The Ariadne project hosted a three-day event on EU climate and energy policy in Brussels from Monday 9 to Wednesday 11 December 2024. The three days covered different thematic focuses, ranging from the integration of CDR in the EU ETS over to distributional aspects of the net-zero transition to industrial policy and sector specific topics.
Over 240 participants, not including members of the consortium, had registered for the event, both in-person and online. They represented national ministries of EU Member States, the European Commission and European Parliament, think tanks, consultancies, private businesses, business associations, and NGOs. Geographical representation was equally broad, and besides Germany covered countries from all across Europe (Austria, Belgium, Denmark, France, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Romania, Spain, Switzerland, UK) and even countries outside of Europe (e.g. Mexico and the United States). This event was part of a series of workshops intended to share and discuss Ariadne research insights with relevance for European discourse. The aim is to connect the research more tightly to climate and energy policy discussions in Brussels, and to develop directions for future research.
Agenda
Day 1:
Considerations for support policies to bridge CDR integration into the EU ETS
Description:
In 2026 the EU Commission will make a proposal for how to integrate permanent CDR into the ETS. A likely outcome of the decision-making process is that integration will initially be restricted, by limiting volumes, setting exchanges rates or other such options. In this workshop the pros and cons of the various options for restricting access are discussed. A special focus will be on their interaction with other dedicated support policies for CDR. More specifically, if such policies generate CDR certificates in larger volumes before integration starts, the question arises how “integration rights” are allocated to the existing pool of CDR certificates. This is relevant since current model-based analysis suggests that it would be most cost-effective to only integrate bioenergy CDR options (BECCS or biochar), which could endanger the business case for DACCS and other novel permanent CDR technologies.
Speakers for Ariadne: Darius Sultani, Michael Pahle, Christopher Leisinger (all Potsdam Institute for Climate Impact Research)
Guest Speakers: Bjarne Steffen (ETH Zurich), Matthias Börnerand & Martin Schröder (both KfW), Noah Deich (Department of Energy, USA), Fabien Ramos (Directorate-General for Climate Action, European Commission), Valter Selen & Christoph Beuttler (both Carbon Gap)
Key take aways from the organizers:
Bridging policies will be needed to support CDR in the EU until long-term measures such as compliance market integration can unfold. In their opening presentation, the workshop organisers advocated for (i) maximising leverage on private finance and (ii) consider potential investors with their respective risk-return profiles to this end (see slides for further details).
In their reactions, discussants highlighted efficiency-effectiveness trade-offs when implementing new policy, and warned that “the perfect should not become the enemy of the good”. More experimental and iterative policy approaches should be taken to get the first steps off the ground, even if that means compromising on public funding efficiency. Given seriously limited EU funds, participants voiced the expectation that, in the short run, instruments will be comprised of a combination of EU support (e.g. the Innovation Fund), Member State support and market revenue. In this context, and against the background that most CDR startups today are Venture Capital-backed, the importance of a clear perspective for revenue from compliance markets was underlined. Moreover, discussants sketched the role of CDR ramp-up policy in three phases: (i) CRCF-compliant public procurement, (ii) blending public and private finance after initial market confidence has been established, and (iii) compliance market integration. For the latter, one participant advocated for a separate Removals Trading System as this would allow for more control over CDR quantities, which could come in handy especially for overshoot management in the long run.
The open discussion evolved around three key themes. First, the need for signaling and credibility was stressed by several participants, e.g. by already putting an integration date into the next ETS revision at least for credible CDR (i.e. CRCF-certified, permanent removals from EU ETS installations), or by a dedicated consideration of CDR for the next target revision within the EU Climate Law. Second, concerns about abatement deterrence were raised especially against the background that an integration would lead to a new market sentiment not only for CDR providers, but also for actors already covered by (and trading in) the ETS. Lastly, given the complexity of the issues at hand, the importance for prioritisation was pointed out for a successful way forward.
Further research and discussion are needed for a systematic consideration of what to decide now, and what to decide later on – particularly because on the one hand, given uncertainties would commend waiting, while on the other hand path dependencies and the need for long-term investment certainty calls for early action. As a closely related matter, the workshop has sparked the question whether the three stages outlined above should be tackled in a step-by-step approach, or whether a parallel approach (e.g. with early signalling for later stages) would be beneficial. Last but not least, it remains open what the role of the ETS in the long-term could be, specifically for net-negative emissions. Early next steps will require more clarity about whether there will be an “afterlife” for the ETS beyond its 2040s endgame.
A need to mend the bend? Industry decarbonization and market stability in the years ahead
Description:
Earlier this year the Financial Times pointedly diagnosed that the EU’s “carbon price crash looks like serious market myopia”. It is widely expected though that in the near future ETS prices will move upwards (again) from their current level of around 60-70 EUR/t. However, it is unclear when exactly the market will become structurally bullish again, and how strong the upward bend will be in consequence. At the workshop last year, demand by industry – mainly determined by industrial output, decarbonization activities and related hedging pressure, and transition to CBAM – was identified as a main driver for future price evolution. Yet many of these factors are highly uncertain even in the short term. What is more, the prospect of the cap going down to zero soon after 2040 and a potential proposal to even tighten cap in the context of the EU’s Commission proposal for a 2040 target brings to the forefront a number of “elephants in the room”. If not properly addressed these elephants may raise the question of the credibility of the cap among stakeholders – and if seen as low, this may depress prices and could lead to a vicious circle.
Speakers for Ariadne: Michael Pahle, Sebastian Osorio (both Potsdam Institute for Climate Impact Research)
Guest Speakers: Jos Delbeke (European University Institute), Haege Fjellheim (Veyt), Ottmar Edenhofer (Potsdam Institute for Climate Impact Research)
Day 2:
Closing the transfer and support gap in the ETS2 – is targeting regions better than targeting households?
Description:
Europeans broadly support the EU climate targets and net-zero goal. However, many are unwilling to pay higher prices for climate protection and are concerned about the fairness of the ETS2 and its impact on vulnerable populations. Without compensation, parts of the population will pay high prices due to carbon-intensive transport and heating technologies without the resources to change to low-carbon alternatives. The Social Climate Fund (SCF) aims to support these groups in transitioning to low-carbon alternatives with support for green investments and direct income support. This session explored how to effectively design, target, and implement direct income support under the SCF to reach the vulnerable.
Speakers for Ariadne: Henri Gruhl (RWI – Leibniz Institute for Economic Research), Michael Pahle (Potsdam Institute for Climate Impact Research)
Guest Speakers: James Collis (Citizens’ Climate Europe), Jacob Edenhofer (University of Oxford), Joanna Pandera (Forum Energii, European University Institute)
Key take aways from the organizers:
- The ETS2 is a cornerstone for achieving decarbonization and a just transition as it shifts the burden onto polluters, provides short-term co-benefits, and results in long-term avoided damages. Compensation mechanisms can facilitate achieving a just transition if transfers are sufficient (scaled with the carbon price) and both socially (effectively reaching vulnerable groups and increasing public acceptance) and environmentally (not hindering decarbonization) effective. Researchers and policymakers need a better understanding of how to effectively target vulnerable segments, given the administrative challenges and data limitations. Self-revealing policies targeted at potentially vulnerable households could help collect necessary data during implementation.
- Investment constraints or market barriers such as a lack of technical assistance to change heating systems may inhibit certain segments of the population to transition to low-carbon alternatives. Minimizing those constraints quickly will reduce the burden of high ETS2 prices and diminish the importance of precisely targeting direct income support. Informing vulnerable parts of the population about the profitability of low-carbon alternatives will be a crucial component of the just transition.
- It remains unclear whether focusing on fairness in designing direct income support will translate to higher support. Even if the most vulnerable households are targeted, support for costly climate policies may not be forthcoming, but it may increase patience. Climate protection may well move from the ‘economic’ to the ‘cultural’ domain, with ramifications for climate policy support and the design of transfer mechanisms. Transfer schemes need evaluation based on initially agreed-upon criteria. A shared understanding of what constitutes a just transition could help align measures with the interests of the democratic majority. Demonstrating that government spending is efficient and not wasted will be crucial to maintaining democratic support, for which principles of conditionality (based on price levels, fuel types, or emission reductions) could prove effective.
- The time horizon of direct income support involves a crucial trade-off. Framing the policy as long-term assistance could build trust but may cause financing issues over time as ETS revenues decline (+ ‘temporary’ nature in SCF regulation). Framing the policy as short-term assistance risks public backlash but could encourage households to focus on decarbonization investments. The limited pool of available transfers necessitates efficient allocation, but achieving the perfect balance between intertemporal considerations and fairness remains challenging. Policymakers should build on existing frameworks, refine their design, and communicate their strengths continuously.
Climate policy when “the hit gets real” – is “leaving no one behind” a paradigm to uphold?
Description:
This session took a step back from the concrete challenges related to the ETS2 and asked the bigger question of how climate policy can deal with the ramification of “the hit getting real”, i.e. costs rising to a level that is significant in income terms. A specific question that was discussed is if the promise of “leaving no one behind” (LNOB) could still be upheld given the economic trade-offs faced by policymakers (i.e., how to allocate costs and benefits of the energy transition), or if a new paradigm must be found that puts more emphasis on acceptability and “honesty” that there will be losers.
Speakers for Ariadne: Simon Feindt, Michael Pahle (both Potsdam Institute for Climate Impact Research)
Guest Speakers: Anna Stürgkh (Member of the European Parliament), Mihnea Catuti (E3G)
Key take aways from the organizers:
- Fulfilling the common expectation of long-term decreasing energy prices requires, inter alia, keeping the transition costs as low as possible. Achieving this depends on attracting sufficient private investments where they are sound, such as in the electricity grid, and enhancing their attractiveness through public guarantees, where risks are higher. Learning from successful examples (e.g., Denmark) and focusing on carbon-intensive regions, where alignment with other regionally targeted policies, such as the Cohesion Fund, could prove advantageous.
- A second key question concerns the distribution of the costs and benefits of the transition. This question is inherently political, and its social implications require thorough analysis. Nevertheless, the LNOB principle should not be conflated with social policy. Instead, member states can leverage existing social policies to address these challenges. Empowering households to participate actively in the transition by, for instance, becoming energy suppliers is a crucial complement to direct income support. Overall, the EU can contribute by reducing the transition costs and providing regulations that enable flexible, country-specific distributions of costs aligned with national contexts. Clear communication about the role of the EU in this process is essential to prevent it from being perceived as the “bad cop.”
- While there will inevitably be those who lose out in the transition, the LNOB principle provides a valuable framework for guiding policy actions and ensuring the broad participation required to meet climate targets. Success will hinge on effectively balancing and communicating trade-offs across temporal, policy, social, and geographic dimensions, requiring constant evaluation by interest groups and researchers.
Decarbonization of buildings – between energy efficiency, renewables and ETS 2
Description:
The decarbonization of the buildings sector will play a key role in the EU policies to achieve not only the energy and climate targets for 2030, but also the longer term tar-get of climate neutrality until 2050. Hence, with the goal of making it “fit” for the new GHG emissions reduction target of at least 55% to 2030 and the time beyond, the EU legislator revised – again – the relevant legislation. The resulting legal framework – the revised Energy Performance of Buildings, Energy Efficiency and Renewable Energy Directives, accompanied by the new EU Emissions Trading System for buildings – will build on a complex interplay between measures contained in various legal acts and pursuing different approaches towards decarbonization. This workshop aims to pro-vide an overview of the new rules, explaining their key aspects and respective interac-tions. The panel discussion invites further critical reflection and comments by a group of experts and it allows for questions from the audience.
Speakers for Ariadne: Maximilian Wimmer, Jana Nysten (both Stiftung Umweltenergierecht)
Guest Speakers: Kjell Bettgenhäuser (Guidehouse), Nina Neumann (European Commission), Denisa Diaconu (Buildings Performance Institute Europe BPIE), Luke Haywood (European Environmental Bureau EEB)
Key take aways from the organizers:
The EU has put in place a comprehensive framework to decarbonize the building sector. The relevant legislation is spread out over several legal acts, and shows different approaches: While the Energy Performance in Buildings Directive, for example, relies largely on targets and obligations, to be implemented by the Member States, the reform of the Emissions Trading System Directive will install an EU-wide cap-and-trade emissions trading system from 2027 onwards.
With the reforms having passed the legislative process, the focus is now on implementation in the Member States. The availability of good data is crucial to that process. Hence, the EU legislation rules inter alia requires Member States to take stock (of the energy efficiency performance) of their building sector. Further guidance on how to collect which data, how to interpret and present it, may be helpful for at least some Member States.
However, the energy efficiency framework for buildings’ decarbonization, as now adopted, constitutes a political compromise. As such it seems to be perceived overall positively but it also leaves more or less room regarding the implementation. Therefore, the concrete effects will show with the transposition in the national legislation, as well as the independent efforts by the Member States. It does not contain prohibitions of fossil fuel heating installations, which is not a direct obligation, as such measures did not find sufficient support among the Member States. However, such prohibitions could be adopted nevertheless on national level by the Member States.
Looking to the future, the EU Commission will continuously monitor the functioning of the now existing framework and its implementation and al-soand work on the development of the rulesprovisions to adapt them accordingly.
Renewable and Low Carbon Hydrogen in the EU Regulatory Framework: Challenges and Conditions for Developing a Renewable Hydrogen Economy
Description:
The EU has set out to develop a fully renewable hydrogen market. This will require sig-nificant improvements in both availability and competitiveness of renewable hydro-gen. Hence, the use of non-renewable low carbon hydrogen is discussed among re-searchers, policy-makers and industry as an interim solution which could accelerate the market ramp-up of renewable hydrogen. This workshop will address the challeng-es in the EU regulatory framework to achieve this objective, the implications of the in-clusion of renewable and low carbon hydrogen in the EU ETS, and opportunities to drive innovation and emissions reductions in the hydrogen sector. A panel of experts will present and discuss their views. In addition, time is scheduled for questions from the audience.
Speakers for Ariadne: Nils Bruch (Technical University Darmstadt), Jana Nysten (Stiftung Umweltenergierecht))
Panel: Esther Bollendorf (CAN Europe), Grzegorz Pawelec (Hydrogen Europe), Michaela Holl (Agora Energiewende), Michele Casadei (Greens/EFA ITRE Policy Advisor)
Key take aways from the organizers:
The EU’s approach to hydrogen needs a reality check. A more realistic and targeted approach for the hydrogen market ramp-up should replace the “hydrogen hype” that peaked with REPowerEU. The discussion emphasized focusing on sectors that cannot be electrified to maximize hydrogen’s climate and economic benefits.
The EU regulatory framework for hydrogen is nearing completion but still lacks a critical component: a revision of the Energy Taxation Directive. While the upcoming Delegated Act on low carbon hydrogen will address the final piece of the framework for hydrogen production, a revision of the Energy Taxation Directive would be essential to increase the competitiveness of renewable hydrogen.
With the supply-side regulatory framework being almost complete, now the focus must shift to creating demand for hydrogen. Green public procurement and targeted incentives for offtakers, such as the European Hydrogen Bank, are essential to stimulate market development and ensure the deployment of hydrogen across Europe.
Regulating methane emissions is a pressing issue to ensure low carbon hydrogen contributes effectively to climate goals. The upcoming Delegated Act introduces default values for methane emissions, but if these values are set too low, they risk enabling greenwashing and undermining climate impact. The default values need to be set carefully, but ideally producers should use site-specific emissions data for accurately calculating the embedded emissions.
Day 3:
Achieving the EU’s energy and climate targets until 2030 – a discussion of the different approaches, their potentials and limitations
Description:
The negotiations on the Fit for 55 package have just been concluded. The Member states are now in the process of implementing the framework in order to deliver on their contributions to the EU energy and climate targets for 2030. At the same time, the discussions on a 2040 climate target have already commenced. Understanding how the EU legal framework is built and how it is supposed to function seems essential not only for the achievement of the EU energy and climate targets for 2030, but also for the discussions of targets and approaches beyond. Hence, this workshop provides insights into the design of the regulatory framework, its potentials and challenges, and allows for (critical) discussion of the approaches in the EU’s quest towards a sustainable energy supply of the future. The workshop format includes a panel discussion with selected experts, and allows for time for questions from the audience.
Speakers for Ariadne: Jana Nysten (Stiftung Umweltenergierecht)
Guest Speakers: Guus van de Schouw (Directorate-General for Energy, European Commission), Julius Langendorff (Directorate-General for Climate Action, European Commission), Dirk Hendricks (European Renewable Energies Federation EREF), Niels Anger (German Federal Ministry for Economic Affairs and Climate Action)
Key take aways from the organizers:
The EU is taking a holistic approach to achieving climate neutrality by 2050, which is reflected in the energy and climate targets to 2030. Due to the different legal competences in the Treaties, and the political realities in the EU, the mechanisms for achieving the targets on GHG emissions, renewable energy and energy efficiency – and interconnection – also differ.
Much remains to be done to achieve the 2030 targets. This concerns first and fore-most the implementation of the EU rules in the Member States. The EU Commission will continuously monitor – and possibly course correct –the Member States ambitions and progress. And while the next months and years will show whether the mechanisms will deliver as intended, it seems clear that dialogue with and cooperation by the Member States remain crucial for the achievement of the EU energy and climate targets to 2030.
In the field of GHG emissions reductions, the national targets under the Effort Shar-ing Regulation and LULUCF Regulation continue to ensure that every Member States contributes its part. Although with the ETS 2 a new EU-wide instrument for reducing GHG emissions has been introduced, the (self-)understanding of the EU also includes an aspect of fairness which the Effort Sharing mechanism is supposed to address.
Regarding renewable energy, positive signals can be seen even though not all Member States are on track in delivering on their national contributions. Renewable energy is increasingly seen as an economic advantage, rather than a burden. However, the transition does not seem linear and several smaller Member States may need help with the implementation of the new rules.
In the course of the reform of the Governance Regulation, the focus should be on streamlining reporting obligations (NECPs, LTS, etc.) and improving digitalization. This should help with the timely availability of data and hence the evaluation processes the EU Commission conducts.
Transition tipping points: achieving the sectoral transformations needed for 90% emissions reductions by 2040
Description:
The European Commission has recommended an ambitious climate target of 90% emissions reduction by 2040. Achieving this level of decarbonization within the next two decades will require a profound transformation across all economic sectors. However, these changes are progressing at different rates, creating opportunities for cross-sectoral policy learning. The decarbonization of Europe’s power sector is well underway, with emissions now approximately half of 1990 levels. The next phase of decarbonization, spanning into the 2030s, will focus on structural changes in transport, heating, and industry. This phase will require both the adoption of clean technologies—such as electric vehicles and heat pumps—and the phase-out of fossil fuel-based options.
In each of these sectors, potential “tipping points” could enable clean tech deployment to become a self-sustaining process. Achieving these tipping points should be a primary goal of energy and climate policy. During the session, researchers will share modelling insights identifying key factors that could trigger tipping points in the transport and buildings sectors. Panellists, including policymakers focused on clean mobility and buildings’ heating initiatives, will discuss how sector-specific lessons might be adapted for other areas and where unique policy adjustments may be necessary.
Speakers for Ariadne: Robert Pietzcker (Potsdam Institute for Climate Impact Research)
Guest Speakers: Jozefien Vanbecelaere (European Heat Pump Association), Cecilia Trasi (Bruegel)
Key take aways from the organizers:
In his opening presentation, Robert Pietzcker presented modeling insights on pathways to climate neutrality and corresponding emission reduction targets for 2040, as well as two basic concepts that help understand the timing of emission reductions in a sector: a) S-curves describing how a new (superior) technology gains market shares, and b) the lifetime of a technology creating a decade-long delay between the moment when clean technologies reach large sales shares and the moment that large parts of the stock are transformed – which is the moment when emission reductions become easily noticeable. The different stages of the market for passenger cars can be shown on the examples of the EU (early stage, but potentially strong growth ahead if CO2 emission standards are upheld), China (medium stage, with 50% of sales being electric), and Norway (late stage, with >90% of sales being electric and relevant emission reductions).
Jozefien Vanbecelaere, Head of EU Affairs of the European Heat Pump Association, presented some insights on the state of the heat pump industry in Europe. Against the backdrop of a decade with slowly growing heat pump sales shares, the strong increase of heat pump sales during the energy crisis in 2022 did not directly translate into continued growth. She highlighted the electricity-to-gas prices spread as a key barrier for heat pump adoption.
Cecilia Trasi, research analyst from Bruegel, explained that for the EU, it is really not one s-curve but rather many for the different Member States, with some MS reaching sales shares above 35%, while other are still below 10%. Thus, learning between Member States is crucial to advance electric vehicles EU-wide.
The open discussion focused strongly on the role of prices and the ETS2: While some argued that the ETS2 will be an important step for improving the electricity-to-gas price spread, others argued that due to the uncertainty of future prices in the ETS2, customers will not give them much weight in their decision which boiler to buy. Floor prices in the ETS2 would help reduce uncertainty, and while their implementation is unlikely on EU level, it is possible to introduce them in Member States.
Between climate action and competitiveness: lead markets as a tool of EU green industrial policy
Description:
Following the announcement of the Clean Industrial Deal as a signature element of the 2nd von der Leyen Commission, Industrial Policy will be one area where new EU initiatives are expected – and needed to keep the EU in the race for the rapidly emerging markets for clean tech and climate neutral solutions. This session will discuss the outlook for the Clean Industrial Deal, with particular focus on the issue of green lead markets at EU level: how and for which products could these work, how do they relate to existing instruments, and what role could public procurement play as a launch customer for lead markets? How to ensure that existing initiatives for green lead market at Member State level are integrated into a common EU solution, rather than a patchwork of national solutions?
Speakers for Ariadne: Benjamin Görlach (Ecologic Institute), Darius Sultani (Potsdam Institute for Climate Impact Research)
Guest Speakers: Karl Thies (CEMEX Deutschland AG), Philipp Tschinke (Salzgitter AG), Suzana Carp (Cleantech for Europe), Marzena Rogalska (Directorate-General for Climate Action, European Commission)
Key take aways from the organizers:
The concept of lead markets has been receiving much political attention in the EU, being one of the most concrete elements of the upcoming Clean Industrial Deal. Yet it remains to be clarified what lead markets are, what products should be traded on them, and what role they can play.
Lead markets can fill a gap in the EU policy mix by complementing other instruments of industrial policy that the EU has been deploying, which are mostly geared towards the supply side, fostering innovation and investment into low-carbon technologies. Lead markets, by contrast, are supposed to leverage demand for low-carbon products, pay for the (initially) higher production costs, and allow them to scale – until eventually falling costs and rising carbon price make them competitive.
An important choice is to focus on sectors and products where the instrument can add the most value. These are products that account for significant (embedded) emissions, for which alternative production technologies are available and market-ready but not yet competitive with conventional production methods, and for which consumers are prepared to pay extra. This applies above all to steel, cement, or bulk chemicals and plastics. A key choice here is whether lead markets should target upstream products (such as basic materials) or downstream products (such as cars, buildings, packaging products, possibly wind turbines or railway equipment).
A key question for the development of lead markets is where the demand for low-carbon products should come from. One obvious candidate is public procurement, particularly for steel and cement, where public construction projects account for a sizable share of overall demand, sufficient to allow the market to scale up. The obvious drawback is that it requires budgetary space to cover the additional costs. Beyond public procurement, other ways to generate demand include private initiatives driven by consumers: corporate demand, led by companies seeking to meet climate neutrality goals; mandatory quotas for low-carbon products, as seen in the aviation sector with quotas for sustainable aviation fuels; or tax benefits and incentives for consumers.
A key element in rolling out lead markets is to get standards and accounting principles right. Different proposals have been put forward for low-emission standards. The most advanced is the low-emission steel standard (LESS). other standards have been proposed at the national, EU, and international levels, but far from agreed. At the same time, speed is of the essence, given the difficult competitive situation that EU industry faces and the need to stay abreast of developments in other world regions that are investing heavily in low-emission technologies. For this reason, the EU may be better advised to roll out lead markets for a limited number of products initially and then expand over time. This approach would apply an agile type of governance that allows for mistakes to be made but also ensures they can be corrected.