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EU mulls stricter battery legislation

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The European Commission is proposing to modernise its legislation on batteries – delivering the first initiative among the actions announced in its new Circular Economy Action Plan.

The EU says batteries that are more sustainable throughout their life cycle are key for the goals of the European Green Deal and contribute to the zero pollution ambition set in it. They promote competitive sustainability and are necessary for green transport, clean energy and to achieve climate neutrality by 2050.

As such, the proposal seeks to address the social, economic and environmental issues related to all types of batteries.

It says batteries placed on the EU market should become sustainable, high-performing and safe all along their entire life cycle. This means batteries that are produced with the lowest possible environmental impact, using materials obtained in full respect of human rights as well as social and ecological standards. Batteries have to be long-lasting and safe, and at the end of their life, they should be repurposed, remanufactured or recycled, feeding valuable materials back into the economy.

The Commission proposes mandatory requirements for all batteries (i.e. industrial, automotive, electric vehicle and portable) placed on the EU market. Requirements such as use of responsibly sourced materials with restricted use of hazardous substances, minimum content of recycled materials, carbon footprint, performance and durability and labelling, as well as meeting collection and recycling targets, are essential for the development of more sustainable and competitive battery industry across Europe and around the world.

Providing legal certainty will additionally help unlock large-scale investments and boost the production capacity for innovative and sustainable batteries in Europe and beyond to respond to the fast-growing market.

The measures that the Commission proposes will facilitate achieving climate neutrality by 2050. Better and more performant batteries will make a key contribution to the electrification of road transport, which will significantly reduce its emissions, increase the uptake of electric vehicles and facilitate a higher share of renewable sources in the EU energy mix.

With the proposal, the Commission also aims to boost the circular economy of the battery value chains and promote more efficient use of resources with the aim of minimising the environmental impact of batteries. From 1 July 2024, only rechargeable industrial and electric vehicles batteries for which a carbon footprint declaration has been established, can be placed on the market.

To close the loop and maintain valuable materials used in batteries for as long as possible in the European economy, the Commission proposes to establish new requirements and targets on the content of recycled materials and collection, treatment and recycling of batteries at the end-of-life part. This would make sure that industrial, automotive or electric vehicle batteries are not lost to the economy after their useful service life.

To significantly improve the collection and recycling of portable batteries, the current figure of 45% collection rate should rise to 65 % in 2025 and 70% in 2030 so that the materials of batteries we use at home are not lost for the economy. Other batteries – industrial, automotive or electric vehicle ones – have to be collected in full. All collected batteries have to be recycled and high levels of recovery have to be achieved, in particular of valuable materials such as cobalt, lithium, nickel and lead.

The proposed regulation defines a framework that will facilitate the repurposing of batteries from electric vehicles so that they can have a second life, for example as stationary energy storage systems, or integration into electricity grids as energy resources.

The use of new IT technologies, notably the Battery Passport and interlinked data space will be key for safe data sharing, increasing transparency of the battery market and the traceability of large batteries throughout their life cycle. It will enable manufacturers to develop innovative products and services as part of the twin green and digital transition.

With its new battery sustainability standards, the Commission will also promote globally the green transition and establish a blueprint for further initiatives under its sustainable product policy.

Europe bets on green deal to drive Covid-19 recovery

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By Indranil Ghosh, Founder, Tiger Hill Capital

The European Green Deal has always been a highly ambitious plan that targets a 50-55% reduction in EU CO2 emissions by 2030 and carbon neutrality for the region by 2050. But now that it’s become the centerpiece of the EU’s Covid-19 Recovery Plan, 25% of the total 2021-27 recovery budget will be allocated to Green Deal initiatives which are viewed as a powerful job creator in a time of rising unemployment. 

Through the Green Deal and a series of upcoming reforms to the financial system, the EU will lead the world in implementing a comprehensive regulatory and investment framework to drive the transition to a zero-carbon economy. Furthermore, as outlined in a July 8th report ‘Towards a Hydrogen Economy in Europe: a Strategic Outlook,’ the EU is taking a bold stance to put clean hydrogen at the center of its transition plan. 

European Green Deal: A Comprehensive Regulatory Package 

Under the European Green Deal, the European Commission is undertaking a detailed review of all regulations to promote low-carbon technologies and phase out carbon intensive assets. 

New directives will accelerate the deployment of renewable energy, energy efficiency initiatives, and emissions trading markets. The transport sector will be under pressure to achieve zero emissions by the 2030s, while industrial sectors will be required to use less materials according to new circular economy policies. Proposals are also expected for a carbon border tax to protect EU companies against unfair competition from other regions with lower environmental standards. 

Central to the Green Deal is to invest heavily into the hydrogen economy so that it accounts for at least 13-14% of the EU’s energy mix by 2050, and possibly up to a quarter. The EU views clean hydrogen—hydrogen produced from the electrolysis of water using electricity generated from renewable energy sources—as a key vector for energy storage and transport, as well as in an energy grid with a growing proportion of intermittent energy sources like wind and solar. Clean hydrogen would also be a zero-carbon feedstock in industries like steel, ammonia, and other chemicals. 

The European Commission estimates that up to €180 billion could be invested into clean hydrogen production by 2050, with public funds helping to catalyze that figure. Germany, the region’s economic engine, has committed €7 billion for new businesses and research so that it can reach its national plan for 5GW of hydrogen production by 2030 and 10GW by 2040. 

In another key initiative, the EU will reform its Emissions Trading System (ETS), whereby companies must buy permits to emit carbon emissions, so that it better incentivizes renewables, such as by increasing the carbon price. The proceeds from the ETS will be put into an Innovation Fund which will make €10 billion available to support the development of low-carbon technologies. 

Re-wiring the Financial System for Sustainability

To support the transition to a zero-carbon economy, Europe is also leading the way in re-wiring its financial system for sustainability. In 2019, the European Commission issued non-financial reporting guidelines for banks and insurers, based on the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). Under these guidelines, banks and insurers will have to report how they expect climate change to affect their financial performance as part of their annual financial filings. It is likely that these guidelines will be converted into ‘hard’ regulation in the next few years. 

The European Central Bank (ECB) has also indicated that it will integrate climate risk into the 2022 European Banking Authority stress tests. Since emissions are highly concentrated in a few companies—for example, three energy companies (RWE, E.ON, and ENBW) account for 38 percent of theCO2 emissions of Germany’s 250 largest emitters—the worst offenders will be quickly highlighted and face a higher cost of capital unless they take mitigating actions.

Furthermore, the EU is taking steps to ensure that investors’ environmental, social, and governance (ESG) preferences are considered before their capital is deployed. Under amended MiFID II rules, the EU will make it mandatory for asset managers, insurance companies, pension funds, and financial advisers to determine their clients’ ESG preferences and to recommend products and services which are suitably aligned. They will also be required to report how sustainability risks are expected to impact investment returns. These changes could come into effect in as little as a year-and-a-half

Finally, by the end of 2021, the EU’s ‘Taxonomy Regulation’, which specifies what investments can be classed as sustainable, will also come into force. This should significantly reduce ‘greenwashing’ and give investors more confidence to invest in green assets. 

The Challenge of Stranded Assets

Due to the direct physical risks of climate change or risks associated with the transition to a low-carbon economy, investors are increasingly realizing that many assets may become ‘stranded,’—unable to earn an economic return some time prior to the end of their economic life. 

The highest concentration of stranded assets lies in climate-exposed real estate and industries dependent on fossil fuels like hydrocarbon extraction, non-renewable power generation and utilities, petrochemicals, and transportation. 

In these sectors, we can expect more casualties such as the US utility PG&E, which filed for bankruptcy in 2019 due to damage caused by a spate of Californian wildfires induced by climate change. Other industries with high carbon dioxide emissions like steel, cement, textiles, and agriculture (especially animal husbandry) are also in the firing line. 

Stranded assets are also leaving their mark on financial portfolios. In the last decade, BlackRock’s investments in fossil fuels have lost investors $90 billion. Banks, mortgage companies, and insurance companies are also feeling the pressure. According to Aon, 2017 and 2018 represented the costliest back-to-back years for insurers on record for weather-related disasters. 

If Europe provides a window into future global action on climate change, the 2020s could be a decade in which a large-scale capital shift leaves a multitude of stranded assets in its wake. For example, almost 30% of the Fortune 500 consists of companies in the energy, industrials, transportation, and logistics sectors—most with considerable carbon exposure. 

However, unless the pipeline of green projects is greatly expanded, investors could be left scrambling to redeploy capital into a limited set of ‘climate-proof’ assets. For example, clean hydrogen represents just 1% of current hydrogen production, with 76% coming from natural gas and 23% from coal. That’s why initiatives like the Clean Hydrogen Alliance, also officially launched on July 8th, will play a critical role. The Alliance will build a pipeline of large-scale investment projects in clean hydrogen, and identify technology needs and regulatory barriers holding back large-scale projects. 

The European Green Deal is rightly the centerpiece of the EU’s vision for its future. Not only will it be vital for helping to keep global temperature rises below 2°C, it will also be a powerful lever to help the region recover economically from the pandemic. 

About The Author

Indranil Ghosh is an MIT-trained scientist, sustainable investor, author, and strategic advisor to governments and leading global corporations. Prior to founding Tiger Hill Capital in London Ghosh was Head of Strategy at Mubadala, Abu Dhabi’s Sovereign Investment and Development Fund and held senior roles at Bridgewater Associates and McKinsey & Co. His new book is Powering Prosperity: A Citizen’s Guide to Shaping the 21st Century –

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