ANALYSIS: Countries including the UK, France and New Zealand have vowed to reach net-zero emissions by 2050, but such pledges have often seemed more like wishful thinking than cast-iron promises, due to a lack of detail about how these ambitions will be achieved.

That is why the EU’s new plan on how the bloc can phase out unabated fossil fuels by mid-century — released last week under the title "Powering a climate-neutral economy: An EU Strategy for Energy System Integration" — may well prove to be so historic and influential.

It is the first roadmap by any governmental power that sets out how countries can decarbonise all their energy use — from electricity to heat, transport and heavy industry — within 30 years. This means no petrol or diesel vehicles, no natural gas in people’s homes, with even ships and airplanes running on alternative fuels by mid-century.

It may have been developed by the European Commission (EC) to help the EU’s 27 nations meet the bloc’s own 2050 net-zero pledge — under its announced, but not yet signed off, EU Green Deal — but the principles laid out in the document could be replicated anywhere in the world.

It is no exaggeration to say that every energy company and large greenhouse gas emitter around the globe — from oil giants to steel producers and transport companies — should sit up and take notice.

There’s a lot packed into this new strategy, so let’s break it down into bite-sized chunks.

What is energy system integration?

First of all, what does the EC mean by “energy system integration”?

“Energy system integration refers to the planning and operating of the energy system ‘as a whole’, across multiple energy carriers [eg, electricity, gas and liquid fuels], infrastructures [eg, power grids, gas networks, filling stations, etc.], and consumption sectors [eg, heating, transport, heavy industry], 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,” the document explains.

Energy system integration: European Commissioner for European Green Deal Frans Timmermans speaks during a press conference presenting the Energy System Integration Strategy and the Hydrogen Strategy in Brussels on 8 July. Photo: AP/SCANPIX

“[It] is the pathway towards an effective, affordable and deep decarbonisation of the European economy in line with the Paris Agreement.”

The document adds that this integrated energy system will not only “support a climate-neutral economy”, but will have multiple additional benefits, including “strengthening energy security, protecting health and the environment, and promoting growth, innovation and global industrial leadership”.

The need for urgent action

The strategy explains that there is an urgent need to act immediately.

“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,” it says.

“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.”

Five fundamental principles

The EC document — which will have won broad approval from member states and EU institutions ahead of publication — sets out five fundamental principles, or methods, to achieve a carbon-neutral integrated energy system:

1) Greater direct electrification of non-power sectors, such as electric heat pumps replacing gas boilers, electric vehicles (EVs) replacing internal combustion engines, and using electric arc furnaces for high-temperature heat in heavy industries. Electricity will mainly come from renewable sources by 2050, as explained below.

2) Using renewable or carbon-neutral fuels where electrification is not possible. This includes replacing fossil fuels with renewable hydrogen, biogas, biofuels or synthetic fuels produced from clean hydrogen and maybe captured CO2.

3) A more ‘circular’ energy system, with energy efficiency at its core. This means prioritising the least energy-intensive options, such as heat pumps over gas boilers, with waste streams to be reused for energy purposes and “synergies exploited across sectors”. Examples include using waste heat from data centres to heat local buildings, and converting organic waste to biogas.

4) Prioritising decarbonisation in taxes and other levies to ensure that the most energy-efficient and cheapest decarbonisation options have low or no taxes, with carbon-emitting industries paying more.

5) Effective use of infrastructure, such as converting existing gas networks to run on clean hydrogen.

Let’s look at each of these in more detail:

1) Accelerating electrification based on renewable energy

First of all, there is no point in electrifying non-power sectors if the electricity comes from unabated fossil fuels.

“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 strategy states. “The remaining gap should be covered by other low-carbon options.”

It does not explicitly state what those “other low-carbon options” might be, but it would almost certainly be natural-gas or even coal-fired power plants fitted with carbon capture and storage (CCS).

The share of electricity in the EU’s total energy consumption (ie, including heating, transport and heavy industry) will grow from 23% today to 30% by 2030, and “towards 50% by 2050”, the document adds.

It goes on to explain that the increased build-out of renewables will largely happen due to market forces, because wind and solar power will generally be cheaper than fossil-fuel-based alternatives. But the EC points out that the barriers slowing down the expansion of renewables need to be tackled — including public opposition of wind farms and transmission pylons, lengthy permitting procedures and the need for smarter grid infrastructure able to cope with large amounts of variable wind and solar.

Electric heat

Fossil-fuel heating can be replaced with highly energy-efficient electric heat pumps, yet these are rarely the cheapest option today.

“The most important barrier is the relatively higher level of taxes and levies applied to 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,” the document explains.

The influential clean-energy commentator Gerard Reid, co-founder of Alexa Capital, highlighted this exact problem earlier this month, writing: “Where I live outside of Berlin, heating oil costs €0.08 per kWh, gas costs €0.07/kWh while electricity (which is over 50% carbon free) costs €0.30/kWh... the difference is mainly due to government surcharges and taxes.”

The EC strategy continues: “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.”

These issues will all be addressed as part of the EC’s coming Renovation Wave initiative.

Nevertheless, the EC expects electric heating to account for 40% of the residential heat demand by 2030 and 50-70% by 2050, with corresponding figures of 65% and 80% in the “services sector”.

Electric transport

The EC says that the rapidly falling costs of EVs “means that they could be competitive with combustion engine vehicles around 2025, on a total cost of ownership basis”. It therefore wants at least one million publicly accessible EV charging points across the EU by 2025, with various EC funding mechanisms available to support such a build-out.

The document points out that local grid upgrades will be required to enable “the full electrification of passenger road transport”, but at the same time, this “can create opportunities for providing storage and flexibility to the system”.

These “opportunities” are smart charging — where EV batteries are charged according to the wholesale power price and the availability of wind and solar power — and vehicle-to-grid services, where EV batteries can supply electricity to the network when the wind is not blowing and the sun isn’t shining. Both of these “will be essential to manage grid congestion and limit costly investments in grid capacity.”

The EC’s Sustainable and Smart Mobility Strategy will set out more details when it is unveiled later this year.

Electrifying heavy industry

“In industry, heat represents more than 60% of energy use,” says the strategy document. “Industrial heat pumps can help decarbonise the low-temperature heat supply within industries, and can be coupled with waste heat recovery.”

Acknowledging that switching from fossil fuels to electric solutions may increase costs and affect the competitiveness of some industrial sectors, the EC intends to “develop a number of flagship projects and demonstrate innovative electricity-based processes”.

This area will be explored further in the revision of the EU’s Industrial Emissions Directive next year, it adds.

While electric arc furnaces can be used for some high-temperature industrial heat, such as melting scrap steel, they cannot reach the very high temperatures required by, for instance, rolled steel. These super-high temperatures are largely provided today from coke or coal, but can also be achieved from clean hydrogen, as recently demonstrated in Sweden.

2) Renewable and synthetic fuels

“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,” the strategy document explains.

“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.

“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.”

It adds: “Rapid action is necessary: for example, in aviation, only around 0.05% of total jet fuel consumption comes from liquid biofuels.”

A new European system of certification for all renewable and low-carbon fuels is proposed in the strategy, to accurately label the amount of carbon emitted in their production and when burned (or consumed by a fuel cell).

The document states that the EC will “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)”.

Curiously, emission-free ammonia made from renewable hydrogen, which has long been posited as a potential shipping fuel, is not mentioned in the document.

By 2050, the strategy adds, “the share of natural gas in gaseous fuels is projected to reduce to 20% and most of the remaining 80% gaseous fuels should be of renewable origin. But the future mix of these gaseous energy carriers — biogas, biomethane, hydrogen or synthetic gases — is hard to project.”

Clean hydrogen

“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),” the strategy explains.

“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.”

The document also points out that renewable hydrogen production can “help integrate large shares of variable generation, by offloading grids in time of abundant [wind and solar] supply, and providing long-term storage to the energy system”.

For instance, excess solar power in the summer can be used to produce green hydrogen, which can be stored indefinitely and used for power production in winter when less solar power is available.

The strategy adds that it will also “consider establishing minimum shares or quotas of renewable hydrogen in specific end-use sectors”, but not for so-called blue hydrogen (described in the document as “low-carbon hydrogen”), which is derived from fossil fuels with CCS.

The EC’s hydrogen strategy, unveiled at the same time as the energy integration strategy, goes into much greater detail on the use of clean H2. For more on the hydrogen strategy, read Upstream’s earlier analysis here.

Biofuels/biogas/biomethane

Biogas can be produced from organic matter inside so-called anaerobic digesters — large oxygen-free tanks in which anaerobic bacteria break down the biomass into a combination of methane and CO2. This biogas can be further refined (or ‘upgraded’) to produce biomethane — a direct replacement for natural gas. The feedstock for biogas can be anything from cow manure to agricultural waste, sewage sludge or expired food.

Biofuels include ethanol — often produced from grains such as wheat, corn and barley, but also from waste biomass; waste vegetable oil; and biodiesel, which is produced by combining vegetable oils or animal fat with ethanol.

The EC explicitly states that it wants to minimise the use of food and feed crops and “whole trees” for the production of biofuels and biogas, with a preference for “waste-to-energy approaches”.

Carbon-neutral synthetic fuels

Synthetic fuels produced by combining renewable or low-carbon hydrogen with captured CO2 are a kind of clean energy source of last resort — to only be used in the absence of an alternative. This is because of the expense, the energy required for production and the fact they still release carbon into the atmosphere.

Therefore, they are only being realistically considered for shipping (if liquid hydrogen or ammonia will not suffice) and aviation.

As Recharge’s recent special report on green aviation explains, it is highly likely that only “drop-in fuels” that are chemically identical to fossil jet fuel — either biofuel or synthetic fuel — will be used in long-distance aircraft. Batteries and hydrogen simply do not contain the weight-to-energy ratio required to keep today’s 300-tonne planes airborne.

“Synthetic fuels are currently inefficient in terms of energy required for production and are confronted with high production costs,” the EC strategy explains. “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.

“Fully carbon-neutral synthetic fuels require sourcing the CO2 from biomass or the atmosphere.”

The EC seeks to “demonstrate and scale-up the capture of carbon for its use in the production of synthetic fuels”, while also developing a new carbon removal certification mechanism that “can provide regulatory incentives for market take-up of synthetic fuels”.

“As their production requires large amounts of renewable energy, their uptake would have to be matched by a corresponding increase in renewable energy supply.”

3) Energy efficiency/circular energy system

The strategy document points out why greater energy efficiency is an essential part of the puzzle and needs to play a “core” role in all future energy-related decisions.

“Energy efficiency reduces the overall investment 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.”

Switching from fossil fuels to electricity in heating and transport would greatly improve energy efficiency, the document states.

“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 energy.”

The document also calls for the smarter use of waste heat and biological waste — for example, instead of leaving farm waste to decompose and release carbon and methane into the atmosphere, it should be used to produce biogas or biomethane.

4) Prioritising decarbonisation in taxes and levies

Currently, electricity is taxed more heavily than fossil fuels, which the EC realises is counterproductive and unsustainable.

“In an integrated energy system,” the strategy states, “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.

“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 price.”

This gap has widened in recent years as government levies on electricity — which often pay for the financing of renewables support schemes — have increased.

For retail electricity prices, taxes and levies account for 40% of the final price, compared to 26% of gas or 32% for heating oil, the document says, adding that international aviation and maritime transport “can be subject to no or low VAT… and low energy excise duties”.

“Fossil-fuel subsidies also persist in the EU,” it points out.

The EC therefore proposes to “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 Directive”.

The reference to “double taxation” is when electricity used for energy storage is taxed twice — when it is both stored and released back to the grid.

The document also proposes “further work towards the phasing out of direct fossil-fuel subsidies”.

5) Infrastructure

The push for greater electrification, higher proportions of renewables in the power mix, plus increased use of renewable and low-carbon fuels and gases, will require “more physical links between energy carriers,” the document explains.

“This calls for a new, holistic approach for both large-scale and local infrastructure planning.”

In other words, the EU needs to ensure the most efficient utilisation and transport of energy using power grids, gas networks, district heating systems, hydrogen pipelines and ports, as well as EV charging points, other demand-side response options, and energy storage.

This could include repurposing existing gas networks to run on hydrogen, with ports acting as new centres to import, transport and produce renewable hydrogen or synthetic fuels.

“The objective should be to make the most of the existing infrastructure while avoiding both lock-in effects and stranded assets,” the document adds.

In addition, accelerated electrification will require reinforcements of transmission and distribution grids, as well as possible connection with gas grids. For example, the electrolysers that convert electricity into hydrogen could get their power from the grid, with the H2 they produce being pumped directly into a repurposed gas network.

District heating, using renewable and waste heat, should be promoted where appropriate, it adds.

Four challenges remain

Reading between the lines, there are at least four challenges that need to be overcome in order for the energy system integration strategy to be successfully implemented:

1) Getting approval from all 27 member states by June next year, when the EC wants a final version of the strategy to be signed off;

2) Accessing the public and private financing required;

3) Ensuring that companies facing higher costs do not seek to avoid them by moving parts of their business overseas (a phenomenon known as “carbon leakage”), or lose business in the global marketplace as a consequence;

4) Ensuring that renewables projects can be built fast enough to meet increased demand for cleaner power, renewable hydrogen and synthetic fuels. As the document states: “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 above-mentioned sectors.”

Nevertheless, the EC seems highly confident that its strategy will be a success, even stating that “it is key to accelerating the EU’s emergence from [the Covid-19] crisis”.

“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,” the strategy states.

“Energy system integration is essential to reach increased 2030 climate targets and climate neutrality by 2050.

“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 time to act is now.”

(This Analysis article first appeared on Upstream's renewable energy sister publication, Recharge, on 16 July 2020.)