RED IV Impact Assessment – Briefing

I. Introduction 

A draft impact assessment (Impact Assessment) for the post-2030 renewable energy framework (RED IV) has become public ahead of the European Commission (Commission) proposal expected later this year. The document is an unfinished working draft and the Commission has not confirmed it. It nevertheless sets out, in some detail, the direction the Commission is considering for renewable fuels of non-biological origin (RFNBO) and low-carbon fuels (LCF), and that direction is a departure from the architecture of RED III. 

According to the preferred option in the Impact Assessment, the binding RFNBO targets would be scrapped, and a combination of an indicative EU target, a tradeable credit mechanism and a wider set of eligible technologies would take their place. For developers who took or are about to take investment decisions on the strength of the RFNBO targets, that is a material change to the demand-side assumptions underpinning their projects. This briefing summarises what changes to the RED III framework the draft contemplates and to what extent EU law protects investors who relied on the RED III framework  

II. Main changes contemplated by the Impact Assessment 

1. Binding national RFNBO targets replaced by an indicative EU target 

The preferred option would discontinue the binding national RFNBO targets and replace them with a single indicative EU-level target of 8 Mt of renewable hydrogen consumed in industry and refineries. How that figure would be distributed among Member States, and what would follow from a shortfall, is not addressed. The figure is derived from a modelling scenario with less than half the hydrogen deployment of the Commission's central projection for 2040 (8 Mt instead of around 18 Mt). The draft finds both pathways compatible with the 2040 climate target at total system costs that differ by less than 0.5%, and treats the lower one as optimal. The same finding could just as well be read the other way: if the cost difference is marginal, it offers little reason to abandon the higher ambition. 

2. A credit mechanism in place of a quota 

In place of binding demand, the draft would extend the existing credit mechanism so that suppliers of renewable hydrogen to industry and refineries can sell credits to transport fuel suppliers, with multipliers used to steer volumes towards refinery applications and towards derivatives for aviation and shipping. The economic value of a credit would depend on the level of ambition each Member State sets for its fuel supplier obligation, which is expected to vary. The draft acknowledges that, without this mechanism, an essential element of the preferred option would be missing. 

3. Low-carbon and nuclear routes admitted 

Electrolytic low-carbon hydrogen would count towards the indicative target, and nuclear electricity and electrolytic low-carbon fuels would become eligible under the fuel supplier obligation and the credit mechanism. 

III. What is not affected 

The transport sub-quotas under ReFuelEU Aviation and FuelEU Maritime sit outside the RED and are untouched; the draft relies on their continued operation. For projects producing synthetic aviation and marine fuels, the binding demand anchor accordingly remains in place. Nothing in the draft suggests that Member States would be required to abandon RFNBO requirements of their own. 

IV. The legal certainty principle and limits of legislative discretion 

1. What EU law requires when the framework changes 

The draft approaches the RFNBO targets as a question of cost-efficiency. It does not assess what their removal would mean for projects that have already been financed, and in some cases built, on the strength of them. This gap in the analysis is striking, as the EU law places requirements on the legislature when it changes a framework on which operators have organised their affairs. 

The principle of legal certainty and the protection of legitimate expectations are both general principles of EU law binding on the Union institutions. They do not freeze the law in the sense that operators can expect that the regulatory environment will remain unchanged. They do, however, require the legislature to take account of the particular situation of operators and to provide, where appropriate, for adaptations in the application of the new rules (Case C-201/08 Plantanol, para 49). The legislature owes investors accommodation to adapt to the application of new legal rules. 

The 1% RFNBO sub-target in transport and the 42% RFNBO share of industrial hydrogen are both framed by reference to 2030. Declining to renew them may fall within the legislature's discretion. The 60% share for 2035 under Article 22a(1) RED III, however, carries a compliance date that the legislature itself fixed well beyond the current target period. The draft is ambiguous as to its fate, but its preferred option appears to remove the binding national targets altogether. A repeal of that target would be the withdrawal of an applicable obligation before its announced date. It can well be argued that this is similar to cases in which the CJEU has recognised that operators who commenced their activities and made costly investments under a scheme may be considerably affected (Plantanol, paras 51 and 52). Unlike the scheme in Plantanol, the targets in Article 22a(1) bind the Member States and only reach developers through national implementing measures. That difference does not, however, place developers outside the protection of legal certainty. The duty to take account of the particular situation of operators is a general requirement of legal certainty addressed to the legislature (Plantanol, para 49). 

2. Certainty promised, uncertainty delivered 

The draft states that the post-2030 framework should preserve continuity to provide regulatory certainty to investors. In rejecting the most far-reaching option, it acknowledges that relying on monitoring alone would create policy uncertainty. However, an indicative 8 Mt objective whose distribution among Member States is left open, coupled with a substitute instrument whose value relies on 27 national legislative decisions, does not reduce uncertainty. It adds to it, in a market already awaiting clarity on the RFNBO rules themselves. The predictable response is that investors will further delay investment decisions and wait to see where the framework lands. 

The draft also calls for more renewable generation and greater flexibility in the electricity system, pointing to rising curtailment and negative prices. Electrolysers operating under the RFNBO rules are designed to provide precisely that: additionality and temporal correlation tie their output to new renewable capacity and to the hours in which renewable electricity is abundant, making them a source of flexible demand. Scaling back RFNBO ambition weakens an instrument that serves the draft's own objectives. At the same time, the draft opens the compliance pathway to low-carbon and nuclear-based hydrogen without specifying which requirements would apply. Whatever they turn out to be, producers who have met the additionality and correlation requirements of Delegated Regulation (EU) 2023/1184 would compete with compliance routes not designed around renewable power. 

And while the draft presents the reform as serving simplification and investment certainty, it leaves Member States to set the level of ambition of their fuel supplier obligations – thereby further fuelling the fragmentation of regulatory frameworks that makes projects difficult to finance. 

3. Limits of these arguments  

We note that none of this supports a claim to the maintenance of the targets expiring in 2030. Nor do general policy documents such as the Hydrogen Strategy or REPowerEU amount to assurances on which a legal position can be built. Even where the arguments set out above hold, they would be difficult to enforce: the EU legislature enjoys broad discretion in climate and energy policy, judicial review is confined to manifest errors of assessment, and the CJEU has so far not upheld challenges of this kind (see Case C-5/16 Poland v Parliament and Council). The requirements set out above therefore carry most weight in the upcoming legislative procedure. 

V. The Member State dimension 

Since the draft leaves Member States free to maintain their own RFNBO requirements, much of the exposure will migrate to national law. The same principles established in Plantanol apply there: where a Member State withdraws its implementing rules before the dates it has announced, or without a functioning substitute in place, the same questions regarding legitimate expectations arise. This matters most where Member States have gone beyond RED III, as Germany has with a GHG quota trajectory extending to 2040 (see Section 37a(4) of the Federal Immission Control Act (BImSchG)). RED IV would no longer require such rules, but it would not require their repeal either. Any withdrawal of national targets would therefore also be measured in full against national constitutional standards on the protection of legitimate expectations and on retroactive changes. For developers, the national framework will matter at least as much as RED IV itself. 

VI. Conclusion and outlook 

Read one way, the leaked draft is a recalibration to reality: deployment has fallen well short of what the 2030 targets assumed, costs have not come down as projected, and a mandatory quota that cannot be met is of limited use to anyone. Read the other way, it withdraws the demand signal precisely at the point when first movers have committed capital in reliance on it and replaces it with an instrument whose value depends on 27 separate national decisions. Which reading prevails will depend on the official proposal itself. For now, the draft's own findings point to the second reading. It acknowledges that policy uncertainty could delay investment decisions – yet replacing binding targets with an indicative objective adds to that uncertainty rather than removing it. 

Should the legislature nevertheless change direction, the transitional provisions will decide whether the new framework respects the legitimate expectations of those who relied on RED III. 

In any case, the demand case for many projects will rest not only on RED IV but also on national frameworks – particularly where Member States have gone beyond RED III – and on ReFuelEU Aviation and FuelEU Maritime.

Our EU COMP team will be happy to advise on the implications of the post-2030 renewable energy framework for hydrogen projects, offtake structures and funding arrangements. 

We would like to thank Tammo Eilts for his valuable support in preparing this briefing.