europe. In addition, if the stored CO2 was captured from biogenic sources or directly from the atmosphere, CCS could even compensate residual emissions in other sectors. An alternative to the permanent storage of CO2 is to combine it with renewable hydrogen to produce synthetic gases, fuels and feedstock (Carbon Capture and Use, or CCU). Synthetic fuels can be associated with very different levels of greenhouse gas emissions depending on the origin of CO2 (fossil, biogenic, or captured from the air), and the process used. Fully carbon-neutral synthetic fuels require sourcing the CO2 from biomass or the atmosphere. Synthetic fuels are currently inefficient in terms of energy required for production and are confronted with high production costs. Support to progress the development of this conversion technology, including demonstration and upscaling of the full production process, is relevant with a view to having substitutes for fossil fuels in particular in the most difficult to decarbonise sectors, which may continue to rely on high energy density liquid fuels, such as aviation. As their production requires large amounts of renewable energy, their uptake would have to be matched by a corresponding increase in renewable energy supply. It is of key importance to properly monitor, report and account the emissions and removals of CO2 associated with the production of synthetic fuels to reflect correctly their actual carbon footprint. Complementing the current greenhouse gas emission monitoring and reporting system, a robust carbon removal certification mechanism will ensure the traceability of the CO2 along its emission, capture, use and potential reemission throughout our economic system. The Development of a carbon removal certification system, as announced in the Circular Economy Action Plan44, can provide regulatory incentives for market take-up of synthetic fuels. The uptake of CO2 capture and usage in Europe is slow, with investment and operational costs still high. There are also barriers that prevent the transport of CO2 to those places where it will be stored or used. In some parts of the EU, there are also concerns among citizens and political decision-makers regarding the storage of CO2. An annual European CCUS Forum could be convened as part of the Clean Energy Industrial Forum to further study options to foster CCUS projects. 43 See also Hydrogen Strategy, COM(2020) 301 final. 44 COM(2020) 98 final. 13  Key actions  Propose a comprehensive terminology for all renewable and low-carbon fuels and a European system of certification of such fuels, based notably on full life cycle greenhouse gas emission savings and sustainability criteria, building on existing provisions including in the Renewable Energy Directive (June 2021).  Consider additional measures to support renewable and low-carbon fuels, possibly through minimum shares or quotas in specific end-use sectors (including aviation and maritime), through the revision of the Renewable Energy Directive and building on its sectoral targets (June 2021), complemented, where appropriate, by additional measures assessed under the REFUEL Aviation and FUEL Maritime initiatives (2020). The support regime for hydrogen will be more targeted, allowing shares or quota only for renewable hydrogen.  Promote the financing of flagship projects of integrated, carbon-neutral industrial clusters producing and consuming renewable and low-carbon fuels, through Horizon Europe, InvestEU and LIFE programmes and the European Regional Development Fund (from 2021).  Stimulate first-of-a-kind production of fertilisers from renewable hydrogen through Horizon Europe (from 2021).  Demonstrate and scale-up the capture of carbon for its use in the production of synthetic fuels, possibly through the Innovation Fund (from 2021).  Develop a regulatory framework for the certification of carbon removals based on robust and transparent carbon accounting to monitor and verify the authenticity of carbon removals (by 2023). 3.4. Making energy markets fit for decarbonisation and distributed resources In an integrated energy system, trustworthy and efficient markets should guide customers towards the most energy-efficient and cheapest decarbonisation option, on the basis of prices that properly reflect all the costs of the energy carrier used. Ensuring non-energy price components contribute to decarbonisation across energy carriers In many EU Member States, taxes and levies on electricity are higher than for coal, gas or heating oil, both in absolute value and as a share of total price45. Over the past years, charges and levies on electricity, such as those financing renewable support schemes, have continued to increase. At the same time, the energy component of the final (retail) electricity price has reduced both in absolute and relative terms. This has widened the asymmetry in non-energy costs between electricity and gas: for retail household electricity prices, for instance, taxes and levies now add up to 40% of the final price, compared to 26% of gas or 32% for heating oil46. Some other energy- or carbon-intensive sectors such as international aviation and maritime transport, as well as agriculture, can be subject to low or no VAT, and, under the current Energy Taxation Directive, to low energy excise duties. Also, carbon costs are only partially internalised, or not internalised at all, in some sectors (e.g. road and maritime transport or space heating) or in some Member States, or may not be 45 DG Energy, Energy Prices and Costs Report, 2019. 46 DG Energy, Energy Prices and Costs Report, 2019. 14 sufficient to incentivise decarbonisation in some sectors covered by the ETS (e.g. aviation). Finally, fossil fuel subsidies also persist in the EU. Overall, applicable taxes and levies, including carbon pricing, are not applied homogeneously across energy carriers and sectors, and create distortions towards the use of specific carriers. Finally, the specificities of electricity used for energy storage or for hydrogen production should also be considered, avoiding double taxation (so that energy is only taxed once when delivered for final consumption), and avoiding unjustified double grid charges. Placing consumers at the centre Clear and easily accessible information is essential to enable citizens to change energy consumption patterns and switch to solutions that support an integrated energy system. Customers – citizens and businesses alike – should be informed on their rights, on the technology options available to them and their associated carbon and environmental footprint, so they can make informed choices and truly drive decarbonisation. It is important that vulnerable households are not left behind and energy poverty is addressed47. In the context of the Climate Pact, the Commission will launch a consumer information campaign on their rights related to the energy market. Customer information rights for electricity customers have been enhanced with the Clean Energy Package – further work remains to be done for gas and district heating customers to align those with the electricity sector. Furthermore, markets for sustainable products and services are still missing, for instance for products such as steel, cement and chemicals produced from renewable or low-carbon fuels. As part of the broader efforts announced in the Circular Economy Action Plan to improve sustainability of such intermediary products, consumers should receive relevant information that may encourage them to pay a price premium. Making electricity and gas markets fit for decarbonisation48 The Clean Energy Package already laid the foundation to make electricity markets fit to integrate large amounts of variable electricity and the integration of flexibility from demand response and storage, while improving the market signals to stimulate investments and empowering electricity customers. The challenge now lies in implementing the measures properly, in particular the completion of market coupling through day-ahead and intraday trading. As we progress towards climate-neutrality, the volume of natural gas consumed in Europe will progressively reduce. While gaseous fuels are expected to continue to play an important role in our energy mix49, the mix of gaseous fuels will highly depend on the chosen decarbonisation pathway. By 2050, the share of natural gas in gaseous fuels is projected to 47 In line with the European Pillar of Social Rights (principle 20) that guarantees the access to essential services, including energy. 48 Issues connected to the creation of open and competitive markets for hydrogen are covered in the dedicated Hydrogen Strategy. 49 LTS, figure 33: the 1.5TECH and LTS 1.5LIFE scenarios project a share of 18-22% for gaseous fuels in the EU energy mix by 2050, compared to 25% today. 15 reduce to 20%, and most of the remaining 80% gaseous fuels should be of renewable origin50. But the future mix of these gaseous energy carriers – biogas, biomethane, hydrogen or synthetic gases – is hard to project. The gas market regulatory framework should be re-examined so as to facilitate the uptake of renewable gases and customer empowerment, whilst ensuring an integrated, liquid and interoperable EU internal gas market. In this context, issues to consider include the connection to infrastructure and the market access for distributed production of renewable gases, including at the distribution level, which would complement the use of renewable gases in a more local, circular context (such as biogas used on farm). In addition, with renewable gases injected into the gas network, and supply sources further diversified, the quality parameters of gas consumed and transported in the EU would change. To avoid this leading to market segmentation and trade restrictions, there is a need to look at how to ensure the interoperability across gas systems and the unhindered flow of gases across Member States’ borders. Updating the State aid framework The current review of the State aid framework, and notably its guidelines on energy and environmental protection, will contribute to energy system integration by providing a fully updated and fit-for-purpose enabling framework for a cost-effective deployment of clean energy and the well-functioning of energy markets51. Key actions To promote a level-playing field across all energy carriers:  Issue guidance to Member States to address the high charges and levies borne by electricity and to ensure the consistency of non-energy price components across energy carriers (by 2021).  Align the taxation of energy products and electricity with EU environment and climate policies, and ensure a harmonised taxation of both storage and hydrogen production, avoiding double taxation, through the revision of the Energy Taxation Directive52.  Provide more consistent carbon price signals across energy sectors and Member States, including through a possible proposal for the extension of the ETS to new sectors (by June 2021).  Further work towards the phasing out of direct fossil fuel subsidies, including in the context of review of the State aid framework and the revision of the Energy Taxation Directive (from 2021 onwards).  Ensure that the revision of the State aid framework supports cost-effective decarbonisation of the economy where public support remains necessary (by 2021). 50 LTS, figures 28 to 32. 51 Beyond those provisions, the Research, Development and Innovation Framework and the Communication setting out criteria for the analysis of the compatibility with the internal market of State aid to promote the execution of important projects of common European interest are also relevant. 52 Initial Impact Assessment for the revision of the Energy Taxation Directive: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12227 16 To adapt the gas regulatory framework:  Review the legislative framework to design a competitive decarbonised gas market, fit for renewable gases, including to empower gas customers with enhanced information and rights (by 2021). To improve customer information:  In the context of the Climate Pact, launch a consumer information campaign on energy customer rights (by 2021).  Improve information to customers on the sustainability of industrial products (in particular steel, cement and chemicals) as part of the sustainable product policy initiative, and, as appropriate, through complementary legislative proposals (by 2022). 3.5. A more integrated energy infrastructure Energy system integration will translate into more physical links between energy carriers. This calls for a new, holistic approach for both large-scale and local infrastructure planning, including the protection and resilience of critical infrastructures. The objective should be to make the most of the existing infrastructure while avoiding both lock-in effects and stranded assets. Infrastructure planning should facilitate the integration of various energy carriers and arbitrate between the development of new infrastructure or re-purposing of existing ones. It should consider alternatives to network-based options, especially demand- side solutions and storage. The various components of the energy network will all need to evolve. Modern low- temperature district heating systems should be promoted, as they can connect local demand with renewable and waste energy sources, as well as the wider electric and gas grid – contributing to the optimisation of supply and demand across energy carriers. However, district heating networks account for 12% of the total final heating and cooling energy consumption, are highly concentrated in a few Member States, and only a limited share of them are highly efficient and based on renewables. Implementing the Clean Energy Package will contribute to a more efficient use of electricity grids. Nevertheless, accelerated electrification of new end-uses will require to reinforce the grid, mainly at distribution but also at transmission level53, and to make it smarter. Electrolysers will link up to the electricity grids, and possibly to existing gas grids. In the context of the assessment of Member States' National Energy and Climate Plans, the Commission will also analyse the progress towards the 15% electricity interconnection target and consider appropriate action, including in the context of the revision of the TEN-E Regulation. The existing gas network provides ample capacities across the EU to integrate renewable and low-carbon gases and repurposing gas network for hydrogen applications may provide in some cases a cost-efficient solution, including to transport renewable hydrogen from offshore renewable electricity parks. Ports could transform into centres receiving electricity produced offshore, as well as liquid hydrogen, and thereby contribute to enable the global trade of renewable hydrogen or synthetic fuels. 53 In line also with the EU electricity interconnection target included under Regulation (EU) 2018/1999 on the Governance of the Energy Union and Climate Action 17 While gas networks may be used54 to enable blending of hydrogen to a limited extent during a transitional phase, dedicated infrastructures for large-scale storage and transportation of pure hydrogen, going beyond point-to-point pipelines within industrial clusters, may be needed. The expansion of hydrogen refuelling stations will also be assessed as part of the revision of the Alternative Fuels Infrastructure Directive and the Regulation on the TEN-T guidelines. Similarly, further reflection is needed on the role of CO2-dedicated infrastructure, transporting CO2 across industrial sites for further use, or to large scale storage facilities. The Regulation on Trans-European Networks in Energy (TEN-E) provides a framework for the selection of infrastructure projects of common interest in electricity, gas and CO2 networks. In this context, currently, 10-Year Network Development Plans (TYNDPs) at national and EU level are developed in parallel for gas and electricity by Transmission System Operators. Future network planning will require a more integrated and cross-sectoral approach, notably of the electricity and gas sectors. It will also require full consistency with climate and energy targets, including alignment with National Energy and Climate Plans, an adequate consideration of all relevant actors, and should be informed by local conditions. The Commission will ensure that the ongoing revision of the TEN-E Regulation makes it fully consistent with climate neutrality and enables the cost-effective integration of the energy system, as well as its integration with the digital and transport systems. The ongoing revision of the Regulation on the Trans-European Transport network (TEN-T) will also seek synergies with the TEN-E Regulation, aiming to generate additional opportunities for the decarbonisation of transport from the new vision of energy infrastructure planning. Finally, increasing interdependencies mean that disruptions in one sector can have an immediate impact on operations in others and a new coherent security approach for both physical and digital infrastructures is necessary. The new Security Union Strategy will address both critical infrastructure and cybersecurity and needs to be accompanied by sector- specific initiatives to tackle the specific risks faced by critical infrastructures such as in an integrated energy system and infrastructure. Key actions  Ensure that the revisions of the TEN-E and TEN-T regulations (in 2020 and 2021, respectively) fully support a more integrated energy system, including through greater synergies between the energy and transport infrastructure, as well as the need to achieve the 15% electricity interconnection target for 2030.  Review the scope and governance of the TYNDP to ensure full consistency with the EU’s decarbonisation objectives and cross-sectoral infrastructure planning as part of the revision of the TEN-E Regulation (2020) and other relevant legislation (2021).  Accelerate investment in smart, highly-efficient, renewables-based district heating and cooling networks, if appropriate by proposing stronger obligations through the revision of the Renewable Energy Directive and the Energy Efficiency Directive (June 2021), and the 54 A blend of 5-20% by volume can be tolerated by most systems without the need for major infrastructure upgrades or end-use appliance retrofits or replacements. See for instance BNEF, Hydrogen Economy Outlook, 2020. 18  financing of flagship projects. 3.6. A digitalised energy system and a supportive innovation framework Digitalisation supports energy system integration – it can enable dynamic and interlinked flows of energy carriers, allow for more diverse markets to be connected with another, and provide the necessary data to match supply and demand at a more disaggregated level and close to real time. A combination of novel sensors, advanced data exchange infrastructures, and data handling capabilities that make use of Big Data, Artificial Intelligence, 5G and distributed ledger technologies can enhance forecasting, allow the remote monitoring and management of distributed generation and improve asset optimisation, including the on-site use of self-generation. Digitalisation is also key to unleash the full potential of customers having a flexible energy consumption across different sectors to contribute to the efficient integration of more renewables. More generally, digitalisation provides an opportunity for economic growth and worldwide technological leadership. Digitalisation represents a challenge in terms of increased energy demand for ICT equipment, networks and services which needs to be adequately managed in the context of an integrated energy system. Digitalisation also brings other challenges for the energy sector, in particular on ethics, privacy and cybersecurity, with consideration to the specificity of the energy sector. A system-wide Digitalisation of Energy action plan could accelerate the implementation of digital solutions, building on the Common European energy data space55, announced in the European Data strategy. As part of the implementation of the Clean Energy Package, it will roll-out smart metering, foster demand response, and ensure the interoperability of energy- related data. It will also use EU funding opportunities such as the Connecting Europe Facility, InvestEU, the Digital Europe Programme, and structural funds to scale-up solutions developed through Horizon Europe. Finally, research and innovation will be a key enabler to create and exploit new synergies in the energy system, for instance in relation to e-mobility, to heating or to the decarbonisation of energy intensive industries. Research should focus on enabling lower maturity technologies to come into the market, while more mature and innovative technologies should be scaled up through large scale demonstrations through the proposed Horizon Europe and its partnerships and making use of complementarities among the various EU funding programmes. Technology development must go hand in hand with societal innovation. Key actions  Adopt a Digitalisation of Energy Action plan to develop a competitive market for digital energy services that ensures data privacy and sovereignty and supports investment in digital energy infrastructure (2021).  Develop a Network Code on cybersecurity in electricity56 with sector-specific rules to increase the resilience and cybersecurity aspects of cross-border electricity flows, 55 https://ec.europa.eu/info/sites/info/files/communication-european-strategy-data-19feb2020_en.pdf 56 Under Regulation (EU) 2019/943. 19  common minimum requirements, planning, monitoring, reporting and crisis management (by end 2021).  Adopt the implementing acts on interoperability requirements and transparent procedures for access to data within the EU (first one in 2021)57.  Publish a new impact-oriented clean energy research and innovation outlook for the EU to ensure research and innovation supports energy system integration (by end 2020). 4. CONCLUSIONS This communication sets out a strategy and a set of actions to ensure that energy system integration can contribute to the energy system of the future – one that is efficient, resilient, secure and driven by the twin goals of a cleaner planet and a stronger economy for all. The transition to a more integrated energy system is of crucial importance for Europe, now more than ever. First, for recovery. The COVID-19 outbreak has weakened the European economy and undermines the future prosperity of European citizens and business. This strategy is part of the recovery plan. It proposes a path forward that is cost-effective, promotes well-targeted investments in infrastructure, avoids stranded assets and leads to lower bills for businesses and customers. In short, it is key to accelerating the EU’s emergence from this crisis and for mobilising necessary EU funding, including the Cohesion Fund, as well as private investments. Second, for climate neutrality. Energy system integration is essential to reach increased 2030 climate targets and climate neutrality by 2050. It exploits energy efficiency potential, enables a larger integration of renewables, the deployment of new, decarbonised fuels, and a more circular approach to energy production and transmission. Finally, a truly integrated energy system is vital for shaping Europe’s global leadership in clean energy technologies, by leveraging Europe’s existing strengths – an established leadership in renewable energy; a regional approach to system operation and infrastructure planning; liberalised energy markets; and excellence in energy innovation and digitalisation. We are still far from where we need to be by 2050. To get there, both fundamental and far- reaching action is urgently needed. The Clean Energy Package adopted in 2018-2019 lays the foundation for system integration and should be fully implemented. In the context of the Green Deal, the new actions outlined in this communication will add the necessary scope and speed to move towards the energy system of the future, contributing to the EU’s increased climate ambition and to shaping the legislative revisions to be proposed in June 2021. The time to act is now. Obviously, system integration will not be a one-size-fits-all process: despite a common objective of EU climate neutrality by 2050, EU Member States have different starting points. As such, Member States will follow different pathways, depending on their respective circumstances, endowments and policy choices, which are already reflected in the respective National Energy and Climate Plans (NECPs). This strategy offers a compass to direct these efforts in the same direction. Citizens have a central role in system integration. This means that they should contribute to shape the implementation of this Strategy, using the Climate Pact as well as other existing citizen fora to advance the system integration agenda. 57 Under Article 24 of Directive (EU) 2019/944. 20 With this document, the Commission invites the Council, the Parliament, other EU institutions and all stakeholders to focus on how to take forward energy system integration in Europe. It intends to invite interested parties to debate in a large dedicated public event at the end of this year and to contribute to the public consultations and impact assessments that will inform the preparation of the follow-up proposals envisaged for 2021 and beyond. 21 EUROPEAN COMMISSION Brussels, 8.7.2020 COM(2020) 301 final COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS A hydrogen strategy for a climate-neutral Europe EN EN 1. INTRODUCTION – WHY WE NEED A STRATEGIC ROAD MAP FOR HYDROGEN Hydrogen is enjoying a renewed and rapidly growing attention in Europe and around the world. Hydrogen can be used as a feedstock, a fuel or an energy carrier and storage, and has many possible applications across industry, transport, power and buildings sectors. Most importantly, it does not emit CO2 and almost no air pollution when used. It thus offers a solution to decarbonise industrial processes and economic sectors where reducing carbon emissions is both urgent and hard to achieve. All this makes hydrogen essential to support the EU’s commitment to reach carbon neutrality by 2050 and for the global effort to implement the Paris Agreement while working towards zero pollution. Yet, today, hydrogen represents a modest fraction of the global and EU energy mix, and is still largely produced from fossil fuels1, notably from natural gas or from coal, resulting in the release of 70 to 100 million tonnes CO2 annually in the EU. For hydrogen to contribute to climate neutrality, it needs to achieve a far larger scale and its production must become fully decarbonised. In the past, there have been peaks of interest in hydrogen, but it did not take off. Today, the rapid cost decline of renewable energy, technological developments and the urgency to drastically reduce greenhouse emissions, are opening up new possibilities. Many indicators signal that we are now close to a tipping point. Every week new investment plans are announced, often at a gigawatt scale. Between November 2019 and March 2020, market analysts increased the list of planned global investments from 3,2 GW to 8,2 GW of electrolysers by 2030 (of which 57% in Europe)2 and the number of companies joining the International Hydrogen Council has grown from 13 in 2017 to 81 today. There are many reasons why hydrogen is a key priority to achieve the European Green Deal and Europe’s clean energy transition. Renewable electricity is expected to decarbonise a large share of the EU energy consumption by 2050, but not all of it. Hydrogen has a strong potential to bridge some of this gap, as a vector for renewable energy storage, alongside batteries, and transport, ensuring back up for seasonal variations and connecting production locations to more distant demand centres. In its strategic vision for a climate-neutral EU published in November 20183, the share of hydrogen in Europe’s energy mix is projected to grow from the current less than 2%4 to 13-14% by 20505. Furthermore, hydrogen can replace fossil fuels in some carbon intensive industrial processes, such as in the steel or chemical sectors, lowering greenhouse gas emissions and further strengthening global competitiveness for those industries. It can offer solutions for hard to abate parts of the transport system, in addition to what can be achieved through electrification and other renewable and low-carbon fuels. A progressive uptake of hydrogen solutions can 1 Within the EU, the currently operating 300 electrolyses produce less than 4% of total hydrogen production - Fuel Cells and Hydrogen Joint Undertaking, 2019, Hydrogen Roadmap Europe. 2 Wood Mackenzie, Green hydrogen pipeline more than doubles in five months, April 2020. 3 A Clean Planet for All. A European strategic long-term vision for a prosperous, modern, competitive and climate neutral economy, COM(2018) 773. 4 FCH JU (2019) Hydrogen Roadmap Europe. This includes the use of hydrogen as feedstock. 5 Considering hydrogen consumption for energy purposes only, the shares in different scenarios range from less than 2% to more than 23% in 2050 (Moya et al. 2019, JRC116452). 1 also lead to repurposing or re-using parts of the existing natural gas infrastructure, helping to avoid stranded assets in pipelines. In the integrated energy system of the future hydrogen will play a role, alongside renewable electrification and a more efficient and circular use of resources. Large-scale deployment of clean hydrogen at a fast pace is key for the EU to achieve a higher climate ambition, reducing greenhouse gas emissions by minimum 50% and towards 55% by 2030, in a cost effective way. Investment in hydrogen will foster sustainable growth and jobs, which will be critical in the context of recovery from the COVID-19 crisis. The Commission’s recovery plan6 highlights the need to unlock investment in key clean technologies and value chains. It stresses clean hydrogen as one of the essential areas to address in the context of the energy transition, and mentions a number of possible avenues to support it. Moreover, Europe is highly competitive in clean hydrogen technologies manufacturing and is well positioned to benefit from a global development of clean hydrogen as an energy carrier. Cumulative investments in renewable hydrogen in Europe could be up to EUR 180-470 billion by 20507, and in the range of €3-18 billion for low-carbon fossil-based hydrogen. Combined with EU’s leadership in renewables technologies, the emergence of a hydrogen value chain serving a multitude of industrial sectors and other end uses could employ up to 1 million people, directly or indirectly8. Analysts estimate that clean hydrogen could meet 24% of energy world demand by 2050, with annual sales in the range of €630 billion9. However, today renewable and low-carbon hydrogen are not yet cost competitive compared to fossil-based hydrogen. To harness all the opportunities associated with hydrogen, the European Union needs a strategic approach. EU industry is rising to the challenge and has developed an ambitious plan to reach 2x40 GW of electrolysers by 203010. Almost all Member States have included plans for clean hydrogen in their National Energy and Climate Plans, 26 have signed up to the “Hydrogen Initiative”11, and 14 Member States have included hydrogen in the context of their alternative fuels infrastructure national policy frameworks12. Some have already adopted national strategies or are in the process of adopting one. However, deploying hydrogen in Europe faces important challenges that neither the private sector nor Member States can address alone. Driving hydrogen development past the tipping point needs critical mass in investment, an enabling regulatory framework, new lead markets, sustained research and innovation into breakthrough technologies and for bringing new solutions to the market, a large-scale infrastructure network that only the EU and the single market can offer, and cooperation with our third country partners. 6 ‘Europe's moment: Repair and Prepare for the Next Generation’, COM(2020) 456 final. 7 IRENA estimates that to achieve the Paris agreement around 8% of global energy consumption will be provided by hydrogen (IRENA, Global Renewables Outlook, 2020). 8 FCH JU (2019) Hydrogen Roadmap Europe. Based on the ambitious scenario of 20 MT (665 TWh) of hydrogen consumption. 9 BNEF (2020) Hydrogen Economy Outlook. Expected sales of USD 696 billion (2019 dollars). 10 40 GW in Europe and 40 GW in Europe’s neighbourhood with export to the EU. 11 Linz declaration, 17-18 September 2018. https://www.eu2018.at/calendar-events/political-events/BMNT- 2018-09-17-Informal-TTE.html. 12 Submitted under Directive 2014/94/EU. 2 All actors, public and private, at European national and regional level13, must work together, across the entire value chain, to build a dynamic hydrogen ecosystem in Europe. In order to implement the ambition of the European Green Deal 14 and building on the Commission’s New Industrial Strategy for Europe15 and its recovery plan16, this Communication sets out a vision of how the EU can turn clean hydrogen into a viable solution to decarbonise different sectors over time, installing at least 6 GW of renewable hydrogen electrolysers in the EU by 2024 and 40 GW of renewable hydrogen electrolysers by 2030. This Communication identifies the challenges to overcome, lays out the levers that the EU can mobilise and presents a roadmap of actions for the coming years. As investment cycles in the clean energy sector run for about 25 years, the time to act is now. This strategic roadmap provides a concrete policy framework within which the European Clean Hydrogen Alliance - building on the success of the European Battery Alliance17 - a collaboration between public authorities, industry and civil society, formally launched today, will develop an investment agenda and a pipeline of concrete projects. It complements the Strategy for Energy System Integration18, presented at the same time, which describes how the ongoing work streams of EU energy policy, including hydrogen development, will foster a climate neutral integrated energy system with renewable electricity, circularity and renewable and low-carbon fuels at its core. Both strategies contribute towards the achievement of the Sustainable Development Goals and the objectives of the Paris Agreement. 2. TOWARDS A HYDROGEN ECOSYSTEM IN EUROPE: A ROADMAP TO 2050 The different ways to produce hydrogen, their greenhouse gas emissions and their relative competitiveness Hydrogen may be produced through a variety of processes. These production pathways are associated with a wide range of emissions, depending on the technology and energy source used and have different costs implications and material requirements. In this Communication: - ‘Electricity-based hydrogen’ refers to hydrogen produced through the electrolysis of water (in an electrolyser, powered by electricity), regardless of the electricity source. The full life-cycle greenhouse gas emissions of the production of electricity-based hydrogen depends on how the electricity is produced19. - ‘Renewable hydrogen’ is hydrogen produced through the electrolysis of water (in an electrolyser, powered by electricity), and with the electricity stemming from renewable sources. The full life-cycle greenhouse gas emissions of the production of renewable 13 European Committee of the Regions, Towards a Roadmap for Clean Hydrogen- the contribution of local and regional authorities to a climate-neutral Europe. 14 COM(2019) 640 final. 15 COM(2020) 102 final. 16 ‘Europe's moment: Repair and Prepare for the Next Generation’, COM(2020) 456 final. 17 https://ec.europa.eu/growth/industry/policy/european-battery-alliance_en 18 COM(2020) 299 final. 19 The well-to-gate greenhouse gas emissions for the EU electricity mix are 14 kgCO2eq/kgH2 (based on 2018 EUROSTAT data, 252 t CO2eq/GWh), while the world’s average electricity mix would result in 26 kgCO2eq/kgH2 (IEA, 2019). 3  hydrogen are close to zero20. Renewable hydrogen may also be produced through the reforming of biogas (instead of natural gas) or biochemical conversion of biomass21, if in compliance with sustainability requirements. - ‘Clean hydrogen’ refers to renewable hydrogen. - ‘Fossil-based hydrogen’ refers to hydrogen produced through a variety of processes using fossil fuels as feedstock, mainly the reforming of natural gas or the gasification of coal. This represents the bulk of hydrogen produced today. The life-cycle greenhouse gas emissions of the production of fossil-based hydrogen are high22. - ‘Fossil-based hydrogen with carbon capture’ is a subpart of fossil-based hydrogen, but where greenhouse gases emitted as part of the hydrogen production process are captured. The greenhouse gas emissions of the production of fossil-based hydrogen with carbon capture or pyrolysis are lower than for fossil-fuel based hydrogen, but the variable effectiveness of greenhouse gas capture (maximum 90%) needs to be taken into account23. - ‘Low-carbon hydrogen’ encompasses fossil-based hydrogen with carbon capture and electricity-based hydrogen, with significantly reduced full life-cycle greenhouse gas emissions compared to existing hydrogen production. - ‘Hydrogen-derived synthetic fuels’ refer to a variety of gaseous and liquid fuels on the basis of hydrogen and carbon. For synthetic fuels to be considered renewable, the hydrogen part of the syngas should be renewable. Synthetic fuels include for instance synthetic kerosene in aviation, synthetic diesel for cars, and various molecules used in the production of chemicals and fertilisers. Synthetic fuels can be associated with very different levels of greenhouse gas emissions depending on the feedstock and process used. In terms of air pollution, burning synthetic fuels produces similar levels of air pollutant emissions than fossil fuels. Today, neither renewable hydrogen nor low-carbon hydrogen, notably fossil-based hydrogen with carbon capture, are cost-competitive against fossil-based hydrogen. Estimated costs today for fossil-based hydrogen are around 1.5 €/kg for the EU, highly dependent on natural gas prices, and disregarding the cost of CO2. Estimated costs today for fossil-based hydrogen with carbon capture and storage are around 2 €/kg, and renewable hydrogen 2.5-5.5 €/kg24. Carbon prices in the range of EUR 55-90 per tonne of CO2 would be needed to make fossil- based hydrogen with carbon capture competitive with fossil-based hydrogen today25. Costs for renewable hydrogen are going down quickly. Electrolyser costs have already been reduced by 60% in the last ten years, and are expected to halve in 2030 compared to today with economies of scale.26 In regions where renewable electricity is cheap, electrolysers are 20 The well-to-gate greenhouse gas emissions for renewable hydrogen from renewable electricity are close to zero (IEA, 2019). 22 Ongoing Commission assessment of the EU and global biomass supply and demand and related sustainability and a planned study announced in the EU Biodiversity Strategy (COM(2020) 380 final) on sustainability of the use of forest biomass for energy production. 22 The well-to-gate greenhouse gas emissions of steam reforming of natural gas are 9 kgCO2eq/kgH2 (IEA, 2019). 23 The well-to-gate greenhouse gas emissions of steam reforming of natural gas with CCS with 90% capture is 1 kgCO2eq/kgH2, and 4 kgCO2eq/kgH2 with a capture rate of 56% (IEA, 2019) 24 IEA 2019 Hydrogen report (page 42), and based on IEA assumed natural gas prices for the EU of 22 €/MWh, electricity prices between 35-87 €//MWh, and capacity costs of €600/kW. 25 However, at this stage, costs can be only estimated given that no such project has started construction or operation in the EU today. 26 Based on cost assessments of IEA, IRENA and BNEF. Electrolyser costs to decline from €900/kW to €450/KW or less in the period after 2030, and €180/kW after 2040. Costs of CCS increases the costs of 4 expected to be able to compete with fossil-based hydrogen in 203027. These elements will be key drivers of the progressive development of hydrogen across the EU economy. A roadmap for the EU The priority for the EU is to develop renewable hydrogen, produced using mainly wind and solar energy. Renewable hydrogen is the most compatible option with the EU’s climate neutrality and zero pollution goal in the long term and the most coherent with an integrated energy system. The choice for renewable hydrogen builds on European industrial strength in electrolyser production, will create new jobs and economic growth within the EU and support a cost-effective integrated energy system. On the way to 2050, renewable hydrogen should progressively be deployed at large scale alongside the roll-out of new renewable power generation, as technology matures and the costs of its production technologies decrease. This process must be initiated now. In the short and medium term, however, other forms of low-carbon hydrogen are needed, primarily to rapidly reduce emissions from existing hydrogen production and support the parallel and future uptake of renewable hydrogen. The hydrogen ecosystem in Europe is likely to develop through a gradual trajectory, at different speeds across sectors and possibly across regions and requiring different policy solutions. In the first phase, from 2020 up to 2024, the strategic objective is to install at least 6 GW of renewable hydrogen electrolysers in the EU and the production of up to 1 million tonnes of renewable hydrogen28, to decarbonise existing hydrogen production, e.g. in the chemical sector and facilitating take up of hydrogen consumption in new end-use applications such as other industrial processes and possibly in heavy-duty transport. In this phase, manufacturing of electrolysers, including large ones (up to 100 MW), needs to be scaled up. These electrolysers could be installed next to existing demand centres in larger refineries, steel plants, and chemical complexes. They would ideally be powered directly from local renewable electricity sources. In addition, hydrogen refuelling stations will be needed for the uptake of hydrogen fuel-cell buses and at a later stage trucks. Electrolysers will thus also be needed to locally supply an increasing number of hydrogen refuelling stations. Different forms of low-carbon electricity-based hydrogen, especially those produced with near zero greenhouse gas emissions, will contribute to scale up production and the market for hydrogen. Some of the existing hydrogen production plants should be decarbonised by retrofitting them with carbon capture and storage technologies. Infrastructure needs for transporting hydrogen will remain limited as demand will be met initially by production close or on site and in certain areas blending with natural gas might natural gas reforming from €810/kWh2 to €1512/kWh2. For 2050, the costs are estimated to be €1152/kWh2 (IEA, 2019). 27 Assuming current electricity and gas prices, low-carbon fossil-based hydrogen is projected to cost in 2030 between €2-2.5/kg in the EU, and renewable hydrogen are projected to cost between €1.1-2.4/kg (IEA, IRENA, BNEF). 28 Up to 33 TWh of renewable hydrogen could be produced by either directly connecting renewable electricity to the electrolysers, or by ensuring that certain conditions are met, including the additionally of the renewable electricity used. 5 occur, but planning of medium range and backbone transmission infrastructure should begin. Infrastructure for carbon capture and use of CO2 will be required to facilitate certain forms of low-carbon hydrogen. The policy focus will be on laying down the regulatory framework for a liquid and well- functioning hydrogen market and on incentivising both supply and demand in lead markets, including through bridging the cost gap between conventional solutions and renewable and low-carbon hydrogen and through appropriate State aid rules. Enabling framework conditions will push concrete plans for large wind and solar plants dedicated to gigawatt-scale renewable hydrogen production before 2030. The European Clean Hydrogen Alliance will help build up a robust pipeline of investments. As part of the Commission’s recovery plan, funding instruments of Next Generation EU, including the Strategic European Investment Window of the InvestEU programme and the ETS Innovation Fund, will enhance the funding support and help bridge the investment gap for renewables generated by the COVID-19 crisis. In a second phase, from 2025 to 2030, hydrogen needs to become an intrinsic part of an integrated energy system with a strategic objective to install at least 40 GW of renewable hydrogen electrolysers by 2030 and the production of up to 10 million tonnes of renewable hydrogen in the EU29. In this phase, renewable hydrogen is expected to gradually become cost-competitive with other forms of hydrogen production, but dedicated demand side policies will be needed for industrial demand to gradually include new applications, including steel-making, trucks, rail and some maritime transport applications, and other transport modes. Renewable hydrogen will start playing a role in balancing a renewables-based electricity system by transforming electricity into hydrogen when renewable electricity is abundant and cheap and by providing flexibility. Hydrogen will also be used for daily or seasonal storage, as a backup and provide buffering functions30, enhancing security of supply in the medium term. Additionally, the further retrofitting of existing fossil-based hydrogen production with carbon capture should continue to reduce greenhouse gas and other air pollutant emissions in view of the increased 2030 climate ambition. Local hydrogen clusters, such as remote areas or islands, or regional ecosystems – so-called “Hydrogen Valleys” – will develop, relying on local production of hydrogen based on decentralised renewable energy production and local demand, transported over short distances. In such cases, a dedicated hydrogen infrastructure can use hydrogen not only for industrial and transport applications, and electricity balancing, but also for the provision of heat for residential and commercial buildings31. 29 Up to 333 TWh of renewable hydrogen could be produced by either directly connecting renewable electricity to the electrolysers, or by ensuring that certain conditions are met, including the additionally of the renewable electricity used. 30 Energy buffering realized through renewable hydrogen is a function very much beyond the renewable electricity storage. Buffering makes energy available across different regions via hydrogen transportation and hydrogen stocking facilities. Hydrogen buffering may interlink different end-use sectors and energy markets (as opposed to electricity storage) and it could allow to re-price energy in specific hydrogen markets. 31 Pilot projects are ongoing to analyse the potential to replace natural gas boilers with hydrogen boilers. 6 In this phase, the need for an EU-wide logistical infrastructure will emerge, and steps will be taken to transport hydrogen from areas with large renewable potential to demand centres located possibly in other Member States. The back-bone of a pan-European grid will need to be planned and a network of hydrogen refuelling stations to be established. The existing gas grid could be partially repurposed for the transport of renewable hydrogen over longer distances and the development of larger-scale hydrogen storage facilities would become necessary. International trade can also develop, in particular with the EU’s neighbouring countries in Eastern Europe and in the Southern and Eastern Mediterranean countries. In terms of policy focus, such a sustained scale up over a relatively short period will require gearing up EU’s support and stimulate investments to build a fully-fledged hydrogen ecosystem. By 2030 the EU will aim at completing an open and competitive EU hydrogen market, with unhindered cross-border trade and efficient allocation of hydrogen supply among sectors. In a third phase, from 2030 onwards and towards 2050, renewable hydrogen technologies should reach maturity and be deployed at large scale to reach all hard-to- decarbonise sectors where other alternatives might not be feasible or have higher costs. In this phase, renewable electricity production needs to massively increase as about a quarter32 of renewable electricity might be used for renewable hydrogen production by 2050. In particular, hydrogen and hydrogen-derived synthetic fuels, based on carbon neutral CO2, could penetrate more largely across a wider range of sectors of the economy, from aviation and shipping to hard-to-decarbonise industrial and commercial buildings. Sustainable biogas may also have a role in replacing natural gas in hydrogen production facilities with carbon capture and storage to create negative emissions, at the condition that biomethane leakage is avoided and only in line with the biodiversity objectives and the principles stated in the EU2030 Biodiversity Strategy33. 3. AN INVESTMENT AGENDA FOR THE EU Achieving the deployment goals outlined in this strategic roadmap by 2024 and 2030 requires a strong investment agenda exploiting synergies and ensuring coherence of public support across the different EU funds and EIB financing, harnessing the leverage effect and avoiding excessive support. From now to 2030, investments in electrolysers could range between €24 and €42 billion. In addition, over the same period, €220-340 billion would be required to scale up and directly connect 80-120 GW of solar and wind energy production capacity to the electrolysers to provide the necessary electricity. Investments in retrofitting half of the existing plants with carbon capture and storage are estimated at around €11 billion. In addition, investments of €65 billion will be needed for hydrogen transport, distribution and storage, and hydrogen 32 Assuming all renewable hydrogen would be produced by renewable electricity. Based on the 1.5 TECH long- term decarbonisation scenario COM(2018) 773 final). 33 COM(2020) 380 final. 7 refuelling stations34. From now to 2050, investments in production capacities would amount to €180-470 billion in the EU35. Finally, adapting end-use sectors to hydrogen consumption and hydrogen-based fuels will also require significant investments. For instance, it takes some €160-200 million to convert a typical EU steel installation coming to end-of-life to hydrogen. In the road transport sector, rolling out an additional 400 small-scale hydrogen refuelling stations (compared to 100 today) could require investments of €850-1000 million36. To support these investments and the emergence of a whole hydrogen eco-system, the Commission kick-starts today the European Clean Hydrogen Alliance – announced in the Commission’s New Industrial Strategy. The Alliance will play a crucial role in facilitating and implementing the actions of this Strategy and supporting investments to scale up production and demand for renewable and low-carbon hydrogen. It is strongly anchored in the hydrogen industrial value chain from production via transmission to mobility, industry, energy, and heating applications, and supports the related skills and labour market adjustments where needed. It will bring together the industry, national, regional and local public authorities and the civil society. Through interlinked, sector-based CEO round tables and a policy-makers’ platform, the Alliance will provide a broad forum to coordinate investment by all stakeholders and engage civil society. The key deliverable of the Alliance will be to identify and build up a clear pipeline of viable investment projects. This will facilitate coordinated investments and policies along the hydrogen value chain, and cooperation across private and public stakeholders across the EU, providing public support where appropriate and crowding in private investment. It will also give visibility to these projects and allow them to find appropriate support where necessary. At this point, already 1.5-2.3 GW of new renewable hydrogen production projects are under construction or announced, and an additional 22 GW of electrolyser projects37 are envisaged and would require further elaboration and confirmation. The Commission will also follow up on the recommendations identified in a report by the Strategic Forum for Important Projects of Common European Interest (IPCEI) 38 to promote well-coordinated or joint investments and actions across several Member States aimed at supporting a hydrogen supply chain. The cooperation initiated within the hydrogen ecosystem in the Strategic Forum will contribute to a swift uptake of activity in the Clean Hydrogen Alliance. In turn, the Alliance will simultaneously facilitate cooperation in a range of large investment projects, including IPCEI projects, along the hydrogen value chain. The 34 Hydrogen Roadmap Europe, based on an ambitious scenario of 665 TWh by 2030 (FCH JU, 2019) 35 Asset study (2020). Hydrogen generation in Europe: Overview of costs and key benefits. Investment projections assume 40 GW of renewable hydrogen as well as 5 MT of low-carbon hydrogen by 2030, and 500 GW of renewable electrolysers by 2050. 36 Asset study (2020). Hydrogen generation in Europe: Overview of costs and key benefits. Assuming a steel production plant of 400,000 tonnes/year. 37 Short-term projects collected from the TYNDP ENTSOs, the IEA hydrogen project database, and presented to the ETS Innovation Fund. Future project pipeline is based on industry estimates in Hydrogen Europe (2020) Post Covid-10 and the Hydrogen Sector. https://hydrogeneurope.eu/sites/default/files/Post%20COVID- 19%20for%20the%20Hydrogen%20Sector%20(2).pdf. 38 Strengthening Strategic Value Chains for a future-ready EU Industry. Report of the Strategic Forum for Important Projects of Common European Interest. https://ec.europa.eu/docsroom/documents/37824. 8 specific IPCEI instrument enables State aid to address market failures for large cross-border integrated projects for hydrogen and fuels derived from hydrogen that significantly contribute to achieve climate goals. Additionally, as part of the new recovery instrument Next Generation EU, the InvestEU programme will see its capacities more than doubled. It will continue to support the deployment of hydrogen, in particular by incentivising private investment, with a strong leverage effect, through its original four policy windows and the new Strategic Investment Window. The renewed sustainable finance strategy to be adopted by the end of 2020 and the EU sustainable finance taxonomy39 will guide investments in hydrogen across key economic sectors by promoting activities and projects that will provide a substantial contribution to de- carbonisation. A number of Member States have identified renewable and low-carbon hydrogen as a strategic element of their National Energy and Climate Plans. The Commission will exchange with Member States on their hydrogen plans through the Hydrogen Energy Network (HyNet)40. Member States will need to build, among others, on these plans, and on the priorities identified in the context of the European Semester, when designing their national recovery and resilience plans in the context of the new Recovery and Resilience Facility, which will aim to support Member States’ investment and reforms that are essential for a sustainable recovery. Furthermore, the European Regional Development Fund and the Cohesion Fund, which will benefit from a top-up in the context of the new initiative REACT-EU, will continue to be available to support the green transition. In the framework of the next funding period 2021- 2027, the Commission will work with Member States, regional and local authorities, the industry and other stakeholders so that these funds contribute to support innovative solutions in the field of renewable and low-carbon hydrogen, with technology transfer, public-private partnerships, as well as pilot lines to test new solutions or perform early product validation. The possibilities offered to carbon intensive regions under the Just Transition Mechanism should also be fully explored. Finally, synergies between the Connecting Europe Facility Energy and the Connecting Europe Facility Transport will be harnessed to fund dedicated infrastructure for hydrogen, repurposing of gas networks and carbon capture projects, and finance hydrogen refuelling stations. 4. BOOSTING DEMAND AND SCALING UP PRODUCTION Building up a hydrogen economy in Europe requires a full value chain approach. The production of hydrogen from renewable or low-carbon sources, the development of infrastructure to supply hydrogen to the end-consumers, and the creation of market demand need to go in parallel, activating a virtuous circle of increased supply and demand for hydrogen. It also requires reduced supply costs – through declining costs for clean production and distribution technologies and affordable costs of renewable energy input, 39 Regulation on establishment of a framework to facilitate sustainable investment. 40 HyNet is an informal platform set up by DG ENER to support national authorities on hydrogen issues. https://ec.europa.eu/energy/topics/energy-system-integration/hydrogen_en. 9 ensuring cost competitiveness with fossil fuels. Off-grid renewable hydrogen production is a further option in this context. In addition, it will require a large amount of raw materials 41. Securing these raw materials should, therefore, be also looked at in the Critical Raw Materials Action Plan, the implementation of the new Circular Economy Action Plan, and EU’s trade policy approach to ensure undistorted, fair trade and investments in those raw materials. A life-cycle approach is also needed to minimise the negative climate and environmental impacts of the hydrogen sector. Boosting demand and supply of hydrogen is likely to require various forms of support, differentiated in line with the vision of this strategy to prioritise the deployment of renewable hydrogen. While in a transition phase, appropriate support will be needed for low carbon hydrogen, this should not lead to stranded assets. The revision of the State aid framework, including the State aid guidelines for energy and environmental protection, foreseen in 2021, will be an opportunity to create a comprehensive enabling framework to advance the European Green Deal and in particular decarbonisation, including with respect to hydrogen while limiting potential distortions of competition and adverse effects in other Member States. Boosting demand in end-use sectors The creation of new lead markets goes hand in hand with the scaling up of the production of hydrogen. Two main lead markets, industrial applications and mobility, can be gradually developed to use the potential of hydrogen for a climate-neutral economy cost-effectively. An immediate application in industry is to reduce and replace the use of carbon-intensive hydrogen in refineries, the production of ammonia, and for new forms of methanol production, or to partially replace fossil fuels in steel making. In a second phase, hydrogen can form the basis for investing in and constructing zero-carbon steel making processes in the EU, envisioned under the Commission’s new industrial strategy. In transport, hydrogen is also a promising option where electrification is more difficult. In a first phase, early adoption of hydrogen can occur in captive uses, such as local city buses, commercial fleets (e.g. taxis) or specific parts of the rail network, where electrification is not feasible. Hydrogen refuelling stations can easily be supplied by regional or local electrolysers, but their deployment will need to build on clear analysis of fleet demand and different requirements for light- and heavy-duty vehicles. Hydrogen fuel cells should be further encouraged in heavy-duty road vehicles, alongside electrification, including coaches, special purpose vehicles, and long-haul road freight given their high CO2 emissions. The 2025 and 2030 targets set out in the CO2 Emission Standards Regulation are an important driver to create a lead market for hydrogen solutions, once fuel cell technology is sufficiently mature and cost-effective. Projects of the Horizon 2020 Fuel Cells and Hydrogen Joint Undertaking (FCH-JU) are aiming to accelerate Europe’s technological lead. 41 Europe is fully dependent on the supply of 19 of 29 raw materials relevant to fuel cells and electrolyser technologies (such as the platinum group metals), and also relies on several critical raw materials for various renewable power generation technologies. 10 Hydrogen fuel-cell trains, could be developed to other viable train commercial routes that are difficult or not cost-effective to electrify: about 46 % of the mainline network is still being served by diesel technology today. Certain fuel-cell hydrogen train applications (e.g. Multiple Units) can already be cost competitive with diesel today. For inland waterways and short-sea shipping, hydrogen can become an alternative low emission fuel, especially since the Green Deal emphasises that CO2 emission in the maritime sector must have a price. Scaling up fuel cell power from one42 to multiple megawatts and using renewable hydrogen for the production of synthetic fuels, methanol or ammonia - with higher energy density – are required for longer-distance and deep-sea shipping. Hydrogen can become in the longer-term an option to decarbonise the aviation and maritime sector, through the production of liquid synthetic kerosene or other synthetic fuels. These are “drop-in” fuels that can be used with existing aircraft technology, but implications in terms of energy efficiency have to be taken into account. In the longer-term, hydrogen-powered fuel cells, requiring adapted aircraft design, or hydrogen-based jet engines may also constitute an option for aviation. To realise these ambitions will require a roadmap for the considerable long-term research and innovation efforts43, including under Horizon Europe, the Fuel Cell and Hydrogen Joint Undertaking and possible initiatives as part of the Hydrogen Alliance. The Commission will address the use of hydrogen in the transport sector in the upcoming Sustainable and Smart Mobility Strategy, announced in the European Green Deal and due to be presented before the end of 2020. The key limiting factor for the use of hydrogen in industrial applications and transport is often the higher costs, including additional investments into hydrogen-based equipment, storage and bunkering facilities. Furthermore, the potential impact of supply chain risks and market uncertainty are amplified by the tight margins for final industrial products due to international competition. Demand side support policies will therefore be needed. The Commission will consider various options for incentives at EU level, including the possibility of minimum shares or quotas of renewable hydrogen or its derivatives in specific end-use sectors44 (for instance certain industries as the chemical sector, or transport applications), allowing demand to be driven in a targeted way. In this context, the concept of virtual blending45 could be explored. 42 The FLAGSHIP project is developing two commercial hydrogen-power fuel cell vessels in France and in Norway, with hydrogen produced on-site with 1 MW electrolysers powered by renewable electricity. 43 Hydrogen-powered aviation. A fact-based study of hydrogen technology, economics and climate impact by 2050. May 2020. https://www.fch.europa.eu/sites/default/files/FCH%20Docs/20200507_Hydrogen%20Powered%20Aviation %20report_FINAL%20web%20%28ID%208706035%29.pdf. 44 The Renewable Energy Directive already provides support for renewable hydrogen and includes it explicitly as a means of meeting the sectorial target for renewables in the transport sector. 45 ‘Virtual blending’ refers to a share of hydrogen in the overall volume of gaseous energy carriers (i.e. methane) regardless as to whether these gases are blended physically in the same infrastructure or in separate, dedicated infrastructures. 11 Scaling up production Whilst around 280 companies46 are active in the production and supply chain of electrolysers and more than 1 GW of electrolyser projects are in the pipeline, the total European production capacity for electrolysers is currently below 1 GW per year. To reach the strategic objective of 40 GW electrolyser capacity by 2030, a coordinated effort with the European Clean Hydrogen Alliance, Member States and front-runner regions is needed as well as support schemes before hydrogen becomes cost-competitive. The technologies for scaling up hydrogen production such as solar and wind-based electricity as well as carbon capture use and storage continue to get increasingly competitive as the supply chain develops. To kick-start hydrogen development, European industry needs clarity and investors need certainty in the transition, notably a clear understanding across the Union on (i) the hydrogen production technologies that need to be developed in Europe, as well as (ii) what can be considered as renewable and low-carbon hydrogen. The end goal for the EU is clear: climate- neutral energy system integration with renewable hydrogen and renewable electricity at its core. As this will be a challenge taking a long period of time, the EU will need to plan this transition carefully, taking into account today’s starting points and infrastructure that may differ across Member States. In order to tailor a supportive policy framework in function of the carbon emission reduction benefits of hydrogen in a transitional phase, and to inform customers, the Commission will work to swiftly introduce, based on impact assessments, EU-wide instruments. This would include a common low-carbon threshold/standard for the promotion of hydrogen production installations based on their full life-cycle greenhouse gas performance, which could be defined relative to the existing ETS benchmark47 for hydrogen production. In addition, it would include a comprehensive terminology and European-wide criteria for the certification of renewable and low-carbon hydrogen possibly building on the existing ETS monitoring, reporting and verification and the provisions set out in the Renewable Energy Directive48. This framework could be based on the full life-cycle greenhouse gas emissions49, considering the already existing CertifHy50 methodologies developed by industry initiatives, in consistency with the EU taxonomy for sustainable investments. The specific, complementary functions that Guarantees of Origin (GOs) and sustainability certificates already play in the Renewable Energy Directive can facilitate the most cost-effective production and EU-wide trading. As regards electricity-based hydrogen, the growing share of renewables in power generation together with the ETS cap on the CO2 emissions of electricity for the EU as a whole will over time lead to lower CO2 emissions upstream while the use of hydrogen is replacing fossil fuels 46 60% of EU companies active are small- and medium-size enterprises. 47 Only refers to steam methane reforming. 48 The Renewable Energy Directive allows hydrogen produced from installations connected to the grid (even if the electricity mix has low shares of renewable electricity) to be statistically accounted for as 100% renewable, provided that certain conditions are met, including the additionally of the renewable electricity used. The Commission will table a delegated act laying out the conditions in 2021. 49 See Energy System Integration Strategy COM(2020) 299 final. 50 E.g. CertifHy sets a life-cycle GHG emission threshold based on the existing ETS benchmark and an emission reduction target derived from the Renewable Energy Directive. 12 downstream in end-use sectors. The CO2 emissions of electricity remain relevant for policies stimulating hydrogen production as it should be avoided that electricity production as such is supported indirectly; demand for electricity for hydrogen should be enabled in particular at times of abundant supply of renewable electricity in the grid. In the case of fossil-based hydrogen with carbon capture, the Commission will address upstream methane emissions occurring during the production and transport of natural gas and propose mitigating measures as part of the upcoming EU Strategy on Methane. A supportive policy framework for scaling up hydrogen An incentivising, supportive policy framework needs to enable renewable and, in a transitional period, low-carbon hydrogen to contribute to decarbonisation at the lowest possible cost, whilst considering other important aspects, such as industrial competitiveness and its value chain implications for the energy system. The EU already has the basis for a supportive policy-framework, notably with the Renewable Energy Directive and the Emission Trading System (ETS), while the Next Generation EU, the 2030 Climate Target Plan, and the Industrial Policy provide the instruments and financial resources to accelerate our efforts towards a sustainable recovery. The ETS, as a market based instrument, already provides a technology-neutral, EU-wide incentive towards cost-effective decarbonisation in all its covered sectors through carbon pricing. A strengthened ETS, with potential expansion in scope as announced as part of the Green Deal, will gradually reinforce that role. Almost all existing fossil based hydrogen production is covered by the ETS, but the sectors concerned51 are deemed to be at a significant risk of carbon leakage and therefore receive free allocation at 100% of benchmark levels. As foreseen in the ETS Directive52, the benchmark used for free allocation will be updated for phase 4. In the forthcoming revision of the ETS, the Commission may consider how the production of renewable and low-carbon hydrogen could be further incentivised, while taking due account of the risk for sectors exposed to carbon leakage. Should differences in climate ambition levels around the world persist, the Commission will propose a Carbon Border Adjustment Mechanism in 2021 to reduce the risk of carbon leakage, in full compatibility with WTO rules, and will also look at the implications for hydrogen. With the need to scale-up renewable and low-carbon hydrogen before they are cost- competitive, support schemes are likely to be required for some time, subject to compliance with competition rules. A possible policy instrument would be to create tendering systems for carbon contracts for difference (‘CCfD’). Such a long term contract with a public counterpart would remunerate the investor by paying the difference between the CO2 strike price and the actual CO2 price in the ETS in an explicit way, bridging the cost gap53 compared to conventional hydrogen production. Areas where a pilot scheme for carbon contracts for difference can be applied is to accelerate the replacement of existing hydrogen production in refineries and fertiliser production, low carbon and circular steel and basic chemicals, and to support the deployment in the maritime sector of hydrogen and derived fuels such as ammonia and the deployment of synthetic low-carbon fuels in the aviation 51 Notably for refineries and fertiliser production. 52 DIRECTIVE (EU) 2018/410. 53 The contract would cover the difference between the CO2 strike price and the actual CO2 price in the ETS in an explicit way. 13 sector. It could be implemented at EU, or national level, including with the support of the ETS Innovation Fund. The proportionality of such measures and their market impact should be assessed carefully ensuring that these comply with the State aid guidelines for energy and environmental protection. Finally, direct and transparent, market-based support schemes for renewable hydrogen, allocated through competitive tenders, could be envisaged. Market-compatible support should be coordinated within a transparent, efficient and competitive hydrogen and electricity market that provides price signals that reward electrolysers for the services they provide to the energy system (e.g. flexibility services, augmenting renewable production levels, reducing burden from renewable incentives). Overall, this approach allows for differentiated support for boosting demand and supply, taking into account the type of hydrogen and different starting points of Member States, in line with State aid policy. Investments into renewable and low-carbon hydrogen production installations and technologies, such as electrolysers, can apply for EU funding. Furthermore, carbon contracts for difference for renewable and low-carbon hydrogen could provide initial support for early deployment in various sectors until they have become sufficiently mature and cost-competitive in their own right. For renewable hydrogen, direct market based support schemes and quotas could also be considered. This should allow to kick-start a hydrogen ecosystem of significant scale throughout the EU in the coming decade and towards full commercial deployment afterwards. 5. DESIGNING A FRAMEWORK FOR HYDROGEN INFRASTRUCTURE AND MARKET RULES The role of infrastructure A condition for a widespread use of hydrogen as an energy carrier in the EU is the availability of energy infrastructure for connecting supply and demand. Hydrogen may be transported via pipelines, but also via non-network based transport options, e.g. trucks or ships docking at adapted LNG terminals, insofar as technically feasible. Transport can happen as pure gaseous or liquid hydrogen, or bound in bigger molecules that are easier to transport (e.g. ammonia or liquid organic hydrogen carriers). Hydrogen can also provide cyclical or seasonal storage, e.g. in salt caverns54, to produce electricity to cover peak demand, secure hydrogen supply, and allow electrolysers to operate flexibly. The infrastructure needs for hydrogen will ultimately depend on the pattern of hydrogen production and demand and transportation costs and are linked to the different phases of the development of hydrogen production, increasing significantly after 2024. Furthermore, infrastructure to support carbon capture use and storage may be needed for the production of low-carbon hydrogen and synthetic fuels. Following the stepwise approach outlined above demand for hydrogen may initially be met by production on-site (from local renewables sources or natural gas) in industrial clusters and coastal areas through existing “point-to- point” connections between production and demand. The existing rules for so-called closed 54 In the UK, at Teesside in Yorkshire, a British company stores 1 million m3 of pure hydrogen (95% H 2 and 3– 4% CO2) in three salt caverns at a depth about 400 m at 50 bar. Europe’s technical potential to store hydrogen in salt caverns is around 85 PWh (Caglayan et al. 2020). 14 distribution systems, direct lines or exemptions in the gas and electricity markets may provide guidance on how to address this55. In the second phase, local hydrogen networks would emerge to cater for additional industrial demand. With increasing demand, the optimisation of the production, use and transport of hydrogen will have to be secured and is likely to require longer-range transportation to ensure that the entire system is efficient through the revision of the Trans-European Networks for Energy (TEN-E) and the review of the internal gas market legislation for competitive decarbonised gas markets56. To ensure interoperability of markets for pure hydrogen, common quality standards (e.g. for purity and thresholds for contaminants) or cross-border operational rules may be necessary. This process should be combined with a strategy to meet the transport demand through a network of refuelling stations, linked to the review of the Alternative Fuels Infrastructure Directive and the revision of the Trans-European Transport Network (TEN-T). With the imminent phase-out of low calorific gas and with the demand for natural gas declining after 2030, elements of the existing pan-European gas infrastructure could be repurposed to provide the necessary infrastructure for large-scale cross-border transport of hydrogen. Repurposing may provide an opportunity for a cost-effective energy transition in combination with (relatively limited) newly built hydrogen dedicated infrastructure 57. However, existing natural gas pipelines are owned by network operators that are often not allowed to own, operate and finance hydrogen pipelines. To enable repurposing of existing assets, its technical suitability must be assessed as well as a review of the regulatory framework for competitive decarbonised gas markets should allow such financing and operation with an overall energy system perspective in mind. Sound infrastructure planning, such as on the basis of ten year network development plans (‘TYNDP’), is needed on the basis of which decisions to invest can be taken. Such planning should also inform and be the basis for incentivising investments by private investors in electrolysers at the best locations. The Commission will thus ensure the full integration of hydrogen infrastructure in the infrastructure planning, including through the revision of the Trans-European Networks for Energy and the work on Ten-Year Network Development Plans (TYNDPs), taking into account also the planning of a network of fuelling stations. The blending of hydrogen in the natural gas network at a limited percentage may enable decentralised renewable hydrogen production in local networks in a transitional phase58. However, blending is less efficient and diminishes the value of hydrogen. Blending also changes the quality of the gas consumed in Europe and may affect the design of gas infrastructure, end-user applications, and cross-border system interoperability. Blending thus 55 See Articles 28 and 38 of Directive 2009/73/EC (OJ 211/94 of 14.08.2009) and Articles 7 and 38 of Directive (EU) 2019/944 (OJ 158/125 of 14.06.2019). 56 Review of Directive 2009/73/EC concerning common rules for the internal market in natural gas and Regulation (EC) 715/2009 on conditions for access to the natural gas transmission networks. 57 E.g. it is expected that a hydrogen network in Germany and the Netherlands may consist of up to 90% of the of repurposed natural gas infrastructure. Repurposed pipelines are often already to a large extent depreciated. 58 It would provide a reliable evacuation route, and, if combine with support schemes, guarantees revenues to kick-start production. Particularly for electrolysers located at optimal production sites, rather than in proximity to demand, a lack of sufficient dedicated hydrogen infrastructure may imply increased investments in on-site storage and/or curtailment of production. 15 risks fragmenting the internal market if neighbouring Member States accept different levels of blending and cross-border flows are hindered. To mitigate such a situation, the technical feasibility of adjusting the quality and cost of handling the differences in gas quality need to be assessed. Current gas quality standards – national and CEN – would need to be updated. Moreover, reinforcement of instruments may be needed to secure cross-border coordination and system interoperability for an unhindered flow of gases across Member States. These options require careful consideration in terms of their contribution to the decarbonisation of the energy system as well as economic and technical implications. Fostering liquid markets and competition As EU Member States have different potential for the production of renewable hydrogen, an open and competitive EU market with unhindered cross-border trade has important benefits for competition, affordability, and security of supply. Moving towards a liquid market with commodity-based hydrogen trading would facilitate entry of new producers and would be beneficial for deeper integration with other energy carriers. It would create viable price signals for investments and operational decisions. Whilst recognising the inherent differences, existing rules that enable efficient commercial operations developed for the electricity and gas markets, such as access to trading points and standard product definitions, could be considered for a hydrogen market under the review of the gas legislation for competitive decarbonised gas markets. To facilitate the deployment of hydrogen and develop a market where also new producers have access to customers59, hydrogen infrastructure should be accessible to all on a non- discriminatory basis. In order not to distort the level playing field for market-based activities, network operators must remain neutral. Third-party access rules, clear rules on connecting electrolysers to the grid and streamlining of permitting and administrative hurdles will need to be developed to reduce undue burden to market access. Providing clarity now will avoid sunk investments and the costs of ex-post interventions later. An open and competitive EU market with prices that reflect energy carriers’ production costs, carbon costs, and external costs and benefits would efficiently provide clean and safe hydrogen to end users who value it most60. Equal treatment of hydrogen with other carriers must be ensured to not distort the relative prices of different energy carriers61. Solid relative price signals not only allow energy users to make informed decisions about what energy carrier to use where, it also means that they can make efficient decisions between consuming energy or not, i.e. to make an optimal trade-off when investing in energy efficiency measures. 59 In line with the European Pillar of Social Rights (principle 20),where technology promotes the affordability of, and access to essential services for all. 60 This would be in line with the energy efficiency first principle. 61 For instance, energy losses from hydrogen production or conversion should not be socialised if it generates undue advantage compared to other carriers. 16 6. PROMOTING RESEARCH AND INNOVATION IN HYDROGEN TECHNOLOGIES The EU has supported research and innovation on hydrogen for many years, starting through traditional collaborative projects62, and subsequently mainly with the Fuel Cell and Hydrogen Joint Undertaking (FCH JU)63. These efforts have enabled several technologies to come close to maturity64, alongside the development of high-profile projects in promising applications65, and to achieve EU global leadership for future technologies, notably on electrolysers, hydrogen refuelling stations and megawatt-scale fuel cells. EU funded projects also allowed improvement in the understanding of the applicable regulation for boosting the production and utilisation of hydrogen in the EU. To ensure a full hydrogen supply chain to serve the European economy, further research and innovation efforts are required. First, on the generation side, this will entail upscaling to larger size, more efficient and cost-effective electrolysers in the range of gigawatts that, together with mass manufacturing capabilities and new materials, supply hydrogen to large consumers. As a first step, a call for proposals for a 100 MW electrolyser will be launched this year. Solutions at lower technology readiness level need also to be incentivised and developed such as, for example, hydrogen production from marine algae, from direct solar water splitting, or from pyrolysis processes with solid carbon as side product, while paying due attention to sustainability requirements. Second, infrastructure needs further development to distribute, store and dispense hydrogen at large volumes and possibly over long distances. The repurposing of existing gas infrastructure for transporting hydrogen or hydrogen-based fuels also needs further research, development and innovation activities. Third, large scale end-use applications need to be further developed, notably in industry (e.g. using hydrogen to replace coking coal in steel-making or upscaling renewable hydrogen in chemical and petrochemical industry) and in transport (e.g. heavy duty road transport, rail, waterborne and aviation). Pre-normative research, including the safety dimension, should be tailored to assist deployment plans and enable improved, harmonised standards. Finally, further research is needed to support policy making on a number of cross-cutting areas, in particular to enable improved and harmonised (safety) standards and monitoring and assess social and labour market impacts. Reliable methodologies have to be developed for assessing the environmental impacts of hydrogen technologies and their associated value chains, including their full life-cycle greenhouse gas emissions and sustainability. Importantly, securing the supply of critical raw materials in parallel to material reduction, substitution, reuse, and recycling needs a thorough assessment in the light of their future expected increasing deployment, with due account being paid to ensuring security of supply and high levels of sustainability in Europe. 62 First examples are the hydrogen bus demonstration through the CUTE projects (started in 2003) and its successor HyFLEET: CUTE, which made major advances in proving fuel cell and hydrogen propulsion technologies. 63 FCH JU is a public private partnership aligning European research and industry to a common research agenda. Over the last decade, the EU contributed around €900 million to FCH JU. 64 E.g. buses, passenger cars, vans, material-handling vehicles, and refuelling stations. 65 E.g. e-fuels for aviation, hydrogen in rail, and the maritime sector. 17 Coordinated EU research and innovation support is also needed for large-scale high-impact projects across the entire hydrogen value chain, including large scale electrolysers (hundreds of megawatts connected to clean electricity production and supplying renewable hydrogen for example to industrial areas or green airports and ports (as proposed in the Green Deal Call), that are able to test technology in real life environment. To address all these challenges the Commission will carry out a set of actions targeting research, innovation, and relevant international cooperation66, supporting the energy and climate policy objectives. Under the Research and Innovation framework Programme Horizon Europe, an institutionalized Clean Hydrogen Partnership was proposed with main focus on renewable hydrogen production, transmission, distribution and storage, alongside selected fuel cell end- use technologies67. While the Clean Hydrogen Partnership will support research, development and demonstration of technologies to bring them to market readiness, the Clean Hydrogen Alliance will pool resources to bring scale and impact to industrialisation efforts, in order to achieve further cost reductions and competitiveness. The Commission also proposes to increase the support for research and innovation in the end-use of hydrogen in key sectors through synergies with important partnerships proposed under Horizon Europe, notably on transport68 and on industry69. Close cooperation between these partnerships would support the development of supply chains for hydrogen and jointly scale-up investments. In addition, the ETS Innovation Fund, which will pool together around €10 billion to support low-carbon technologies over the period 2020-2030, has the potential to facilitate first-of-a-kind demonstration of innovative hydrogen-based technologies. The Fund can substantially reduce the risks of large and complex projects, and therefore offers a unique opportunity to prepare such technologies for a wide-scale roll out. A first call for proposals under the Fund was launched on 3 July 2020. The Commission will also provide targeted support to build the necessary capacity for preparation of financially sound and viable hydrogen projects, where this is identified as a priority in the relevant national and regional programmes, through dedicated instruments (e.g. InnovFin Energy Demonstration Projects, InvestEU) possibly in combination with advisory and technical assistance from the Cohesion Policy, from the European Investment Bank Advisory Hubs or under Horizon Europe. For example, the Hydrogen Valleys Partnership70 is already supporting innovation hydrogen eco-systems. In the next funding period, a dedicated Interregional Innovation Investment Instrument with a pilot action on hydrogen technologies in carbon-intensive regions will support the development of innovative value chains in the context of the European Regional Development Fund. 66 For international actions in Research and Innovation please refer to part 7. 67 As fuel cell and electrolyser technologies have many similarities. 68 For example, the proposal of Transport R&I partnerships like 2Zero, Zero Emission Waterborne Transport, and Clean Aviation under Horizon Europe will establish further R&I research on Hydrogen applications for Transport. 69 For example on clean steel, circular and climate neutral industries. 70 This is supported under the S3 Platform on Industrial Modernisation. 18 The cooperation with research and innovation efforts of Member States in the context of the Strategic Energy Technologies (SET) Plan priorities71 will also be ensured. Synergies with other instruments such as the Innovation Fund or Structural Funds will be sought in order to bridge the valley-of-death through first-of-a-kind demonstration projects reflecting the diversity of opportunities for renewable and low-carbon hydrogen across the EU. 7. THE INTERNATIONAL DIMENSION The international dimension is an integral part of the EU approach. Clean hydrogen offers new opportunities for re-designing Europe’s energy partnerships with both neighbouring countries and regions and its international, regional and bilateral partners, advancing supply diversification and helping design stable and secure supply chains. In line with the external dimension of the European Green Deal, the EU has a strategic interest in placing hydrogen high on its external energy policy agenda, continuing to invest in international cooperation on climate, trade and research activities but also broadening its agenda to new areas. For many years, research has been the basis for international cooperation on hydrogen. The EU, together with the US and Japan, developed the most ambitious research programmes addressing different segments of the hydrogen value-chain, and the International Partnership for a Hydrogen Economy (IPHE) was established as a first vehicle in this respect. The interest in clean hydrogen is now growing globally. Several countries are developing ambitious research programmes along national hydrogen strategies 72, and an international hydrogen trade market is likely to develop. The US and China are investing massively in hydrogen research and industrial development. Some of EU’s current gas suppliers and countries with a strong potential for renewables are considering opportunities to export renewable electricity or clean hydrogen to the EU. For example Africa, due to its abundant renewables potential and in particular North Africa due to geographic proximity, is a potential supplier of cost-competitive renewable hydrogen to the EU73 requiring that the deployment of renewable power generation in these countries strongly accelerates. In this context, the EU should actively promote new opportunities for cooperation on clean hydrogen with neighbouring countries and regions, as a way to contribute to their clean energy transition and foster sustainable growth and development. Taking into account natural resources, physical interconnections and technological development, the Eastern Neighbourhood, in particular Ukraine, and the Southern Neighbourhood countries should be priority partners. Cooperation should range from research and innovation to regulatory policy, direct investments and undistorted and fair trade in hydrogen, hydrogen, its derivatives, and the associated technologies and services. According to industry’s estimate 40 GW of electrolysers could be potentially installed in the Eastern and Southern Neighbourhood by 71 In particular the SET Plan actions where hydrogen use is addressed, such as the actions on industry, on fuels and on CCSU. 72 E.g. Australia, Canada, Norway, South Korea, and several EU Member States. 73 This would require that the deployment of renewable power generation in these countries strongly accelerates. 19 2030, ensuring a sustained cross-border trade with the EU. Realising the ambition and supplying significant amounts of renewable hydrogen to the EU should be addressed in energy cooperation and diplomacy. To support investments in clean hydrogen in the European Neighbourhood, the Commission will mobilise the available financing instruments including the Neighbourhood Investment Platform, which has financed for many years projects accompanying the clean energy transition of partner countries. The Commission would also be ready to support new hydrogen-related project proposals by international financial institutions, for potential co- financing through this blending facility, for example in the context of the Western Balkans Investment Framework74. The EU Stabilisation and Association Agreements with the Western Balkans, as well as the Association Agreements with Neighbourhood countries, provide the political framework for the participation of those countries in joint hydrogen research and development programmes with the EU. The Energy Community and the Transport Community will have a critical role to play for the promotion of EU regulations, standards and clean hydrogen, including the deployment of new infrastructure, such as refuelling networks and the re-use, where relevant, of existing natural gas grids, as the regional sectorial international cooperation fora. Participation of the Western Balkans and Ukraine in the Clean Hydrogen Alliance will be encouraged. The energy dialogues with partners in the Southern Neighbourhood will help define and advance a common agenda and identify projects and joint activities. Cooperation with the industry should also be promoted through regional cooperation fora such as the “Observatoire Méditerranéen de l’Energie”. The Commission will explore in the context of the Africa- Europe Green Energy Initiative75 the opportunity to support awareness raising of clean hydrogen opportunities amongst public and private partners, including joint research and innovation projects. It will also consider potential projects through the European Fund for Sustainable Development76. More broadly hydrogen could be mainstreamed in the EU’s international, regional and bilateral energy and diplomacy efforts, but also on climate, research, trade and international cooperation. Broad agreement with international partners will be essential to establish conditions for the emergence of a global, rules-based market that contributes to a secure and competitive hydrogen supply for the EU market. Early action will be key to prevent the emergence of market barriers and trade distortions. In this context, an assessment of how to address possible distortions and barriers to trade and investment in hydrogen will be carried out in the context of the ongoing EU Trade Policy review. Furthermore, bilateral dialogues promoting EU regulations, standards and technologies could be facilitated. 74 Which is endowed with funds of the EU Instrument for Pre-accession Assistance, as well as with contributions from the International Financing Institutions belonging to its platform. 75 The Africa Europe Green Energy Initiative was laid out in the Communication ‘Towards a comprehensive Strategy with Africa’ JOIN(2020) 4 final of 09.03.2020. 76 The European Fund for Sustainable Development (EFSD) supports investments in Africa and the EU’s neighbouring countries to help achieve the UN 2030 Agenda, its Sustainable Development Goals and the Paris Agreement on Climate Change. 20 Furthermore, the EU should promote in multilateral fora the development of international standards and the setting up common definitions and methodologies for defining overall emissions from each unit of hydrogen produced and carried to final use as well as international sustainability criteria. The EU is already highly involved in IPHE, and co-leads the new clean hydrogen mission under Mission Innovation and the Clean Energy Ministerial Hydrogen initiative (CEM H2I). International collaboration could also be expanded through international standardisation bodies and global technical regulations of the United Nations (UN-ECE, International Maritime Organisation), including harmonisation of automotive regulation for hydrogen vehicles. Cooperation under G20, as well as with the International Energy Agency (IEA) and the International Renewable Energy Agency (IRENA), creates further opportunities for exchange of experiences and best practices. Finally, to reduce the foreign exchange risks for EU market operators, both on imports and exports, it is important to facilitate the development of a structured international hydrogen market in euro. Hydrogen being a nascent market, the Commission will develop a benchmark for euro denominated transactions in hydrogen thus contributing to consolidate the role of the euro in trade of sustainable energy. 8. CONCLUSIONS Renewable and low-carbon hydrogen can contribute to reduce greenhouse gas emissions ahead of 2030, to the recovery of the EU economy, and is a key building block towards a climate-neutral and zero pollution economy in 2050, by replacing fossil fuels and feedstock in hard-to-decarbonise sectors. Renewable hydrogen also offers a unique opportunity for research and innovation, maintaining and expanding Europe’s technological leadership, and creating economic growth and jobs across the full value chain and across the Union. This requires ambitious and well-coordinated policies at national and European levels, as well as diplomatic outreach on energy and climate with international partners. This strategy brings different strands of policy action together, covering the entire value chain, as well as the industrial, market and infrastructure angles together with the research and innovation perspective and the international dimension, in order to create an enabling environment to scale up hydrogen supply and demand for a climate-neutral economy. The Commission invites the Parliament, the Council, other EU institutions, social partners and all stakeholders to discuss how to leverage the potential of hydrogen to decarbonise our economy while making it more competitive, building on the actions set out in this Communication. KEY ACTIONS An investment agenda for the EU  Through the European Clean Hydrogen Alliance, develop an investment agenda to stimulate the roll out of production and use of hydrogen and build a concrete pipeline of projects (by end of 2020).  Support strategic investments in clean hydrogen in the context of the Commission’s recovery plan, in particular through the Strategic European Investment Window of InvestEU (from 2021). 21 Boosting demand for and scaling up production  Propose measures to facilitate the use of hydrogen and its derivatives in the transport sector in the Commission’s upcoming Sustainable and Smart Mobility Strategy, and in related policy initiatives (2020).  Explore additional support measures, including demand-side policies in end-use sectors, for renewable hydrogen building on the existing provisions of Renewable Energy Directive (by June 2021).  Work to introduce a common low-carbon threshold/standard for the promotion of hydrogen production installations based on their full life-cycle GHG performance (by June 2021).  Work to introduce a comprehensive terminology and European-wide criteria for the certification of renewable and low-carbon hydrogen (by June 2021).  Develop a pilot scheme – preferably at EU level – for a Carbon Contracts for Difference programme, in particular to support the production of low carbon and circular steel, and basic chemicals. Designing an enabling and supportive framework: support schemes, market rules and infrastructure  Start the planning of hydrogen infrastructure, including in the Trans-European Networks for Energy and Transport and the Ten-Year Network Development Plans (TYNDPs) (2021) taking into account also the planning of a network of fuelling stations.  Accelerate the deployment of different refuelling infrastructure in the revision of the Alternative Fuels Infrastructure Directive and the revision of the Regulation on the Trans- European Transport Network (2021).  Design enabling market rules to the deployment of hydrogen, including removing barriers for efficient hydrogen infrastructure development (e.g. via repurposing) and ensure access to liquid markets for hydrogen producers and customers and the integrity of the internal gas market, through the upcoming legislative reviews (e.g. review of the gas legislation for competitive decarbonised gas markets (2021). Promoting research and innovation in hydrogen technologies  Launch a 100 MW electrolyser and a Green Airports and Ports call for proposals as part of the European Green Deal call under Horizon 2020 (Q3 2020).  Establish the proposed Clean Hydrogen Partnership, focusing on renewable hydrogen production, storage, transport, distribution and key components for priority end-uses of clean hydrogen at a competitive price (2021).  Steer the development of key pilot projects that support Hydrogen value chains, in coordination with the SET Plan (from 2020 onwards).  Facilitate the demonstration of innovative hydrogen-based technologies through the launch of calls for proposals under the ETS Innovation Fund (first call launched in July 2020). 22  Launch a call for pilot action on interregional innovation under cohesion policy on Hydrogen Technologies in carbon-intensive regions (2020). The international dimension  Strengthen EU leadership in international fora for technical standards, regulations and definitions on hydrogen.  Develop the hydrogen mission within the next mandate of Mission Innovation (MI2).  Promote cooperation with Southern and Eastern Neighbourhood partners and Energy Community countries, notably Ukraine on renewable electricity and hydrogen.  Set out a cooperation process on renewable hydrogen with the African Union in the framework of the Africa-Europe Green Energy Initiative.  Develop a benchmark for euro denominated transactions by 2021. 23 Kaasatud huvigrupid Asutus Alexela Arenguseire Keskus Autode Müügi ja Teenindusettevõtete Eesti Liit Autoettevõtete Liit Autolammutuste Liit Auvetech Circkle K Cyberexer Cybernetica AS Edelaraudtee Eesti Biogaasi Assotsiatsioon Eesti Biokütuste Ühing Eesti Ehitusettevõtjate Liit Eesti Ehitusmaterjalide Tootjate Liit Eesti Elektritööstuse Liit Eesti Elektroonikatööstuse Liit Eesti Energia Eesti Gaas Eesti Gaasiliit Eesti Infotehnoloogia ja Telekommunikatsiooni Liit Eesti Jõujaamade ja Kaugkütte Ühing Eesti Kaubandus-Tööstuskoda Eesti Keemiatööstuse Liit Eesti Keskkonnajuhtimise Assotsiatsioon Eesti Keskkonnauuringute Keskus Eesti Keskkonnaühenduste Koda Eesti Korteriühistute Liit Eesti Laevaomanike Liit Eesti Lennuakadeemia Eesti Linnade ja Valdade Liit Eesti Logistika ja Ekspedeerimise Assotsiatsioon Eesti Maaülikool Eesti Masinatööstuse Liit Eesti Päikeseelekri Assotsiatsioon Eesti Rahvusvaheliste Autovedajate Assotsiatsioon Eesti Raudtee Eesti Ringmajandusettevõtete Liit Eesti Rooma Klubi Eesti Sadamate Liit Eesti Soojustehnikainseneride Selts Eesti Suurettevõtjate Assotsiatsioon Eesti Taastuvenergia Koda Eesti Tarneahelate Juhtimise Ühing Eesti Teadusagentuur Eesti Tuuleenergia Assotsiatsioon Eesti Tuuletehnoloogia Liit Eesti Vesinikutehnoloogiate Ühing Eesti Väike- ja Keskmiste Ettevõtjate Assotsiatsioon Eesti Õliühing Efenco OÜ Elcogen Elektrilevi Elering Elron Enefit Green Energiasalv Estiko Estonian Aviation Cluster MTÜ Estonian Logistics Cluster Ettevõtluse Arendamise Sihtasutus (EAS) Fermi Energia OÜ Finest Twins Fortum Eesti AS Graanul Invest AS Guardtime AS Harjumaa Omavalitsuste Liit Harjumaa Ühistranspordikeskus Hiiumaa Omavalitsuste Liit Ida-Viru Ühistranspordikeskus Ida-Virumaa Omavalitsuste Liit Ida-Virumaa Tööstusalade Arendus Järvamaa Omavalitsuste Liit Kagu Ühistranspordikeskus Keemilise ja bioloogilise füüsika instituut (KBFI) Keskkonnainvesteeringute Keskus Keskkonnaõiguste Keskus Kiviõli Keemiatööstus Konkurentsiamet KredEx Kunda Nordic Tsement Lennuliiklusteeninduse AS Logistika ja Transiidi Assotsiatsioon Läänemaa Omavalitsuste Liit Lääne-Viru Omavalitsuste Liit Meretööstuse Liit MTÜ EES-Ringlus MTÜ Eesti Energiasäästu Assotsiatsioon MTÜ Linnalabor MTÜ Logistika ja Transiti Assotsatsioon Norden Nordic Aviation Group Operail Paikre Pakri teadus- ja tööstuspark Parox Energy OÜ Powerup Technologies PRAXIS Põhja-Eesti Ühistranspordikeskus Põlvamaa Omavalitsuste Liit Pärnumaa Omavalitsuste Liit Pärnumaa Ühistranspordikeskus Rail Baltic Estonia OÜ Raplamaa Omavalitsuste Arengufond Raplamaa Omavalitsuste Liit Riigi Infosüsteemi Amet Robotex Saare Wind Saarte Liinid Scania Skeleton Technologies Skycorp Stockholmi Keskkonnainstituudi Tallinna Keskus Sunly Tallink Tallinna Energiaagentuur Tallinna Lennujaam Tallinna Linnatranspordi AS Tallinna Linnavolikogu Tallinna Sadam Tallinna Tehnikakõrgkool Tallinna Tehnikaülikool Tallinna Ülikool Tarbijakaitse ja Tehnilise Järelevalve Amet Targa Linna klaster Tartu Biotehnoloogia Park Tartu Regiooni Energiaagentuur Tartu Ülikool Tartumaa Omavalitsuste Liit Teaduste Akadeemia Transpordi Varahaldus TS Laevad Tuuletraal Utilitas Valgamaa Omavalitsuste Liit Riigikogu Vesinikutehnoloogia toetusrühm Riigikogu taastuvenergia toetusrühm Viljandimaa Omavalitsuste Liit Viljandimaa Ühistranspordikeskus Viru Keemia Grupp World Energy Council Eesti Võrumaa Omavalitsuste Liit