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In response to the climate and energy crises, Luxembourg has continued to work on the implementation of a more sustainable climate and energy policy. In light of this, Luxembourg's integrated national energy and climate plan for the period 2021-2030 (PNEC) was adopted in 2020, before being updated in June 2023 following a public consultation.
The PNEC sets out multiple objectives to be achieved by 2030 such as:
reducing greenhouse gas emissions by 55% compared to 2005;
reaching a 35-37% share of renewable energies in final energy consumption;
reaching a 44% improvement in energy efficiency;
strengthening targets for renewable energy and energy efficiency
To achieve these objectives, the PNEC has introduced a number of measures and policies to be adopted progressively which include: the annual increase of the carbon tax, the gradual phasing out of fossil-fuel heating, the introduction of a national support unit dedicated to energy renovation for all low-energy-performance residential buildings and the promotion of the electrification of the car fleet.
With the adoption of the PNEC, Luxembourg is aiming to achieve climate neutrality by 2050 and becoming a major player in the fight against global warming.
2. Hydrogen Strategy
As part of the Green Deal, which aims to make Europe the first continent to achieve climate neutrality by 2050, Luxembourg is working towards an intermediate target of a 55% reduction in greenhouse gases by 2030. Although the increase of the share of the electric power is ambitious, Luxembourg has started focusing on developing another energy source as an alternative to the fossil fuels from which 77% of Luxembourg’s energy is currently sourced.
In this context, Luxembourg adopted a strategy on September 27, 2021, to develop and favour hydrogen (or “H2”) as an innovative fuel source of energy (the “Hydrogen Strategy” or the “Strategy”).
The Strategy will be supported in the coming years by concrete legislative proposals concerning pan-European networks on matters such as: state aid for energy and the environment, revision of the directive on renewable energies
1
Directive (EU) 2018/2001 of 11 December 2018 on the promotion of the use of energy from renewable sources
https://euagenda.eu/upload/publications/eprs-bri2021662619-en.pdf
, hydrogen certification and revision of internal market rules. Alongside the Hydrogen Strategy, which is essentially internal to Luxembourg, the development of the hydrogen market will also require cooperation at several levels. This will mainly involve areas in the Benelux Union, around the North Sea and within the European Union, but may also involve partnerships with third countries.
To establish a European partnership in hydrogen production and transport, Luxembourg and Portugal signed a declaration of cooperation to accelerate the development of a European corridor for renewable hydrogen on 30 May 2023, with the view of contributing to the wider European program of decarbonisation and energy transition. With Portugal's great potential for renewable hydrogen and its derivatives, Luxembourg aims to benefit from the electrolyser project which will produce renewable hydrogen planned for the port of Sines. Luxembourg confirmed its support for a renewable hydrogen corridor between Sines and the Benelux countries and for guaranteed minimum costs. This partnership reinforces the pan-European cooperation in the development of renewable energy and helps to ensure that the European Green Deal is achieved.
3. Investments into Offshore Wind Power
On April 24 2023, the "North Sea" summit was held at the initiative of Belgium in the presence of Denmark, France, Germany, Ireland, the Netherlands, Norway, the United Kingdom, Luxembourg and the European Commission. During this summit, the participating countries pledged to collectively increase their wind power capacity to 120 gigawatts (GW) by 2030 and at least 300 GW by 2050, compared with current cumulative capacity of around 30 GW, and to promote interconnections for green hydrogen and electricity in that respect.
2
“Ostend declaration on the north seas as Europe’s green power plant delivering cross-border projects and anchoring the renewable offshore industry in Europe” of April 204, 2023.
https://www.premier.be/en/north-sea-summit-23-declaration
The same countries, including Luxembourg, are also participating in The North Seas Energy Cooperation (or NSEC) which supports and facilitates the ongoing formation of the offshore grid development in the North Seas region. Subsequently, this will promote renewable energies and boost economic growth. Luxembourg maintains a close relationship with the European countries of the NSEC to help ensure the security of energy supply in Luxembourg and minimize the country's energy dependence. The Grand Duchy is 100% dependent on its energy imports for oil, 100% for gas and 85% for electricity.
The EU cooperation for the development of offshore renewable energies is reinforced by the many partnerships, which Luxembourg is part of, which aim to facilitate investments in wind power and promote interconnections for green hydrogen and electricity. It is in this context that Luxembourg recently developed a stronger cooperative relationship with Denmark.
On February 8, 2023, Luxembourg signed a cooperation agreement with Denmark on the statistical transfer of energy produced from renewable sources. The agreement is in line with the provisions of the EU Renewable Energy Directive (RED)
3
Directive (EU) 2018/2001 Préc. Cité n°2
https://euagenda.eu/upload/publications/eprs-bri2021662619-en.pdf
, encouraging Member States to engage with one another to transfer certain amounts of renewable energy and thus fulfill their respective national renewable energy targets. It is important to note that this mechanism solely involves the exchange of statistical data, not the physical transfer of energy.
Under this cooperation agreement, Luxembourg commits to allocate an annual amount of between €33.12 million to €66.24 million between 2021 and 2025 to Denmark’s renewable energy development and obtain, in return, the possibility to include a portion of Denmark’s renewable energy in Luxembourg’s own national targets for renewable energy development. This would help Luxembourg to fulfill its national commitment of 25% of energy being from a renewable source by 2030, as required by the Renewable Energy Directive. This target could be increased as a result of the provisional agreement reached between the European Parliament and the Council according to which, Luxembourg’s target would be set to a higher percentage of 35% of renewable energy.
The renewable energy covered bond is an instrument aiming at financing facilities used to generate renewable energy, i.e. “ any energy produced from renewable non-fossil sources, namely wind, solar, aerothermal, geothermal, hydrothermal and ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas and biogas, and energy produced from similar sources”. These bonds also include the financing of "renewable energy property", i.e. any essential project contract with a renewable energy company and any income claims
5
Law of 8 December 2021 relating to the issue of covered bonds (lettres de gage)
https://www.cssf.lu/wp-content/uploads/L_081221_cover_bonds_eng.pdf
6
and Law of June 22, 2018 amending the amended Act of April 5, 1993 on the financial sector with a view to introducing letters of pledge relating to renewable energies, Article 12-3(2).
https://www.cssf.lu/wp-content/uploads/L_220618_covered-bonds_update_LFS_eng.pdf
.
This new category of covered bonds may notably be issued by universal banks in Luxembourg
7
Law of 8 December 2021 relating to the issue of covered bonds (lettres de gage), Article 2(2).
https://www.cssf.lu/wp-content/uploads/L_081221_cover_bonds_eng.pdf
and be listed or admitted to trading on the Luxembourg Stock Exchange, as green bonds.
These bonds enable banks to grant loans that are secured by rights in rem or security interests in movable or immovable property relating to renewable energy production assets, as well as by substitution rights and debt obligation.
In December 2022, renewable energy covered bonds represented a hedging pool volume of €341.8 million for NORD/LB Covered Bond Bank (NORD/LB CBB), one of the first Luxembourg covered bond banks to issue green covered bonds.
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