Weibold Academy article series discusses periodically the practical developments and scientific research findings in the end-of-life tire (ELT) recycling and pyrolysis industry.

This article is a review by Claus Lamer – the senior pyrolysis consultant at Weibold. One of the goals of this review is to give entrepreneurs in this industry, project initiators, investors and the public, a better insight into a rapidly growing circular economy. At the same time, this article series should also be a stimulus for discussion.

For the sake of completeness, we would like to emphasize that these articles are no legal advice from Weibold or the author. For legally binding statements, please refer to the responsible authorities and / or specialist lawyers.

Introduction

Broad renewable emissions and energy targets set by governments and supra-government organisations are finding their way into directives that will eventually become laws or regulations. These laws will have a massive impact on the business models and commercial aspects of a multitude of industry sectors. Staying abreast of how the maze of impending regulations in different global regions will affect business strategies has become a major task for executives. In this series of articles, we aim to alert leaders in our industry at a high level to the developments that will likely warrant further study and ultimately affect their decisions.

For the European Union, next to the WFD and REACH (covered in previous articles), the Energy Taxation Directive (ETD) and Renewable Energy Directive (RED) are two important frameworks that will play a major role. The ETD sets minimum tax rates for energy products, while the RED sets targets for the use of renewable energy. The revised versions of both directives aim to align with EU energy and climate policies and promote clean technologies.

The revised Energy Taxation Directive (ETD) was expected to come into force in January 2023. The revised Renewable Energy Directive (RED) is also expected to come into force (sometimes) in 2023.

In both cases it is currently not foreseeable when they will actually come into force and which changes and/or compromises will ultimately be implemented. The delay of the implementation of these directives can have negative effects on renewable energy targets and the transition to a low-carbon economy.

Energy Taxation Directive (revised ETD)

The taxation of energy products and electricity plays an important role in the area of climate and energy policy. The harmonized rules set under the Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity ("Energy Taxation Directive" or "ETD") aim to ensure the proper functioning of the Internal Market.

However, since the adoption of the ETD in 2003, the underlying climate and energy policy framework changed radically, and the Directive is no longer aligned with current EU policies.

The proposal for recasting is part of the European Green Deal ("EGD") and of the Fit for 55 legislative packages, as it focuses on environmental and climate issues to support the Commission’s commitment to tackling environmental-related challenges and achieve the EU’s domestic greenhouse gas emissions reductions objectives and air pollution reduction.

In the EGD the Commission committed to review the ETD focusing on environmental issues and in order to ensure that energy taxation is aligned with climate objectives. Taxation plays a direct role in supporting the green transition by sending the right price signals and providing the right incentives for sustainable consumption and production.

In this context, effective environmental taxation, and the removal of incentives for fossil fuel consumption throughout the EU are needed to deliver the greenhouse gas emission reductions together with other regulatory measures.

The revised Energy Taxation Directive (ETD) was expected to come into force in January 2023, provided unanimity is achieved. However, the European Parliament’s Economic and Monetary Affairs (ECON) Committee has suspended its work on the proposal to revise the directive until March 2023.

The majority of Member States expressed a positive opinion on the suggested changes and the way forward. Further work was still needed on for example the pace of the implementation, the abolition of some exemptions for the aviation and maritime sectors, the minimum levels of taxation, the interaction of the ETD with other initiatives of the Fit for 55 packages, etc.

In June 2023, the Council, under the Swedish Presidency, noted it had made further progress on the file and had found a number of compromise solutions. But further work was still needed in order to reach a well-balanced compromise on outstanding issues.

Renewable Energy Directive (proposal for REDIII)

The European Green Deal (EGD) establishes the objective of becoming climate neutral in 2050 in a manner that contributes to the European economy, growth, and jobs. This objective requires a greenhouse gas emissions reduction of 55% by 2030 as confirmed by the European Council in December 2020.

This in turn requires significantly higher shares of renewable energy sources in an integrated energy system. The current EU target of at least 32% renewable energy by 2030, set in the Renewable Energy Directive (REDII), is not sufficient and needs to be increased to 38-40%, according to the Climate Target Plan (CTP). At the same time, new accompanying measures in different sectors in line with the Energy System Integration, the Hydrogen, the Offshore Renewable Energy, and the Biodiversity Strategies are required to achieve this increased target.

The overall objectives of the revision of REDII are to achieve an increase in the use of energy from renewable sources by 2030, to foster better energy system integration and to contribute to climate and environmental objectives including the protection of biodiversity, thereby addressing the intergenerational concerns associated with global warming and biodiversity loss. This revision of REDII is essential to achieve the increased climate target as well as to protect our environment and health, reduce our energy dependency, and contribute to the EU’s technological and industrial leadership along with the creation of jobs and economic growth.

The EU renewable energy directive (RED) was adopted in 2009 to deliver a minimum 20% share of renewable energy sources (RES) in EU final energy consumption by 2020. The RED was substantially revised (recast) in 2018 to deliver the EU objective of a minimum 32% share of RES in final energy consumption by 2030. On 14 July 2021, the Commission adopted the 'fit for 55' package, part of the European Green Deal, which included a significant revision of the RED.

The Council of the EU eventually adopted a general approach on 29 June 2022. This supports the original 40% RES target proposed by the Commission in July 2021. In terms of the transport sector, the general approach would give Member States the flexibility to choose between a 13% reduction in GHG intensity or a 29% RES share in the FEC of the transport sector by 2030. The general approach sets less ambitious sectoral targets than the Commission proposal but does support tightening biomass sustainability criteria and accelerating the renewable energy sources (RES) permit granting process.

Trialogue negotiations between the Parliament, the Council, and the Commission concluded with a provisional agreement on 30 March 2023. The co-legislators agreed to raise the share of renewables in the EU’s overall energy consumption to 42.5% by 2030, with an additional 2.5% indicative top up that would allow the overall share to reach 45%. Additionally, Parliament and Council agreed a series of sectoral targets (industry, transport, buildings, heating, and cooling), some of which are of a binding nature while others are only indicative. The rules on sustainability of biofuels were tightened, while renewable permit granting processes are to be accelerated, in line with the REPowerEU plan and legislative proposal.

The Council formally endorsed the final text on 16 June 2023. A Committee on Industry, Research and Energy (ITRE) committee vote on the provisional agreement was scheduled for 28 June, while a plenary vote is expected in September 2023.

How ETD and RED are related

The Energy Taxation Directive (ETD) and Renewable Energy Directive (RED) are two important frameworks for energy policy in the European Union. Some key points:

Energy Taxation Directive (ETD)

  • The ETD is a European directive that establishes the framework conditions for the taxation of energy products, including electricity, motor and aviation fuels, and most heating fuels.
  • The directive sets minimum tax rates for all member states and is part of European Union energy law.
  • The ETD is intended to ensure the functionality of the EU internal energy market, avoid distortions of competition through different tax systems, and contribute to a low-carbon, energy-efficient economy.
  • The revised ETD aims to align the taxation of energy products with EU energy and climate policies, promote clean technologies, and remove outdated exemptions and reduced rates that currently encourage the use of fossil fuels.

Renewable Energy Directive (RED)

  • The RED is a European directive that sets targets for the use of renewable energy in the EU.
  • The directive requires member states to ensure that a certain percentage of their energy consumption comes from renewable sources.
  • The RED is part of the EU’s efforts to combat climate change and reduce greenhouse gas emissions.
  • The revised RED aims to increase the share of renewable energy in the EU’s energy mix, promote the use of renewable energy in transport, and improve the sustainability of bioenergy.

The revised versions of both directives aim to align with EU energy and climate policies and promote clean technologies.

Conclusion

The revised Renewable Energy Directive (RED) and Energy Taxation Directive (ETD) can positively impact the circular economy through increased use of renewable energy, promotion of clean technologies, discouragement of fossil fuel use, and the introduction of a carbon border adjustment mechanism to address carbon leakage.

Relevance to the ELT waste processing sector: In this sense, the further expansion of the chemical re- and up-cycling of end-of-life tires (ELTs) is supported and the demand for the sustainable products recovered Carbon Black (rCB) and tire derived pyrolysis oil (TDO) continue to rise rapidly – as is the case in the UK, as evidenced in the long-recognized development fuel (RTFO) program.

A further delay of the revised Energy Taxation Directive (ETD) and the Renewable Energy Directive (RED) coming into force can (in general) slow down progress towards the transition to a low-carbon economy.

It is therefore to be hoped that the EU member states will address the issues during the summer break and agreed by autumn 2023 at the latest.