Provisional agreement reached on REPowerEU

The EU is accelerating the end of its dependence on Russian fossil fuel imports.

Negotiators of the Council and the European Parliament have reached a provisional agreement on the REPowerEU proposal which aims to strengthen the strategic autonomy of the Union by diversifying energy supplies and boosting the independence and security of the Union’s energy supply. The agreed text is subject to approval by the Council and the European Parliament before undergoing the formal adoption procedure.

In practical terms, member states will be able to add a new REPowerEU chapter to their national recovery and resilience plans (RRPs) under NextGenerationEU, in order to finance key investments and reforms which will help achieve the REPowerEU objectives.

I am very pleased that the Czech Presidency is now delivering on one of our key promises: ending the EU’s dependence on Russia’s fossil fuels and paving the way for a radical overhaul of the Union’s energy sector. REPowerEU is going to enable us to finance the necessary investments and reforms.
Zbyněk Stanjura, Minister for Finance of Czechia

Among the key objectives of REPowerEU will be increasing the resilience, security and sustainability of the Union energy system through the needed decrease of dependence on fossil fuels and diversification of energy supplies at Union level, including by increasing the uptake of renewables, energy efficiency and energy storage capacity.

The REPowerEU chapters in member states’ recovery and resilience plans (RRPs) shall outline new reforms and investments, started from 1 February 2022 onwards, and/or the scaled-up part of reforms and investments included in the already adopted RRPs, with their corresponding milestones and targets.

The scope of the chapters is further clarified and will include, among others:

  • boosting energy efficiency in buildings and critical energy infrastructure
  • decarbonising industry
  • increasing production and uptake of sustainable biomethane, and renewable or fossil-free hydrogen
  • increasing the share and accelerating the deployment of renewable energy
  • improving energy infrastructure and facilities to meet immediate security of supply needs for gas, including liquefied natural gas (LNG), notably to enable diversification of supply in the interest of the Union as a whole
  • oil infrastructure and facilities necessary to meet immediate security of supply needs may be included in the REPowerEU chapter of a member state that has been subject to the exceptional temporary derogation due to its specific dependence on crude oil and geographical situation
  • addressing energy poverty
  • incentivising a reduction of energy demand
  • addressing internal and cross-border energy transmission and distribution bottlenecks
  • supporting electricity storage
  • accelerating the integration of renewable energy sources
  • supporting zero emission transport and its infrastructure, including railways

As regards the financing of the grants, the co-legislators agreed that the sources will be the Innovation Fund (60%) and frontloading ETS allowances (40%).

The allocation key will be a formula which takes into account cohesion policy, member states’ dependence on fossil fuels and the increase of investment prices, in line with the Council’s position.

Member states will have further incentives to request loan support including in the case of requests above 6.8% GNI where the relevant conditions apply. Member states will have the possibility of voluntary transfers from the Brexit Adjustment Reserve (BAR).

Member states which have unspent cohesion funds from the previous Multiannual Financial Framework (2014-2020) will have the possibility to use them to support SMEs and vulnerable households particularly affected by energy price increases.

The agreement is provisional as it still needs to be confirmed by member states in the Council, and by the European Parliament to be final.

Background

On 18 May 2022, the European Commission proposed the REPowerEU package which modifies the Recovery and Resilience Facility (RRF) regulation and other legislative acts. It provides for targeted amendments to finance investments and reforms with the objective of diversifying energy supplies and reducing dependence on fossil fuels. This will be achieved by adding in the RRPs dedicated chapters including new reforms and investments and ensuring synergies and complementarity between measures funded under the RFF and actions supported via other national or Union funds.

In concrete terms, the legislative proposal submitted in conjunction with the REPowerEU plan aims at making the RRF the strategic framework for REPowerEU initiatives, maximising complementarity, consistency and coherence of policies and actions taken to accelerate the reduction of dependence on fossil fuels and mitigate its socio-economic costs and impacts during the transition.

The Commission proposal introduced:

1) Amendments of the RRF regulation:

  • An increase in the RRF financial envelope with € 20 billion in grants from the sale of EU Emission Trading System allowances. The allocation key related to distribution of these new funds among the 27 member states remains the same as in the original RRF regulation (reflecting impact of COVID-19 crisis on the economies of the member states);
  • An obligation for the member states modifying their RRPs to also submit a dedicated REPowerEU chapter;
  • A targeted exemption from the obligation to apply the do-no-significant-harm (DNSH) principle for reforms and investments improving energy infrastructure to meet immediate security of supply needs for oil and gas;
  • An obligation to communicate to the Commission within 30 days after the entry into force of the regulation, whether member states intend to request loan support to enable the possibility to reallocate loans, including increasing the maximum amount in exceptional circumstances;
  • A new assessment criterion catering for the specific objectives of REPowerEU;
  • Reporting obligations regarding the REPowerEU chapter

2) 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.

3) Amendment of directive 2003/87/EC establishing modalities for the auctioning of allowances released from the Market Stability Reserve and transfer of the generated € 20 billion revenues to the Recovery and Resilience Facility.

4) 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.

5) Amendment of regulation (EU) 2021/2115 providing a possibility for member states to deliver part of the European Agricultural Fund for Rural Development (EAFRD) through the RRF, to support reforms and investments included in the REPowerEU chapter.

The Council agreed its position on the proposal on 4 October 2022. On 10 November, the European Parliament adopted a number of amendments to the legislative proposal, which constitute its position in the negotiations with the Council. Trilogue negotiations started on 16 November and ended in the provisional agreement reached today.