Explanatory Memorandum to COM(2022)231 - Amendment of Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans and amending several Regulations, a Directive and a Decision - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2022)231 - Amendment of Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans and amending several ... |
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| source | COM(2022)231  |
| date | 18-05-2022 |
1. CONTEXT OF THE PROPOSAL
Reasons for and objectives of the proposal
Since the adoption of Regulation (EU) 2021/241 establishing the Recovery and Resilience Facility (‘the RRF Regulation’), unprecedented geopolitical and economic events have drastically impacted the Union’s society and economy. Following the invasion of Ukraine by Russia, the case for a rapid clean energy transition in line with the EU’s 2030 climate targets and its 2050 climate neutrality objective has never been stronger. The EU imports 90% of its gas consumption, with Russia providing more than 40% of it. Russia also accounts for 27% of oil and 46% of coal imports to the EU.
It is within that context that the European Leaders have called on the European Commission to provide a targeted and effective response. In their Versailles Declaration of 10-11 March 2022, the European Heads of State and Government have explicitly entrusted the Commission with proposing by the end of May a REPowerEU plan, setting as the key objective a reduction of the Union’s energy dependencies. In particular, the Declaration contains an agreement on phasing out the dependency on Russian gas, oil and coal imports as soon as possible. The Versailles Declaration’s commitments were subsequently reiterated in the European Council Conclusions of 24-25 March, which additionally focused on sustained high energy prices having an increasingly negative impact on citizens and businesses, further compounded by the Russian military aggression against Ukraine.
Following the launch of NextGenerationEU in 2020, the European economy has prepared the ground for accelerated green and digital transitions. However, these twin transitions are now taking place in a disrupted global context, faced with new uncertainties. As noted by the European Leaders, it has become clearer than ever that increasing the security of the Union’s energy supply and reducing the EU’s dependency on fossil fuels from Russia is vital for a successful and sustainable recovery from the COVID-19 crisis.
High energy prices and risks of energy supply distortions, exacerbated by the unexpected external factors, threaten to deteriorate the economic outlook and weaken social and territorial cohesion for all Member States. More specifically, volatile energy prices risk affecting business competitiveness, especially of its industrial base, and exacerbating inequalities and energy poverty, especially among vulnerable and low- and middle-income households.
The Recovery and Resilience Facility (‘RRF’) is the cornerstone of the European Union’s future-oriented growth strategy following the COVID-19 crisis, as national recovery and resilience plans (‘RRPs’) set the investment and reform agenda for the coming years. A large number of measures included in the RRPs are already expected to significantly improve the resilience of the Union’s energy supply, decrease the dependency on energy imports, and support just transitions, leaving no region and no person behind. The RRPs with the already foreseen investments and reforms to deliver on the green and digital transitions remain essential. At the same time, the recent geopolitical and economic developments call for an even greater sense of urgency and an even higher level of ambition to ensure a successful recovery from the COVID-19 crisis. There is a need to accelerate and deepen reforms and investments in this field both at EU and at national level.
Phasing out the EU’s dependency on fossil fuels from Russia can and should be done well before 2030. To do so, REPowerEU supplements the actions taken with respect to energy security of supply and storage by a set of measures to save energy, diversify supplies and accelerate Europe’s clean energy transition. Diversifying gas supplies can be done by increasing the amount of LNG imports and pipeline imports from non-Russian suppliers, as well as by increasing the levels of sustainable biomethane, i.e. produced from organic waste and agricultural and forest residues, and renewable or fossil-free hydrogen. Energy savings can be obtained at the level of households, buildings, transport, and the industry, and at the level of the power system by boosting energy efficiency. To accelerate Europe’s clean transition, the share of renewables in the energy mix needs to increase and measures need to be taken to and address infrastructure bottlenecks and labour and skill shortages. These three sets of interventions can be supported through a combination of investments and reforms.
Against this background, RRPs are well positioned to implement these increasingly urgent priorities. With the current proposal, the Member States’ RRPs will serve as a strategic framework for reforms and investments to ensure joint European action for more resilient, secure and sustainable energy systems. Multi-country projects and measures of a cross-border nature, in particular those aiming at ensuring better energy connection between Member States thereby increasing the diversification of supply, are particularly suitable to address the REPowerEU objectives. In this context, the RRF can usefully complement the projects of common interest selected based on the TEN-E Regulation. Projects of common interest can also be supported through the Connecting Europe Facility (‘CEF’).
At the same time, the addenda to the RRPs should not disrupt the ongoing implementation of the ambitious reforms and investments agenda contained in the existing Council implementing decisions. To this end, new measures proposed as a response to the geopolitical and socio-economic developments should be targeted, additional to, and coherent with that agenda.
Contents
Consequently, the current proposal provides for targeted amendments to the RRF Regulation to achieve the following objectives:
–Adding in the RRPs dedicated chapters including new reforms and investments to deliver on the REPowerEU objectives, and
–Ensuring synergies and complementarity between measures funded under the RFF and actions supported via other national or Union funds.
The changes to the RRF Regulation should be complemented by legislative amendments to establish additional funding sources to help finance the new REPowerEU objectives under the RRF framework. To this end, revenues generated by the auctioning of a limited portion of Emissions Trading System (‘ETS’) allowances from the Market Stability Reserve (‘MSR’) should be allocated to the financing of new REPowerEU-related measures. Member States should be granted a higher flexibility to transfer resources allocated to them both under the Common Provisions Regulation (EU) 2021/1060) (‘CPR’) and the Regulation on CAP strategic plans ((EU) 2021/2115).
Consistency with existing policy provisions in the policy area
This proposal amends Regulation (EU) 2021/241 establishing the Recovery and Resilience Facility, Regulation (EU) 2021/1060 (‘Common Provisions Regulation’), Decision (EU) 2015/1814 (‘Decision on Market Stability Reserve’), Directive 2003/87/EC (‘ETS Directive’) and Regulation (EU) 2021/2115 on CAP strategic plans.
The proposal builds on the existing and well-functioning RRF framework to provide additional support for measures needed to accelerate the Union’s efforts to reduce dependence on Russian fossil fuels in order to ensure a successful recovery from the COVID-19 crisis, in line with the Facility’s general and specific objective.
Furthermore, by introducing the concept of REPowerEU chapters the proposal promotes coordination and synergies between the measures supported under the RRF and other actions financed by other sources, including national funds. This allows the RRF to take the role of a strategic framework for REPowerEU initiatives, thus maximising complementarity, consistency and coherence of policies and actions taken to foster independence and security of the Union’s energy supply and mitigate its socio-economic costs and impacts during the transition.
The additional financial resources included in the proposal aim to speed-up the achievement of the REPowerEU objectives. The possibility to transfer more from other Union instruments, such as Cohesion funds, to the RRF in order to achieve the REPowerEU aims, is justified by a high alignment between those tools’ objectives and those of the current proposal.
The proposal is consistent with the policy objectives followed by the cohesion policy funds and the Common Agricultural Policy. Given the objective of REPowerEU to decarbonise faster the economy, the type of projects to be supported under the RFF are well aligned with the type of investments considered under the cohesion policy funds, for instance on energy efficiency measures. The same holds true for the Common Agricultural Policy and the focus on renewable energy that is integrated as a core priority of REPowerEU.
The proposal is aligned with the policy guidance provided under the European Semester. Member States proposing a modification of their RRP will need to demonstrate that measures effectively address the country-specific recommendations issued in that context. Reporting on the progress made in implementing the measures and actions included in the national REPowerEU chapters will take place under the existing European Semester framework, as provided for by the RRF Regulation.
The Commission proposal of 14 July 2021 COM (2021) 571 proposes to amend the Decision on the MSR so as to extend the doubling of the intake rate and the minimum reserve until 2030. The aim of the proposal is to ensure the long-term objectives of the MSR in terms of reducing the surplus and ensuring market resilience would not be affected. In the short-term, however, the exceptional situation on energy markets caused by Russia’s invasion of Ukraine requires the Union to mobilise all available resources to accelerate the transition away from Russian fossil fuels. To this end, part of the allowances currently held in the MSR, corresponding to a market value of EUR 20 billion, should be unlocked and allocated to the RRF in order to promote the REPowerEU objectives. The proposed amendments are part of a wider range of measures taken by the Union in response to the changed socio-economic and geopolitical landscape in the context of REPowerEU, namely the proposal for a Regulation on gas storage, the proposal on energy market design, the Platform for joint gas purchases, and the EU Solar Strategy. Those instruments are complementary, as this proposal focuses on incentivising and enabling the REPowerEU actions at national level, while those other measures address the European dimension of REPowerEU.
Consistency with other Union policies
The proposal is consistent and ensures complementarity and synergies with other Union policies.
In particular, the proposal is consistent with a broader set of initiatives to enhance the Union’s energy resilience, notably the Commission’s ‘Fit for 55’ proposals, such as the revision of the Third Energy Package (Directive 2009/73/EU and Regulation 715/2009/EU), the revision of the Renewable Energy Directive (Directive (EU) 2018/2001) and the revision of the Energy Efficiency Directive (Directive 2012/27/EU), which are expected to create a resilient and sustainable energy system in the Union.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
In line with Article 175 (third paragraph) of the Treaty on the Functioning of the European Union, the proposed regulation aims to contribute to enhancing cohesion, through measures that allow the Member States to reduce external fossil fuel energy dependence and increase their security of energy supply, by reinforcing the production and supply of sustainable energy within the Union and pooling resources between Members States and between regions. The overall aim is to secure sustainable and safe energy supply for all Member States and citizens within the Union, taking into account stark national and regional disparities, while promoting social fairness and ensuring a just and inclusive transition that leaves no region and no person behind. The current geopolitical situation has highlighted the significant differences between Member States and regions regarding the dependency on fossil fuels and especially on the ones imported from Russia. With this initiative the EU is working together with all Member States and pooling funds from various EU sources to spread resources fairly and support actions targeted at the specific energy challenges faced by each Member State.
In line with Article 177, first paragraph, of the Treaty on the Functioning of the European Union, the proposed regulation, by increasing the flexibility to make transfers from cohesion policy funds, has an impact on the organisation of the Structural Funds.
In line with Article 192, first paragraph, and 194, second paragraph, of the Treaty on the Functioning of the European Union, the proposed regulation aims at introducing changes to the system for greenhouse gas emission allowance trading within the Union in order to contribute to ensuring security of energy supply in the Union.
In line with Article 322 of the Treaty on the Functioning of the European Union, the proposed regulation sets out financial rules for the implementation of the budget, by introducing rules on the provision of appropriations with regard to the new revenue.
• Subsidiarity
The overall objective of the proposal is to enhance cohesion, through measures that allow Member States to foster independence and security of the national and Union’s energy supply. For that purpose, the proposal sets a new obligation on Member States submitting or modifying their RRPs to include a REPowerEU chapter, with specific reforms and investments that address their energy-related challenges. Importantly, it is up to Member States to decide whether they wish to finance these measures through Union and/or national funds. The implementation of relevant measures to make the Union more resilient and less dependent by diversifying energy supply chains is a matter of common interest for the whole Union. An action at the Union level is needed to coordinate a powerful response to the aggravating energy-related challenges, with unprecedented energy price hikes which risk exacerbating socio-economic divergences and inequalities, as well as worrying geopolitical developments at the Union’s border. In addition, certain regions face similar energy-related challenges which calls for coordinated cross-border efforts, allowing to unlock greater synergies.
The Union's intervention will bring additional value by establishing a dedicated framework allowing to support Member States in the design and implementation of much needed energy-related reforms and investments. Additional value will also be generated by coordinating these actions to ensure a coherent EU-wide response, all while putting forward measures tailored to the specificities of each Member State.
• Proportionality
The proposal complies with the proportionality principle in that it does not go beyond the minimum required to achieve the stated objectives at the European level and which is necessary for that purpose. The discretion left to the Member States when deciding on which REPowerEU measures they wish to support through the dedicated funding under the RRF and the consensual nature of the cooperation throughout the entire process constitute additional guarantees for respecting the proportionality principle and for the development of mutual trust and cooperation between the Member States and the Commission.
• Choice of instrument
To benefit from the already developed framework of the RFF, a regulation amending the RRF Regulation, the Common Provisions Regulation, the Regulation establishing rules on support for strategic plans to be drawn up by Member States under the common agricultural policy, the ETS Directive, and the Decision on MSR is an appropriate legal instrument to implement the REPowerEU objectives.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex-post evaluations/fitness checks of existing legislation
On 1 March 2022, the Commission adopted the first annual report on the implementation of the RRF. The report shows that major headway has been made and confirms that the implementation of the RRF is well underway.
As regards the green transition specifically, a total of EUR 224.1 billion of expenditure is estimated to be allocated to this RRF pillar, equivalent to 50% of the total expenditure in the 22 RRPs adopted until end-March 2022. As for the specific policy areas, 29% of the green transition expenditure (total estimated cost of EUR 64.4 billion) is dedicated to energy efficiency measures, another 12% (total estimated cost of EUR 26.7 billion) is devoted to clean power – renewable energy and networks, and green multi-country or cross-border projects account for a total estimated cost exceeding EUR 27 billion.
• Stakeholder consultations
While no formal stakeholder consultation was carried out, RePowerEU was discussed extensively with Member States. For instance, on 6 April 2022 the Commission organised within the framework of the informal expert group on the implementation of the RFF a discussion on this very topic. Subsequently, the Commission held a series of dedicated bilateral meetings with every Member State to discuss the national priorities linked to REPowerEU.
• Impact assessment
Due to the urgent nature of the proposal, no impact assessment was carried out.
• Fundamental rights
The proposal has a positive effect on the preservation and development of Union fundamental rights, assuming that the Member States request and receive support in related areas. For example, reforms and investments related to areas such as the fight against energy poverty can support Union fundamental rights such as the right to integrity of the person.
4. BUDGETARY IMPLICATIONS
The financial envelope of the Facility shall be increased by EUR 20 billion (in current prices) that will be financed from the auctioning of ETS allowances. The amount will be made available to Member States in the form of non-repayable financial support under direct management to support exclusively reforms and investments included in the REPowerEU chapter. The amount for the non-repayable support represents external assigned revenue within the meaning of Article 21 i of the Financial Regulation.
In addition, Member States will have the possibility to transfer up to 12.5% of their allocation under the cohesion policy to the RRF; building on the already available 5% transfer possibility (up to EUR 17.9 billion) and adding a 7.5% transfer possibility for REPowerEU objectives only (up to EUR 26.9 billion). Member States will also have the possibility to transfer up to 12.5% of their initial allocation under the European Agricultural Fund for Rural Development (‘EAFRD’) (up to EUR 7.5 billion) to the RFF in order to support measures included in the REPowerEU chapter.
The voluntary transfers of commitment appropriations from the funds governed by the CPR and the EAFRD will lead to commitments being made as from 2022 for the CPR funds and as from 2023 for the EAFRD, and is compatible with the multiannual financial framework 2021-2027 ceilings for commitment appropriations for Headings 2a and 3. Payments will take place over 2023 to 2026, in line with the implementation deadlines for the RRF. The exact annual impact will depend on the amounts actually transferred by the Member States. The Commission will take account of the transfers in the annual budgetary procedure, with payments implemented subject to the availability of funds.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
The proposal is based on existing modalities to monitor, evaluate, and report the progress of the reforms and investments included in the RRPs, as per the RRF Regulation. The measures included in the REPowerEU chapter will be subject to the same monitoring arrangements as other RRF measures, with an additional performance indicator designed to track the progress vis-a-vis the objectives of REPowerEU.
To ensure synergies and complementarity, the new REPowerEU chapter should also provide information about actions pursuing the REPowerEU objectives not to be funded under the RRF, but through national or other Union funds. Those actions will be monitored within the existing European Semester framework, as provided for by the RRF Regulation, in full complementarity with the integrated national energy and climate plans under the Regulation on Governance of Energy Union and Climate Action. This would allow Member States to provide a comprehensive overview of the planned policy action to achieve the REPowerEU objectives, to ensure that each reform and investment is supported by the most adequate financing source taking into consideration its scope, implementation modalities and timeline. This would notably allow to best exploit the complementarities between the RRF and Cohesion funds, for instance in terms of their respective implementation horizon.
• Detailed explanation of the specific provisions of the proposal
This proposal provides for targeted amendments of the aforementioned Union’s legal acts to allow for a greater contribution towards the REPowerEU objectives, notably by incentivising Member States to submit dedicated addenda to their existing national RRP.
·Amendments of the RRF Regulation:
·An obligation on Member States modifying their RRPs to also submit a dedicated REPowerEU chapter, outlining measures and actions aimed at addressing the REPowerEU objectives;
·An exemption from the digital target requirement of Art. 19(3) (f) for new measures included in the REPowerEU chapter (while keeping the climate target requirement of Art. 19 (3) (e));
·A targeted exemption from the obligation to apply the do-no-significant-harm principle laid down in Art. 5(2) for reforms and investments improving energy infrastructure to meet immediate security of supply needs for oil and gas, notably to enable diversification of supply in the interest of the Union as a whole,
·A new assessment criterion catering for the specific objectives of REPowerEU,
·Reporting obligations regarding the REPowerEU chapter.
·Amendment of Decision (EU) 2015/1814 prolonging the current intake rate of allowances to the Market Stability Reserve until 2030 and providing a possibility to release and auction a portion of allowances held therein and allocate the generated revenue towards the RRF.
·Amendment of Directive 2003/87/EC establishing modalities for the auctioning of allowances released from the Market Stability Reserve and transfer of the generated EUR 20 billion revenues to the Recovery and Resilience Facility.
·Amendment of Regulation (EU) 2021/1060 providing a possibility for Member States to transfer up to 7.5% of their national allocation to the RRF, in addition to the existing 5% transfer possibility, to support reforms and investments included in the REPowerEU chapter;
·Amendment of Regulation (EU) 2021/2115 providing a possibility for Member States to deliver part of the EAFRD through the RRF, to support reforms and investments included in the REPowerEU chapter.