The European Union recently introduced new legislation promoting the use of renewable energy, covering both the industrial and transportation sectors. The new legislative framework sets legally binding targets for member states' use of renewable energy but allows each state to tailor the incentives for new investment and activity in the renewable sector.

New EC policy

On 23 April 2009, the European Parliament and the Council adopted Directive 2009/28/EC on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC (the "Renewable Directive").

The Renewable Directive establishes a common framework for the promotion of energy from renewable sources. It sets mandatory national targets for the overall share of energy from renewable sources in the gross energy balance as well as in transport. It lays down rules relating to statistical transfers between member states, joint projects between member states and with third countries, guarantees of origin, administrative procedures, information and training, and access to the electricity grid for energy from renewable sources. It establishes sustainability criteria for biofuels.

The Norwegian renewable policy is closely entangled with EU policy through the EEA (European Economic Area) Treaty and the new Renewable Directive will be implemented in Norway in accordance with Norway's EEA obligations.

Renewable targets

The Directive introduces a mandatory target of a 20 % share of energy from renewable sources in overall Community energy consumption by 2020. The renewable energy potential and the energy mix of each member state vary. Therefore, to allocate the Community 20 % fairly considering each member state's starting point and potential, individual targets have been set for each member state.

The required total increase in the use of energy from renewable sources is shared between the member states on the basis of an equal increase in each member state's share adjusted for their GDP, starting point and past efforts. In practice, this means that all member states have to increase their share. For example, the Directive requires Sweden to increase its current 39,8% renewable energy share to 49% by 2020. The Norwegian Water Resources and Energy Directorate estimates that Norway must increase its current 60% share to around 70-74%.

By contrast, the 10 % target for energy from renewable sources in transport is set at the same level for each member state in order to ensure consistency in transport fuel specifications and availability. Because transport fuels are traded easily, member states with low endowments of the relevant resources will easily be able to obtain biofuels from elsewhere.

National implementation

The Renewable Energy Directive provides the member states with significant flexibility in the implementation of their national targets. Member states may, inter alia, apply support schemes and measures of cooperation between different Member States and with third countries.

In consequence of the Directive, among other things, a renewed effort has been launched to establish a common Norwegian- Swedish market for electricity certificates. According to the industry and NGOs, such a common market may unlock Norway's potential in wind power and small-scale hydropower, currently hampered by inadequate support schemes.

Otherwise, as usual, the devil is in the detail. For example, those who consider investing in hydropower should note that electricity produced from water that has previously been pumped uphill is not considered as produced from renewable energy sources under the Directive.

Those who consider investing in biofuel production should carefully study the Directive's sustainability criteria for biofuels eligible for incentives.

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