Enabling the Implementation of Hydrogen Projects – A Legal Perspective
By Oana-Alexandra Ijdelea, Managing Partner
“Clean hydrogen will have a central place in the climate-neutral economy of the future” are the words of European Commission President Ursula von der Leyen spoken at the European Hydrogen Week 2021, which plays a key-role regarding the actions to be taken to enable green hydrogen projects in Europe.
Due to its various uses (such as fuel or energy carrier) and applications (across transportation, power or building sector), hydrogen is a key instrument to achieve the climate-neutrality of the European Green Deal through green energy transition by 2050. As an intermediate step towards climate neutrality, the EU has raised its 2030 climate ambition committing to cutting emissions by at least 55% by 2030 under the Fit for 55 package.
Green instruments such as hydrogen play a key role in the energy transition, and therefore a pre-requisite is for the applicable legal framework to accommodate the use of these green instruments for reaching the climate-neutrality ambitions.
At EU level, such main amendments concern Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union (EU ETS), for Directive 2018/2001 on the promotion of the use of energy from renewable sources (RED II), and for the Directive 2003/96/EC restructuring the Community Framework for the taxation of energy products and electricity (ETD).
The EU ETS is the first international emissions trading system, and it is a market-based mechanism for putting a price on carbon. The amendment proposal put forward by the EU has as objective to reduce the emissions provided by EU ETS by 61% until 2030 compared to 2005 levels. The sectors impacted by EU ETS are aviation, shipping, road transport and building (the last 3 added by the Fit for 55 package). In practice, this means that operators from the above-mentioned sectors will need to prepare for a cost of carbon which will continue to rise. Business acting in those sectors must adapt to a robust climate transition and decarbonization.
As far as RED II is concerned, for achieving the climate-neutrality objectives, the proposed amendments refer to increasing the renewable energies in gross final energy consumption in the EU (40% by 2030), energy from renewable fuels of non-biological origin (including hydrogen) which must be included in the industry sector (not only in the transport sector).
Last but not least, the outdated ETD must be amended so as to promote the use of green hydrogen. A link is to be established between the minimum tax rates for fuels and their energy content or environmental impact. In this context, the lowest minimum rate (EUR 0,15/GJ) would apply for electricity, advanced sustainable biofuels, biogas, and renewable fuels of non-biological origin (including hydrogen).
At national level, relevant changes to the environment laws, the renewables & energy legislation and the fiscal framework would definitely encourage the business sector to develop hydrogen projects and prove to be a welcomed support for a faster and wider hydrogen production.
From an environment law perspective, a supple and fit for purpose legislation would not only require adjustments to Law no. 278/2013 regarding industrial emissions and the Emergency Government Ordinance no. 195/2005 but also the amendment of regulations in the domain of water management to adequately capture the specifics of hydrogen when implementing hydrogen projects on bodies of water, such as a revision of the Waters Law no. 107/199.
The changes to be made in relation with the European legislation will also trigger necessary amendments to Law no. 220/2008 for the establishment of the system for promoting the production of energy from renewable energy sources and the Electricity and Natural Gas Law no. 123/2012.
Maintaining the accent on renewables legislation, a draft law is currently undergoing the parliamentary approval process in the Romanian Parliament: Pl-x no. 648/2020 regarding necessary measures for exploiting the offshore wind energy. Ideally, this draft law should include relevant provisions for every type of hydrogen production when it comes to wind energy, such as the hydrogen to be produced offshore by electrolysis in the wind turbine, but also the cases when hydrogen can be produced by transporting electricity from the wind turbine to an electrolyser found onshore and (why not?) in the context of energy transition blue hydrogen as well.
As a direct consequence of changes to be made in relation to the ETD, the fiscal legislation such as the Fiscal Code and its methodological norms, but these should not be made in the traditional “increase the taxation burden” of the private sector way but rather in a form aimed at stimulating investments in this direction.