Fit-for-55 Sets Standards for the European Transportation Industry

In July 2021, the European Commission presented its Fit-for-55 package. The package focuses on delivering an actionable path for reducing net emissions by at least 55% by 2030 compared to 1990 levels. The directive is a set of proposals to revise and update the European Union (EU) Green Deal passed in 2019 that aims at making the EU climate-neutral by 2050. Decarbonizing the energy sector (accounting for 75% of greenhouse gas emissions), and mobility (accounting for 25% of emissions) are cornerstones of the legislation.

Why Was the Directive Needed?

Previously, the EU Green Deal set the target of supporting increased EV adoption by facilitating more charging infrastructure form 1 million charging-points by 2025 to 3 million by 2030. However, auditors identified lack of adequate information for users as a significant obstacle for EV adoption. With the Fit-for-55 directive, the European Commission extended the EU emission trading scheme (ETS) to include transport. The updated rules for cutting transportation emissions will require both electrification and development of low carbon alternative fuels. Under the directive, maritime transport is also slated to be included in the ETS scheme. Shipping is the only transportation sector to be previously unrestricted by carbon emission reduction targets. The aviation industry is also targeted through the directive. Legislation has also been introduced that mandates all aircrafts leaving from EU airports must use fuel that satisfies the minimum target of sustainable fuels.

Implications of the Directive for Hydrogen in Europe

The Fit-for-55 directive incentivizes the use of hydrogen given its versatility of usage. Hydrogen can be used as fuel for transport and as feedstock for industry applications. To supply the desired hydrogen, production of renewable hydrogen becomes critical. To satisfy this requirement, the European Commission set a target of 40 GW of renewable hydrogen electrolyzers in the EU by 2030. Under the revision to the Renewable Energy Directive, hydrogen will be included as a renewable fuel for decarbonizing the heavy duty and long-distance transport sector. With a target of achieving 2.6% of renewable fuels in the transportation sector, alongside the target of technology neutrality toward CO2 emission reduction targets, the directive provides an impetus to fuel cell based EVs. Companies such as Plug Power, Hyzon, and Chart Industries are well equipped for meeting these increased demands not only in terms of providing the electrolyzers but also by being critical market players in facilitating the infrastructure for hydrogen refueling stations.

In the transportation domain, with the new legislations of ReFuelEU Aviation, FuelEU Maritime, a higher role is anticipated for hydrogen and hydrogen-based fuels (ammonia and methanol). This presents an opportunity for companies such as INNIO Jenbacher and Liquid Wind, that are respectively developing hydrogen engines and converting power-to-methanol for facilitating emission-free shipping. For the aviation industry, market players such as Universal Hydrogen has a modular hydrogen capsule technology and seek to decarbonize air travel. In this endeavor it has recently partnered with Deutsche Aircraft for paving a path to zero-emission regional aviation.

The Fit-for-55 directive additionally provided a massive endorsement for hydrogen usage in the industrial sector. The European Commission set a target of 50% of industrial energy consumption to be supplied by hydrogen. This would intensify the momentum for industrial applications that seek hydrogen consumption such as green steel production and for the formation of industrial clusters in steel, chemicals, and energy.

The EU Emission Trading System proposal includes the hydrogen production in its trading scheme, so facilities that are involved with renewable and low carbon hydrogen production will be eligible to receive free allowances. These benefits and others should set the EU on its path to reducing net emissions by at least 55% by 2030.