The Role of Economic Regulators in the Green Transition

Annex A. Case study submissions

The following case study material was submitted to the OECD in response to calls launched during 2023 and 2024. Case studies were requested as part of the development of this publication as well as to inform discussions during meetings of the OECD Network of Economic Regulators.

ANACOM (Portugal – E-communications)

ANACOM has taken into account environmental considerations in specific provisions such as network sharing, and has been mandated in 2015 by the Ministry to pursue the National Strategy for Adaption to Climate Change in relation to Electronic Communications (only available in Portuguese).

The work was co-ordinated by the Environmental Authority (Agência Portuguesa do Ambiente - APA) and was developed by Thematic Areas, Sector Working Groups1 and the Autonomous Regions of Azores and Madeira.

An intercalary report was produced in 2018 and since then, ANACOM has been monitoring the existence of adaptation plans to climate change by electronic communications operators.

After major wildfires occurred in Portugal in June and October of 2017, ANACOM took the initiative of creating a Forest Fire Working Group, composed of 18 entities to increase resilience of electronic communication infrastructure. This group issued a report in 2019 presenting 27 protection and resilience measures for electronic communications infrastructure, three of which relate to radio, four to underground pathways, twelve to energy or protection, and eight to procedures.

In addition, in 2019, ANACOM issued Regulation N.º 303/2019 on the security and integrity of electronic communications networks and services.

Additionally, although there is no national legislation that includes objectives for the regulator relating to the environmental sustainability of the sector, ANACOM has the legal power to include considerations regarding environmental sustainability in its regulatory decision making and has taken a few initiatives in this regard:

• ANACOM considers that passive and active infrastructure sharing plays an important role in limiting the environmental impact of the ICT sector. Taking into account economic efficiency and environmental considerations, namely “avoiding any inefficient duplication in infrastructures or inconveniences for citizens and economic activities due to the frequent and extensive realisation of soil and subsoil works, with consequent disturbances at traffic and territory planning level, apart from the repercussions of environmental order arising out from it”, in 2004, in a regulatory pioneering decision, ANACOM established the minimum requirements for the implementation by the incumbent operator of a Reference Duct Access Offer (RDAO) of the incumbent operator. Subsequently, in 2010 the RDAO was amended to include also access to poles.

• ANACOM has also encouraged mobile network sharing in part with a view to meeting environmental objectives in the auction rules for spectrum allocations in 2020 and 2011, including provisions to facilitate passive and active sharing, including roaming.

• Furthermore, the transition to 5G will also enable a lower carbon footprint as well as the adoption of fibre to the premises.

• The simplification of the portability administrative process, introduced in the last amendment to the Portability Regulation, allowed for a substantial reduction in paper, a measure with an impact on the ecological footprint recognised on the operators' side.

• Additionally, ANACOM, for some consultation processes, sends a specific request to environmental civil society organisations (CSOs) to invite them to participate in consultations. An inclusive sector specific Working Group was established by the ANACOM for addressing the "National Strategy for Adaption to Climate Change in relation to Electronic Communications". Furthermore, ANACOM invited industry players to respond to a BEREC questionnaire on environmental indicators.

ANACOM has no specific legal power to collect relevant data on the environmental sustainability of the sector (e.g. greenhouse gas emissions, etc.) to inform its regulatory decision making, however ANACOM is actively working with BEREC on the development of sector specific indicators for sustainability.

ANTT (Brazil – Transport)

The actions taken by Brazil’s National Land Transport Agency (Agência Nacional de Transportes Terrestres, ANTT) to improve sustainability include setting obligations in concession contracts and in regulation, encouraging the adherence of concessionaires to environmental performance indicators (which is voluntary), and a series of internal measures to improve sustainability within the regulator.

ANTT is responsible for:

• granting, inspecting, and managing the contracts of concessionaires of highway and railway infrastructure;

• providing permits and licenses, inspecting, and managing contracts (when a permit has been granted) relating to the interstate and international transportation of passengers, by bus or coach; and

• registering road freight transportation companies, truckers, and trucks; defining and inspecting the minimum rate of road freight transportation in Brazil.

Before granting concessions or prorogations in relation to highways and railways, a social environmental study which assess environmental risks, a Technical, Economic and Environmental Feasibility Study (Estudo de Viabilidade Técnica, Econômica e Ambiental – EVTEA), should be completed and approved.

After obtaining a concession relating to highway infrastructure, the concessionaires must present documents to confirm they are taking necessary action to obtain the required environmental licenses. The results are organised in a biannual report where ANTT can monitor the advances the concessionaires made in obtaining the licenses and actions taken to decrease the environmental impact, such as animal rescuing, or mitigation measures adopted to allow the fauna to be less affected by the infrastructure. For railways, ANTT monitors the process of obtaining the licenses through monthly meetings with environmental entities and acts as a mediator.

Since 2017, highway concessionaires are obligated (Portaria SUINF No. 283/2017) to report on their social and educational actions (Relatórios Sociais e Educacionais – RSE). The reports are available to the public on ANTT’s website.

Brazil adopted goals in line with the Paris Agreement in national legislation (Decree No. 9.073/2017). The contracts concluded after 2020 follow ESG (environmental, social and governance) principles and are aligned with the 17 Sustainable Development Goals – SDGs and with Brazil’s commitments to the Paris Agreement. The contracts follow the comply or explain model regarding the SDGs.

Besides the risk assessment included in the EVTEA process, there are complementary obligations related to sustainability included in the highway exploration program, a document attached to the contract. These obligations may involve respecting the International Finance Corporation’s (IFC) performance standards, which consider several aspects of sustainability, the insertion of a Zero Carbon Program, and compliance with environmental licensing rules.

The IFC’s performance standards relate to the Assessment and Management of Risks and Environmental and Social Impacts; Labor and Working Conditions; Resource Efficiency and Pollution Prevention; Community Health and Safety; Land Acquisition and Involuntary Resettlement; Biodiversity Conservation and Sustainable Management of Living Natural Resources; Indigenous Populations; Cultural Heritage; Gender equality; Stakeholder engagement and dissemination of information. There is a schedule for reaching each of the standards.

The Zero Carbon Program aims to neutralise greenhouse gas (GHG) emissions, calculated in carbon-dioxide equivalent (CO₂e), from the concessionaire's operating activities in the Road System. These activities include traffic inspection, winch services and mechanical services, ambulances, incident attendance (firefighting and animal seizure); and the operation of toll plazas, centers of operational control and other administrative buildings managed by the concessionaire. To compensate the emissions the concessionaire may buy carbon credits, reforest areas, plant trees, or adopt a Clean Development Mechanism.

To monitor the Zero Carbon Program and adherence to the IFC’s performance standards, ANTT verifies if concessionaires were able to obtain the certifications related to these programs.

Highway concessionaires are also required to implement an Environmental Management System, in line with a national norm (NBR 14.001), within two years from the start of the concession and to have a risk management plan in place, as well as emergency planning for dangerous goods.

New highway concessions include the implementation of “Multi Lane Free Flow” which is expected to mitigate the emission of polluting gases, especially in urban areas. For railways there is special funding available for the “Preservation of Railway Memory”.

Both highways and railways include aspects such as the treatment of archaeological sites in their risk allocation matrix. ANTT receives voluntary reports on good environmental practices adopted by the railway concessionaires and publishes these reports on its website.

To influence the behaviour of operators, ANTT uses an indicator of environmental performance (Índice de Desempenho Ambiental – IDA) that considers water and effluent use and treatment, solid waste, biodiversity, environmental accidents, governance, culture and community, energy efficiency and emissions. The indicator is currently used for highways and railway concessions. The implementation of the IDA by ANTT is part of the Social environmental and Territorial Agenda of the Ministry of Transport and aims at verifying the qualitative evolution and socio-environmental commitment of the sector. The IDA serves as a parameter to evaluate efficiency and quality of environmental management in transport infrastructure projects, evaluating and stimulating good practices in socio-environmental management. Adherence to the indicator is voluntary. Nevertheless, in 2022, 18 of the total 22 highway concessionaires agreed to be evaluated. For railway concessions, adherence was shown by 11 of 16 concessionaires and sub-concessionaires.

To foster the necessary innovation to reach environmental goals, ANTT created in November 2022 a structure for regulatory experimentation through Resolution 5.999/2022. The first regulatory sandbox experiment is testing the use of Free Flow devices instead of toll plazas, as previously determined in contracts. A second experiment is testing the use of High-Speed Weigh in motion instead of building weigh stations, as determined in the contract.

In order to reduce the environmental impact within the functioning of the regulator, besides allowing the civil servants to work remotely, ANTT is fostering a change in culture, by using a project focused on ethics, integrity, and sustainability to sensitise the civil servants. The project followed the precepts of the Environmental Agenda in Public Administration, developed by the Ministry of the Environment. During the project’s implementation, there was a verification of necessary improvements in Inspection Offices infrastructure, air quality, ergonomics and lighting, and a training to inform the civil servants how they could better act to improve aspects such as cleaning and organisation, conscious use of electricity, and sustainable waste disposal.

The project has benefited the environment and improved the quality of life at work of the civil servants. Some results obtained were proper disposal of goods and items that became obsolete after adopting electronical processes, awareness of the correct use of equipment to avoid wasting both paper and electricity, reduction in the acquisition of goods and materials through the reuse and reallocation of idle items, increase in satisfaction of the civil servants and induction of a more proactive behaviour from civil servants in different locations of ANTT towards the central administration of the agency.

ANTT expects to expand its actions related to sustainability. The railway concessionaires’ obligations are currently under review, with a view to incorporate similar standards to those for highways. and an indicator like the IDA will be developed for the road freight transportation as part of one project of ANTT’s regulatory agenda that aims to improve the regulation of freight transport. The project is expected to end in November 2024.

Arcep (France – E-communications)

Submission I: An evolving mandate – the contribution of Arcep to environmental sustainability

Measuring environmental impact to identify tools for action

The French Government tasked the communication regulator, Arcep (Autorité de Régulation des Communications Électroniques, des Postes et de la Distribution de la Presse), and the agency for ecological transition (Agence de la transition écologique, ADEME), to carry out a study quantifying the current and future environmental footprint of digital technologies. The first two volumes of the study were delivered in January 2022 and assessed the current environmental footprint of digital technologies on the environment. In the study the two agencies made a life cycle assessment (LCA) of the environmental footprint generated by one year of digital (uses and goods) in France in 2020 applying a multicriteria, multi-tier and multi-stage methodology. A prospective assessment of the evolution of footprints to 2030 and 2050 was also provided, identifying a number of levers for action to initiate and amplify the development of digital uses that are less carbon- and resource-intensive.

In March 2023, the two agencies delivered the third volume of the study providing a forward-looking assessment of the digital environmental footprint in France up to 2030 and 2050.

The study shows that only a combination of eco-design and sobriety measures can reduce the environmental impact of digital technology and that with no further action to limit the growth of the digital ecosystem’s environmental footprint (i.e. the trend-based scenario), its carbon footprint could triple and its energy consumption almost double by 2050.

Arcep began collecting environmental data from the four main telecoms operators in 2020 (the only players for which it had collection powers at that time), which led to the publication of the first edition of the annual survey in April 2022, covering 3 categories of indicators (GHG emissions, network energy consumption and the sale, collection, recycling and reconditioning of mobile phones). In 2021, the data collection was enriched with new indicators on the reconditioning and recycling of Internet boxes and TV set-top boxes, and led to the publication of the second edition of the annual survey in April 2023, still covering telecoms operators.

Submission II: The role and action undertaken by Arcep in facilitating and promoting environmental sustainability objectives in the electronic communications sector

Arcep’s annual survey “Achieving Digital Sustainability”

Since 2020, Arcep has been working on the implementation of an annual publication based on the collection of environmental data from digital players: Arcep’s annual survey “Achieving Digital Sustainability”.

This survey aims to:

• Improve measurement to better assess environmental issues, inform public authorities and allow the implementation of appropriate measures.

• Provide incentives for economic actors to behave virtuously; and

• Educate consumers about their uses and make tools available to the public.

Arcep's work on measuring the environmental impact of digital technology is based on an iterative and collaborative approach. The annual survey will be progressively enriched with new indicators and new categories of actors as the editions progress.

In March 2020, Arcep began its environmental data collection from the main telecommunication operators which led to the publication of the first edition of the annual survey “Achieving Digital Sustainability” in April 2022 covering 3 categories of indicators:

• Greenhouse Gas (GHG) emissions = 362 000 tons in 2020.

• Network energy consumption:

  • The 4 main operators consumed 3 803 GWh in 2020

  • Mobile networks consume twice more energy than fixed networks.

  • A fiber line consumes 4 times less kWh than a copper line.

• Mobile phones: sales, collection, recycling, refurbishing.

  • Only 13% of the 21.4 million mobile phones sold in France in 2020 are refurbished.

  • Of the 8.1 million mobile phones sold by telecommunication operators, only 2% are refurbished.

Based on Arcep’s environmental data collection powers provided by law, an iterative implementation has gradually added new indicators on the reconditioning and refurbishing of internet and set-top boxes, and revised laws in 2021 allow for data collection to extend to new players beyond the four main telecoms operators.

In parallel, the survey has been gradually extended to cover the entire digital ecosystem, with decisions to expand coverage to new players and collet additional indicators decided with the input of stakeholders concerned, and ultimately in stages:

• In December 2021, Arcep’s collection powers were extended to cover:

  • Data centers, terminal manufacturers, network equipment manufacturers, operating system suppliers, online public communication service providers

• In September 2022, the decision to extend collection was consulted on with datacentres and device manufacturers. The final decision was adopted at the end of 2022.

• Data collection has started for the year 2021 and 2022 for datacentre operators and device manufacturers and for the year 2022 for telecom operators. This data collection process ran from January 2023 and end of March 2023 and covered:

  • for device manufacturers, their greenhouse gas emissions, the quantity of equipment sold and in circulation and its duration of utilisation and the volumes of rare earths and precious metals used in its manufacture.

  • for data centre operators, their greenhouse gas emissions, their energy and electricity consumption and the volumes and sources of water used.

  • for telecom operators, the Authority is proposing a new protocol for measuring the electricity consumption of internet and set-top boxes.

• The 3rd edition of the annual survey (extended) “Toward a sustainable digital sector” was published in March 2024.

Study assessing the current digital environmental footprint in France and its possible evolutions

As environmental considerations become more and more embedded in the public domain, Arcep and the Agency for the Environment and Energy Management (Ademe) were mandated by the French government to elaborate a study assessing the environmental footprint of the French digital ecosystem which is made of three parts:

• a literature review on existing methodologies and studies on the digital ecosystem’s environmental footprint assessment.

• a life cycle assessment (LCA) of the environmental footprint generated by one year of digital (uses and goods) in France in 2020; and

• a prospective assessment of the possible evolutions of the footprint to the 2030 and 2050 horizons

Applied methodologies in existing studies are very heterogenous. The literature review allows a robust methodological framework compliant with ICT/public standards and including reference tools for assessments to be identified. The life cycle assessment (LCA) of the environmental footprint generated by one year of digital (uses and goods) in France is:

• Multi-criteria, to not only assess the carbon footprint but also other types of environmental impact (a total of 11 environmental indicators).

• Multi-tiered, to segment the digital ecosystem’s environmental impact in three parts (devices, networks, datacentres); and

• Multi-staged, to integrate impacts generated by each step of the life cycle from the manufacturing stage to the end-of-life.

In this context, data collection and measurement are the cornerstone of environmental footprint assessments, since assessment requires data which are hard to access and must sometimes be estimated or extrapolated.

Considering the different indicators of environmental impact analysed, the study highlights those that are best suited for describing the environmental footprint of the digital ecosystem. There is a first group of energy-related indicators (carbon footprint, ionizing radiation and depletion of fossil resources) but the depletion of natural abiotic resources (minerals and metals) also appears to be a relevant indicator.

The study highlights:

• the weights of both the manufacturing phase (for the ecosystem as a whole) and the ‘devices’ part (within the ecosystem) in the impact, which confirms the prominence of digital equipment lifespan expansion measures:

  • the manufacturing phase of equipment (devices, servers, boxes, etc.) accounts for 80% of the digital carbon footprint.

  • the devices account for 65% to over 90% of the impact depending on the environmental criterion assessed.

• the weight of servers in the impact of data centres (manufacture and use of servers representing just over 50% of the impact of data centres for the four main environmental indicators assessed);

• the weight of the usage phase in the impact generated by networks (more than 50% of the carbon footprint of networks, nearly 90% for the depletion of fossil abiotic resources and ionising radiation);

• that environmental impact of the digital ecosystem must be addressed globally: the predominant weight of devices should not conceal the interdependency between networks, datacentres and devices. Every stakeholder needs to be part of the journey towards digital sustainability.

The prospective analysis uses the developed methodology to inject a trend-based scenario and alternative scenarios to 2030 which combine action levers based on eco-design and sobriety measures. The 2050 horizon sets out declining scenarios: the 4 models of society proposed by ADEME in “Transitions 2050” to reach a French carbon neutral society in 2050, which differ from one to another on the weight they give to digital technologies in the economy.

The analysis indicates that with no further action to limit the growth of the digital ecosystem’s environmental footprint (i.e., the trend-based scenario), its carbon footprint could triple to 2050 (from around 17 to 50 Mt CO₂ eq.).

In parallel, there is also at stakes the issue of metals and minerals consumption and their future degree of availability: the most digital-oriented scenario shows that there could be a report of impact (from carbon emissions to metal and mineral resources consumption)

At the same time, the study shows that alternative trajectories could contain or even curb the trend of a growing digital ecosystem’s environmental footprint by utilising the following levers:

• Stabilising the fleet of devices

• Extending the lifespan of equipment

• Designing eco-friendly devices and digital services

• Heightening awareness of users and promoting more efficient usage and lowered overall consumption.

Progressing on these issues requires collective action, from all stakeholders active across the digital value chain. In both the short- and long-term, there is a need to create and deploy tools to identify, monitor, and encourage the sustainable consumption of digital services and goods as the digital environmental footprint of this economic sector will continue to grow if nothing is done to curb the current trend. Such tools could be built upon recurrent data collection and the use of indicators built on a known and stable methodology.

ARERA (Italy – Multi-sector)

Evolution of the water tariff method: Environmental aspects and climate change

The Italian Regulatory Authority for Energy, Networks and Environment (ARERA) has recently approved the water tariff method for the fourth regulatory period 2024-2029 (MTI-4)2 which defines the rules for calculating the costs in tariff for water utilities.

The evolution of the tariff method from the first to the fourth regulatory period was characterised on the one hand by the consolidation of the cost recognition rules, essential to give stability to the sector and encourage investment expenditure, and on the other by the need to promote growing efficiency of management, to enhance interventions for energy and environmental sustainability, and to recognise interventions to increase the sector's resilience to Climate Change. The evolution of the regulation of the technical quality of the service, complementary to the tariff regulation, followed the same objective.

The strengthening of measures for the energy and environmental sustainability of the integrated water service

The tariff regulation, since the third regulatory period, has introduced provisions oriented towards energy and environmental sustainability, in the wake of the growing legislative activity promoted by the European Commission with regard to the promotion of energy efficiency, waste treatment and reduction of incidence of certain plastic products in the environment.

ARERA has recognised four main axes that identify energy and environmental sustainability objectives, implementing its regulation with the recognition of costs linked to the following measures:

• energy efficiency in activities and infrastructures if not attributable to the integrated water service;

• reduction of the use of plastic by promoting the consumption of drinking water also through the installation of drinking fountains;

• recovery of energy – electrical and thermal – and raw materials through plants or specific treatments integrated into the water infrastructure, as well as diffusion of energy from renewable sources to power the integrated water service systems;

• reuse of treated water (for agricultural and industrial purposes) with the aim of promoting greater rationalisation of the resource, particularly in contexts characterised by drought phenomena.

Incentive measures for energy and environmental sustainability: reuse of purified wastewater and reduction of electricity purchased

ARERA has introduced new incentive measures for energy and environmental sustainability into the new regulatory framework, and in particular two reward measures have been defined to be attributed to the water utilities that, in 2025 compared to the 2023 data, will have:

• an increase of the percentage of purified volumes that can be earmarked for reuse but were not intended for this purpose, compared to the overall purified volume (incentive for reuse in compliance with the principle of "Water Conservation”);

• a reduction of at least 5% in the quantity of electricity purchased (incentive for energy saving and/or self-production of energy).

Since the third regulatory period, ARERA also established the "Fund for the promotion of innovation in the integrated water service" to encourage the reuse of purified wastewater (incentive for reuse in compliance with the principle of “Water Conservation”) and the reduction of the quantities of electricity purchased (promoting energy saving and/or self-production of energy). This fund will be used to provide the aforementioned rewards.

Infrastructural integration against climate change

ARERA has based its tariff regulation on the consideration that, among the factors aimed at guaranteeing a necessary ability to adapt to ongoing climate changes, there may be the possibility of expanding the recourse to a management of the rainwater collection and conveyance, which effectively integrates the remaining infrastructure system. The sudden evolution of the climate scenario, with a greater frequency of extreme meteorological events, has indeed suggested assigning a high priority to the infrastructural integration process, so that the works necessary to the management of the potentially riskier effects, can in any case be carried out and maintained according to adequate standards of operation.

From this perspective, among the innovations introduced to the tariff method for water services, ARERA has envisaged that, from 2024, the costs of the activities of collection and removal of rainwater and urban drainage through the management and maintenance of dedicated infrastructures (white sewerage) can be included in the costs of integrated water service (even if they were previously excluded), including the cleaning and maintenance of road drains.

Energy costs and energy efficiency

In the context of the recognition of electricity costs, ARERA has pursued on the one hand the objective of mitigating, in consideration of the volatility of energy markets, the risks of the supply choices made by operators, and on the other that of incentivising energy efficiency through a reduction in consumption and self-production. To this end, the new tariff method provides:

• the recognition of a cost for the purchase of electricity in year (a) equal to that incurred in the previous two years, but for year (a+2), an adjustment is calculated in order to ensure that that cost is not higher than a benchmark (increased by 15%) which takes into account the costs - referring to the same year (a) - relating to a theoretical purchase mix of electricity;

• the strengthening of incentives for the self-production of electricity by water utilities, introducing the possibility of valorising the cost within the component covering energy costs, on the condition that the associated production costs, including those of capital, are not covered by other tariff components;

• an incentive to save the overall amount of energy used for the management of the integrated water service, through a sharing factor based on the energy savings achieved by the operator.

Environmental costs, the protection of aquatic ecosystems and upstream infrastructure

ARERA, in line with European directives, recognises in its tariff method the “environmental and resource costs”, in other words the economic valorisation of the reduction and/or alteration of the functions of aquatic ecosystems, namely the missed opportunities (current and future) resulting from a specific use of a scarce resource. In particular, the types of charges specified as “environmental and resource cost” are divided into:

• a cost component referring to environmental costs, which represents the economic valorisation of the reduction and/or alteration of the functions of aquatic ecosystems, such as to damage the functioning of the aquatic ecosystems themselves and/or some uses of the aquatic ecosystems and/or well-being resulting from the non-use of a certain resource;

• a component referring to the costs of the resource, which represents the economic valorisation of the missed opportunities (current and future) imposed, as a consequence of the allocation of a water resource that is scarce in terms of quality and quantity for a specific use, to other potential users of the same water resource.

Furthermore, starting from the fourth regulatory period, it has been specified that the charges (both fixed and variable) relating to large upstream infrastructures can be at least partly considered “resource costs”, being attributable to measures for the security of supply, for the protection and the production of water resources or aimed at containing or mitigating the opportunity cost of the resource.

Finally, in order to promote investment expenditure in large upstream infrastructures which, by their very nature, cannot be exhaustively considered within the scope of the current programming required for the integrated water service management, it has been established that, if their construction is necessary to overcome the critical issues related to climate change and environmental sustainability, they can be financed by shares of specific components of the tariff pertaining to the single utilities involved. In such cases, as part of the planning of each utility's interventions, it is required that the utility provide information about the entire infrastructure serving territories larger than the single Optimal Territorial Area in which the single utility carries out its activities.

The regulation of technical quality and the new general standard aimed at mitigating critical issues related to Climate Change

The regulation of technical quality, in addition to the tariff regulation, also pursues the objectives of environmental protection and climate change mitigation. The general standards monitored and to which a reward system is associated refer to the following macro-indicators:

• M1 – Water leaks;

• M2 – Service interruptions;

• M3 – Quality of the water supplied;

• M4 – Adequacy of the sewerage system;

• M5 – Sludge disposal in landfill;

• M6 – Quality of purified water.

In order to encourage to carry out works aimed at increasing the resilience of water systems, in addition to the activities already implemented within the “Next Generation EU programme”, ARERA has introduced a new macro-indicator, called “M0 – Water resilience”, for monitoring the expected effectiveness of the complex supply system in light of the forecasts regarding the satisfaction of water demand in the managed territory, also including non-civil uses.

As for the other macro-indicators, the value of M0 will determine the class to which the utility belong. This class identifies critical supply situations, which are associated with objectives of annual maintenance or improvement of water availability, to be pursued through the increase of volumes under concession, but also through participation in shares of third-party concessions, or the positive valorisation of reuse or the creation of dual networks.

From a tariff point of view, the costs for adjustments to the technical quality and contractual quality standards are covered by the tariff. The tariff method includes additional charges for the new technical quality objectives, also linked to the introduction of the new macro-indicator.

ART (Italy – Transport)

Transport, the environment and regulation.

Though emissions generated by transport decreased during the pandemic, and are projected to continue decreasing in international aviation and maritime transport, in other transport segments, estimates indicate a rebound. Overall, the sector remains a priority for environmental policy and areas of concern for action to tackle climate change. In Europe, the transport sector accounts for over 20% of total GHG emissions (EEA, 2024[1]).

By far the largest contributor to emissions is road transport (< 90%), driven primarily by private car use. Considering externalities, in collective land transport, rail has the lowest impact compared to all other modalities (IEA, 2023[2]).

In Italy, while ecological transition constitutes a key axis of the national Recovery & Resilience and 2030 Energy and Climate plans, no specific duties or mandates are placed on the transport regulator concerning environmental sustainability.

However, some regulatory tools can be deployed to promote more environmentally sustainable behaviour. ART has provided for regulatory incentives to apply in several areas falling within its remit. To be enacted, these measures must be incorporated in contractual agreements between third parties (awarding authorities/regulated companies). Some examples follow below.

Regulatory tools: Some examples

Regulation of access to infrastructure

In the area of access to infrastructure, particularly with regard to pricing, airport managers, railway infrastructure managers and motorway concessionaires may modulate tariffs according to pollution levels generated by, respectively, aircrafts, trains and road vehicles. Other incentives deal with the possibility to increase annual charges depending on the achievement of environment-related investment targets (airport managers) or the application of quality standards (motorway concessionaires). Reversely, an obligation to reduce annual tariffs applies should the targets established under ART’s regulation not be met. Moreover, an extraordinary 1% additional remuneration for the cost of capital may be accorded to airport managers for environment-related investment, subject to strict terms and conditions established in ART’s regulation and upon prior consultation of the users (who bear the onus).

Regulation of services

Concerning the regulation of services, incentives apply in different phases of the administrative procedure leading to the award and in the performance of the contract concerning public transport services. Starting with planning, ART’s regulation on the design of service supply areas, including transport by rail, bus and waterborne, provides that “the most sustainable multimodal solution should be preferred.” Additionally, solutions alternative to public financing, such as pollution charges and congestion charges, should be sought to compensate for service contracts. With regard to the tendering phase, for the award of transport services by bus, efficiency KPIs may include environmental standards upon which a pricing/penalty system is applied. In addition, in the case of transport by rail, tariff updates are conditional, among others, upon the efficient use of energy and fuels. Similar provisions are under way in transport by bus.

CNMC (Spain – Multi-sector)

Short summary

This contribution by the Spanish National Markets and Competition Commission3 (CNMC) addresses the topic of the Roundtable on “Competition in the circular economy”.

The circular economy in a broad sense has been gaining importance in recent years given the role it plays in achieving the Sustainable Development Goals (SDG) and the opportunities in terms of productivity and employment through innovation and the creation of new markets.

Consistently, the number of entrepreneurial initiatives and regulations in this field have also increased. Given this growing importance, the CNMC has carried out various activities which are covered in this two-part document.

The first part summarises the regulatory and market framework on packaging waste management and the main competition enforcement activities carried out -some of them ongoing- related to the circular economy.

The second part describes the CNMC’s advocacy initiatives concerning the circular economy.

Regulation and enforcement actions on packaging waste management sector

The European Packaging Directive, implemented in Spain via Law No.11/1997 of 24 April 1997 on Packaging and Packaging waste which was developed by Royal Decree 782/1998,4 requires producers to manage the recycling of the packaging waste associated with the goods that they put on the market.

To comply with such obligations, producers may either establish their own Deposit and Return System or join a Producer Responsibility Organization (PRO). In 1996 Spanish producers, retailers and manufacturers founded ECOEMBALAJES ESPAÑA, S.A. (“ECOEMBES”), a monopolistic non-profit PRO paid for by producers, that organizes and finances the collection, sorting and recycling of packaging waste in Spain.

In Spain, local authorities are directly responsible for managing packaging waste in their territory. Thus, they enter into collaboration agreements with ECOEMBES to establish the infrastructure and develop the separate collection of packaging waste, including all necessary procedures to ensure management and control of the entire recycling process.

Once final consumers deposit their packaging waste in the containers, local authorities collect and transport it to the selection plants that have previously been established by them. In the selection plants the packaging waste is classified into three “fractions”: metals (steel and aluminum), plastics (PET, HDPE, film and plastic mix) and used beverage cartons (brick packaging). Once the packaging has been classified, local authorities sell the waste fractions to ECOEMBES which designates the companies in charge of the recovery/ recycling of the various materials sorted in the plants. Additionally, ECOEMBES regularly awards tenders to recyclers of the packaging waste that has been sorted in the selected plants. However, only those recyclers that haven been certified by ECOEMBES can take part in the tenders.

Provided that ECOEMBES is the only PRO in Spain and that the recyclers need to be previously certified by ECOEMBES to participate in the tenders, ECOEMBES holds a dominant position, a monopoly, on the market of collection and recycling of packaging waste.

ECOEMBES has been previously investigated by the Spanish Competition Authority in two cases concerning a potential abuse of dominant position related to the recycling process, and more specifically, the tenders launched by ECOEMBES to designate the companies responsible for the recovery of the materials.

In October 2023, the Spanish Competition Authority, after carrying out a dawn raid in the headquarters of ECOEMBES, and formally opened infringement proceedings against ECOEMBES. The investigation concerns an abuse of dominant position which may breach Article 2 of the Spanish Competition Act and Article 102 of the Treaty on the Functioning of the European Union (TFEU).

Specifically, the Spanish Competition Authority is investigating a potential competition law infringement related to the lack of transparency in the tenders launched by ECOEMBES to designate the recyclers for the recovery of the materials. The procurement procedure would not guarantee the traceability and integrity of the bids submitted by the recyclers. Additionally, the Spanish Competition Authority is investigating whether ECOEMBES established barriers to entry for the recyclers to participate in the tenders which are not justified on technical, environmental or economic grounds.

In the course of the current investigation, the Spanish Competition Authority adopted (December 2022) interim measures to ensure publicity and transparency in the upcoming tenders of PET and HDPE plastic waste organised.

Article 54 of the Spanish Competition Act establishes that the CNMC’s Council may adopt, ex officio or at the request of any of the parties of the proceeding, interim measures to ensure the effectiveness of the final decision that may be issued once the infringement proceedings have already been opened. According to the mentioned article, interim measures must be motivated, proportional, and time-limited and must have the sole aim of ensuring the effectiveness of the final decision of the Council stating the potential existence of a competition law infringement.

Following Article 54, the Competition Directorate submitted an interim measures’ proposal to the CNMC’s Council to guarantee the transparency and publicity of the tenders launched by ECOEMBES.

The Council, after consulting the interested parties in the proceeding, issued a decision adopting the interim measures proposed by the Competition Directorate. These include:

• The participation of a public notary in the tender procedure with the purpose of guaranteeing the transparency, traceability and integrity of the bids submitted by the recyclers;

• A limit on the quantity that can be awarded to a single recycler in tenders for PET and HDPE plastic waste;

• Other measures ensuring the transparency of the tenders such as the publication on ECOEMBES’ website of the call for tenders as well as the minutes issued by the public notary containing all the bids submitted for the tender.

In December 2023, Spanish Competition Authority adopted a commitment decision intended to resolve the competition concerns detected during the investigation. Under Spanish Competition Act, a commitment decision imposes the conditions that are offered voluntarily by the alleged offender. The mentioned procedure quickly restores the level of competition through remedies that address the detected concerns and safeguard consumer welfare and the public interest.

This commitment decision includes two categories of commitments: i) Related to tender procedure and ii) Related to the certification process established by ECOEMBES to take part in the tenders.

Commitments related to the tender procedure implement an objective, transparent and non-discriminatory electronic tender process, which will avoid the potential arbitrary intervention of ECOEMBES throughout the tender. The electronic tender is run by an external and independent provider. These type of commitments also involved a reduction of the length of the tender increasing the level of dynamism.

Commitments related to the certification process are based on increasing the number of certification entities that certify the recyclers in order to take part in the tenders. Commitments decision increases the validity duration of the certification and reduce the certification criteria with the aim of reducing the administrative burden of the recyclers. The described commitments pretend to obtain a higher participation of SMEs in the tenders and therefore, an increase in the level of competition in the relevant market.

CNMC’s advocacy initiatives concerning the circular economy

The CNMC has been active in the debates concerning the role that competition policy and competition authorities have in the pursuit of sustainability goals, which have accelerated in the past few years.

As part of these conversations, the CNMC published a position paper in December 2020 in the context of the European Commission's public consultation on how competition policy can contribute to the Green Deal.

CNMC’s commitment to sustainability and the promotion of the circular economy is also reflected in its Activity Plan for 2023 as well as in its Strategic Plan for 2021-2026. It is in the context of its aim to help achieve the Sustainable Development Goals, the Advocacy Department is pursuing several projects in “green” sectors, including two ongoing market studies on electric vehicle charging and packaging waste management.

CNMC’s position paper on the Green Deal

In 2020, the European Commission launched a public consultation on the European Green Deals, which aims at making Europe the first climate-neutral continent by 2050 by developing a fair and prosperous society that permits for the implementation of a modern and competitive economy using resources efficiently. The European Commission sought contributions from authorities, associations and operators in three areas: State Aid, prosecution of anti-competitive behaviour and merger control procedures. The CNMC participated in the public consultation by issuing a position document stating its opinion on these matters.

The CNMC’s position paper identifies two ways in which competition authorities can help sustainability. On the one hand, competition authorities may address their efforts towards interventions that favour sustainability, by using both enforcement and non-enforcement tools, such as market studies. On the other hand, competition authorities may integrate sustainability considerations into their substantive competition analyses. This must be done carefully.

As a starting point, while there may be more direct ways to promote sustainability, market competition is also a driver for sustainability. Indeed, competition encourages technological innovation and spurs companies to offer more sustainable products and services. Sustainability can be a differentiating factor of competitiveness that benefits consumers, one that competition policy must reinforce.

However, although, in general, competition and sustainability are complementary, sometimes they are not, so a balance that is satisfactory to society must be struck between the two. The necessity and proportionality test is the best way to determine this balance point.

In this regard, the CNMC believes that integrating sustainability considerations into competition analyses must comply with the following principles:

• Provide the necessary predictability to economic operators in terms of how their actions will be assessed under competition rules.

• Maintain the consistency and interpretation of competition rules within the EU and avoid the fragmentation of the internal market.

• Preserve effective competition in the internal market, so that it can be 'fine-tuned' without a radical transformation.

Moreover, a proactive effort for sustainability by competition authorities requires greater specialisation in these areas (professional skills, evaluation methodologies, etc.).

Concerning State aid, it is necessary to conduct a careful assessment of the risks involved in modifying the regulations on State aid. Each country should be allowed to reflect its sustainability concerns without distorting competition in the internal market. The specific proposals made by the CNMC include clarifying the regulations on electricity self-consumption, developing a network of recharging stations to achieve the true deployment of electric vehicles, and immature production technologies, together with reducing incentives for production activities that rely on fossil fuels when it is technically possible to use clean energy. Public procurement can also be an equally effective instrument to curb climate change.

As regards anticompetitive practices, agreements between operators that yield a clear environmental improvement and do not involve restricting parameters that are essential to competition are permitted by competition rules. Those agreements that, in addition to providing a clear environmental benefit, also restrict competition, are acceptable as long as they comply with the requirements of competition regulations (Art.101.3 TFEU and Art. 1.3 of Spain's Anti-Trust Law). However, there is a clear limit that must be respected: sustainability goals can never be an excuse to authorise cartels. The CNMC notes that, in order to stimulate the adoption of co-operation agreements in favour of sustainability targets, operators should be given greater legal certainty at the EU level on the types of actions they can carry out without breaching rules on competition and on the evaluation of efficiencies.

Finally, the CNMC notes that mergers can, in certain cases, have a negative impact on sustainability by reducing innovation or competition between sustainable operators. Another cause for concern is the so-called “killing acquisitions”, that is, mergers aiming at letting the acquiring company gain control of the acquired company in order to avoid developing or commercialising cleaner technology. By contrast, some business mergers may help advance sustainability objectives. Including sustainability criteria as part of the efficiency analysis would require a review of the evaluation instruments (concepts, tools and profiles).

Market study on packaging waste management

In February 2022, the CNMC announced the launch of a market study on packaging waste management. The market study marks the culmination of the work relating to waste management issues undertaken by the Advocacy Department in the past few years, where it has supported the lawmaker during the drafting stages of new legislation (which transposes European Directives) by issuing several reports on draft regulations.5 As a result of this work, the CNMC realised that, even though there was a regulatory reform on its way, there still seemed to exist various obstacles (both structural and regulatory) that hindered competition in the sector and deserved a thorough analysis.

The most obvious of all is that, since the introduction of Extended Producer Responsibility (EPR) in Spain in the late 1990s, only one collective EPR scheme has been created to manage light packaging waste (ECOEMBES) and glass packaging waste (ECOVIDRIO), leading to de facto monopolies, unlike in other waste streams or other countries. During 2022, a significant regulatory reform has been approved that has set into motion a significant transformation of the sector, which places it in a decisive moment to determine the competitive environment in the long term. Furthermore, the CNMC believes that the promotion of competition in the waste management sector has shown to be especially beneficial for sustainability, according to the experience of other countries in terms of waste sorting,6 recovery, and recycling rates.7

The study began with a public consultation,8 in which all stakeholders were invited to respond to a series of questions concerning the packaging waste management sector in Spain, both from the point of view of regulation and the functioning of the markets concerned. The public consultation was a success, with the participation of 49 stakeholders, including public authorities, experts, packaging companies, packaging producers, recycling companies, environmental organisations, individuals, EPR Schemes and others.

The participants in the public consultation highlighted different areas of concern, such as:

• From the packaging companies’ (subject to EPR) point of view, the fact that there is so far only one existing entity to fulfil the obligations given by extended producer responsibility means that they must accept the conditions or practices imposed on them by the monopolist, e.g., concerning green dot fees or governance of the system, among others.

• Several public administrations expressed dissatisfaction with their relationship with at least one of the existing monopolists (ECOEMBES). The administrations depend on the financing of this entity to carry out the management of packaging waste, and many state that this, in addition to their insufficient human resources, gives ECOEMBES more leverage in the negotiations of the financing agreements.

• Recycling companies complain about the homologation system set in place by ECOEMBES, by which they can only participate in material tenders if they pass homologation, even when complying with legal administrative authorisations. In addition, some recyclers have expressed dissatisfaction with the conditions under which material delivery occurs. Finally, they accuse the system of material allocation of lacking transparency, which, in fact, is under investigation by the Enforcement Department of our authority.

The work on the study is still underway, focusing on the legal analysis of the sector in Spain, the situation in other countries, the concept and implementation of extended producer responsibility, which is key in the packaging waste sector, and its implications on competition and the achievement of a circular economy.

Market study on EV charging infrastructure

One of the key challenges to tackle climate change and to reduce the economic dependency on non-renewable resources is decarbonising the transport sector. In order to do so, most authorities have set forth ambitious plans to promote the adoption of electric vehicles (EVs). These include the development of a charging points’ network, able to adequately serve this kind of vehicles (the Spanish government, for instance, has established a country goal of 80 000-110 000 public access charging points at the end of 2023, and of 340 000 in 2030).

However, it corresponds to public authorities not only to guarantee certain penetration objectives, but also to ensure that the new market of electric charging services functions properly from a competition perspective. That is why the CNMC has started a market study on EV charging infrastructure. It will incorporate input from a public consultation (to be opened in the next months), and it will focus on competition risks coming from the market structural characteristics, businesses practices, and administrative interventions.

CRE (France – Energy)

CRE's competences: A growing role in implementing the energy transition

As set out in the French Energy Code, the Energy Regulatory Commission contributes to the smooth functioning of the electricity and natural gas markets for the benefit of end consumers and in line with the objectives of the energy policy. CRE’s missions can therefore be divided into three areas:

• A mission to regulate the networks, aimed at ensuring the performance of the network operators: cost control, quality of service, access conditions, investments, innovation, construction of the internal market.

• A mission to regulate the markets to allow the opening of the markets and innovation for the benefit of the consumer: setting the tariffs, regulation of nuclear power, capacity mechanism, monitoring of the wholesale and retail markets, consultation on market rules.

• A mission to serve the energy transition: support for renewable energy (examination of calls for tenders), calculation of public service energy charges, electricity mix in the non-interconnected areas. Example [NB: you could use this example somewhere else in the report if you’d like] : as part of its task of processing calls for tenders for new renewable energy capacity, such as solar PV, CRE has developed a tender evaluation methodology that allocates points based on various criteria (including the project’s price and environmental impact), with a significant portion of points dedicated to the embodied carbon content of the solar panels and equipment used. This approach incentivizes developers to select equipment with lower carbon content and directly impacts the selection of solar panels based on their manufacturing origin due to the differing carbon emissions associated with their production.

In addition, in order to set out a vision and objectives for the actions of its Board and departments for the years 2023 and 2024, CRE published its roadmap in February 2023, with a focus on the ecological transition and carbon neutrality. Its first axis focuses on making grid regulation and energy system transformation a lever for accelerating the ecological transition through:

• Accelerating the transformation of electricity networks: connection and efficient integration of renewable energies, new consumers, storage, electric mobility, etc.

• Determining the medium- and long-term outlook for gas networks and infrastructures and a regulatory framework adapted to the decline in fossil fuels and the development of low-carbon gas and hydrogen.

• Helping to accelerate the development of low-carbon energies by ensuring that they are properly integrated into the energy system and that support measures are effectively implemented.

To inform its work, it is also interesting to note that in 2017 CRE created a Foresight Committee, which in 2023 became a Scientific Council. CRE’s Foresight Committee had been working for several years on enlightening the future of our energy system, with the help of about 200 external experts, including energy operators, academics, consumers’ associations, and members of Parliament. This independent Committee had helped the French regulator, politicians, and industry players to anticipate changes and adapt their practices to contribute to the energy transition. This structure made it possible to draft reports on issues that, at the time, did not fall directly within the CRE's remit: for example, the impact of clean mobility on the energy mix (2018), the hydrogen vector (2021), biomass and carbon neutrality (2023). The current working group, in its new form, is about to publish a report on carbon capture and storage.

Decarbonisation of the gas sector: The implementation of a favorable framework for the development of biomethane

In France, biomethane production targets (over 11 TWh/y of installed production capacity in 2023) have been met thanks to a favourable framework, which CRE supports and is tasked to implement. To fulfil its potential and play its role in the decarbonisation of the gas sector, the biomethane production needs: to access the network; to access the market; and to be profitable. In that purpose, the legal and regulatory framework consists of 3 main instruments:

• A “right to injection” principle, which eases the access of biomethane production plants to the gas network.

• A regulated feed-in tariffs system for small to medium-sized installations, which provides economic viability of the sector.

• New schemes for bigger installations that will be soon implemented: tenders and biomethane production certificates.

On the first aspect, CRE has taken action on connection zoning: CRE has already validated 345 zonings and around 400 reinforcement works (over EUR 200 million in investments for distribution and around €89 million for backhauls). In the medium term, over 1 200 projects (1 232 to date) could be carried out based on these validated zones, representing over 26.6 TWh.

On the second aspect, biomethane producers have also been benefitting since 2011 from a feed-in tariff. End of 2020, the feed-in tariffs have been limited to small installations (< 25GWh). Production subsidies are guaranteed in France for 15 years, span from EUR 73 to EUR 192/MWh depending on the size of the production facility (maximum production capacity) and on the nature of the waste or organic material used; and have increased a lot during the last months because of the inflation and of the cost of electricity.

On the third aspect, calls for tenders for large-scale facilities (25 GWh annual production) which currently cannot receive public support will also be implemented. The past summer, CRE took a deliberation on the specifications of those call for tenders. Also, to come, biomethane production certificates (extra-budgetary mechanism). Producers who do not receive public support will receive biomethane production certificates (number depending on volumes produced): these certificates will then be sold to gas suppliers with an obligation to purchase a certain volume depending on their level of gas consumption.

Ofwat (United Kingdom – Water)

Governing Green: Role and actions regarding facilitating or promoting environmental sustainability objectives

Who we are

Ofwat is the economic regulator of the water sector in England and Wales and was established in 1989 when the water and sewerage industry was privatised. The companies we regulate are responsible for delivering water and sewerage services to customers. Our functions and duties are laid out in the Water Industry Act 1991.9 Our duties include to protect both existing and future consumers' interests and securing the long-term resilience of water companies’ services against environmental pressures, population growth and changing consumer behaviour.

We are not the primary environmental regulator, but we see the environment as central to our work. We act in accordance with the UK government and Welsh Government's respective Strategic Policy Statements (SPSs), which include steers related to resilience, biodiversity, net zero and long-term adaptation to climate change.10

Our approach to regulation aims to facilitate long-term, adaptative, and resilient water, drainage and wastewater services. Ofwat also uses markets to deliver for customers, including in relation to major infrastructure provision and bioresources.

We set out the price, investment and service package that customers receive, through a price review every five years. This is an essential regulatory tool to drive investment and sustainable change in water companies. In addition, we also have a wide range of regulatory tools including markets, licensing and enforcement, assurance, monitoring and campaigns. We operate alongside government departments and water quality and environmental regulators, and co-ordinate and collaborate with our partners.

Ofwat's strategy for the environment

Through our strategy, “Time to act, together”, we have committed to ensuring companies meet long-term challenges whilst delivering more for customers, society and the environment.11

We expect water companies to consider the environment an integral part of their business, inseparable from the services they provide. We want the sector to work with stakeholders to restore and improve the ecological status of our water environments and add value to the land they hold and use. We want current and future customers protected from the impacts of extreme weather and pollution.

Our strategy makes clear that we want companies to provide greater public value, delivering for customers, society and the environment. As a result, we set out ambitions for:

• Climate Change: We are committed to strengthening the sector’s approach to climate change mitigation and adaptation, building on the companies’ commitment to achieve net zero emissions by 2030, and preparing for the challenges climate change will bring.

• Demand management: We aim to deliver change in how people use water and the wastewater systems to reduce overall demand, working with the Department for Environment, Food and Rural Affairs on measures to reduce personal water use.

• Nature-based solutions: We expect companies to make a step change in the use of nature-based solutions including wetlands, sustainable urban drainage systems, and are promoting it through our expenditure assessment which will include environmental and social factors in the next price review for 2025-30.

• Natural capital: We are exploring how we can best use natural capital accounting methods to evaluate companies' activities, and how companies can best be incentivised to use them to make decisions.

• River water quality: We expect companies to take clear and sustained actions to improve their impact on rivers and reduce harm from storm overflows.

We are working with environmental regulators, UK government and Welsh Government to ensure the next environment programmes (WINEP in England and NEP in Wales) and plans for the water sector (including Drainage and Wastewater Management Plans and Water Resources Management Plans) bring forward the greatest strategic benefits to both customers and the environment.

We are delivering greater environmental and social value with an increased focus on the long term through our regulatory tools, including the price review. As a result, we are exploring incentivising improved outcomes for the environment through performance commitments relating to per capita consumption, leakage, business demand, operational greenhouse gas emissions, pollution incidents, bathing and river water quality and storm overflows.

Focus: Our action on climate change

Our duties enable us to take climate change mitigation and adaptation into account when carrying out our functions.

Climate change mitigation in the water sector is crucial to achieving the UK government and Welsh Government's net zero targets. In our net zero principles paper, we set out our expectations for companies to align with national governments' targets, address both their operational and embedded emissions and prioritise actual reductions in greenhouse gases before the use of offsets.12

To achieve this, we introduced standardised annual mandatory reporting of operational and embedded greenhouse gas emissions, respectively in 2022 and 2023. We will incentivise reductions of operational emissions as part of the next price review (2025-30) through new operational greenhouse gas emission performance commitments.

Focus: Water industry national environment programme (WINEP)

The WINEP is the programme of actions water companies in England need to take to meet most of their environmental obligations. The current methodology for the WINEP for England was developed jointly by the Environment Agency, Department for Environment, Food and Rural Affairs and

Ofwat. It will account for approximately GBP 5.2 billion of assets improvements, investigations, monitoring and catchment interventions between 2020 and 2025.13

PUC (Latvia – Multi-sector)

Since 9 November 2022, according to the Methodology for Calculating Tariffs for Water Management Services, regulated service providers have the obligation to reduce the costs included in the draft tariff by the unforeseen revenue and the right to increase the costs included in the draft tariff by the unforeseen costs incurred in the previous period. The unforeseen costs and revenue originally consisted of changes in payments if one public water management service provider procured water management services from another public water management service provider, and changes in payments for the purchase of electricity, heating fuel, thermal energy, and gas.

On 28 December 2023, PUC made new amendments to the Methodology by adding the possibility to include in the unforeseen costs the capital costs (depreciation of fixed assets and return on capital) and credit interest payments and repayment of principal sum of the previous period (not longer than two years) related to energy efficiency improvement and energy neutrality promotion measures (Methodology p#17). Usually, those measures include installation of solar panels, replacement of electrical equipment with more energy-efficient ones and insulation of buildings. Up till the end of 2023 capital costs and credit payments of such measures could be included only in the next draft tariff according to the residual value (as it is now with all the other capital costs). As a result of these latest amendments, service providers can recover the capital costs of the previous period related to the measures that were implemented with the aim to save energy resources and reduce the operational costs. It is also a kind of incentive not to delay the implementation of energy efficiency improvement and energy neutrality promotion projects.

SZTFH (Hungary – Multi-sector)

Europe is facing an energy shortage that is not only affecting citizens, but also spilling over into industries, slowing down and making supply chains more expensive. Harnessing the development potential of clean energy production, including geothermal energy, can help to deliver more efficient, greener and more secure supplies of some public services in the medium term. Nevertheless, this effort also requires the relevant authorities to create a legal environment that encourages investment in green energy.

The Carpathian Basin is a unique geological and hydrological formation, with a crustal thickness of 25-30 km, which is less than one third of the average crustal thickness of the European continent. Because of this absolute proximity, the upwards heat flow from the internal magmatic environment is very strong. Another fortunate local feature could be identified as well: the former Pannonian Sea’s remnant seawater has been trapped between rock layers, so not only heat but also the heat-carrying medium (water) is available. On this basis, geothermal energy could become a determining factor in European energy thinking, as the case of Iceland shows that geothermal energy can be successfully integrated into the country's image and identity.

Geothermal energy also contributes to strengthening the pillars of Hungary's energy security. By radically increasing the production of thermal energy in Hungary, approximately 1 to 1.5 billion cubic metres of natural gas per year could be replaced at national level by implementing the following development targets:

• full or partial conversion from natural gas district heating in case of domestic heating, and the development of local thermal water heating systems for municipalities;

• meeting the heating needs of green and brownfield industrial investments; and

• further expansion of agricultural use.

To achieve the objectives mentioned above, the Supervisory Authority for Regulatory Affairs has set a target for 2022 to further deregulate the utilisation of geothermal energy, reducing administrative burdens, while tackling possible bottlenecks when it comes to geothermal project management.

The related one-stop shop system, which came into force on 1 March 2023, aims to create an efficient and fast administration by transferring the previously dispersed responsibilities uniformly to the Mining Authority, which is headed by the Supervisory Authority for Regulatory Affairs. The Mining Authority keeps a public register of geothermal exploration areas, which is essential for the promotion of geothermal projects.

From 1 March 2023, the regulatory environment for domestic geothermal energy has started to be streamlined in the following ways:

• by simplifying and standardising the procedures for geothermal energy exploitation, both in terms of exploration, licensing and regulatory supervision;

• by speeding up the preparation and implementation of geothermal energy projects by reforming the rules and institutions governing geothermal energy exploitation;

• the Supervisory Authority for Regulatory Affairs will explore the development of a range of possible incentive instruments to increase geothermal energy use; and

• by strengthening a data-driven approach, a new complex research programme will be able to serve market and public data needs and will be able to answer questions of preparation, exploration, drilling and technical feasibility for potential investors.

Under the new rules, geothermal energy can only be extracted and used on the basis of a fixed-term contract with the Mining Authority. The contract will be conditional on the existence of an agreement on the use of the geothermal energy extracted. It is also essential that the extracted water is reinjected to the maximum extent it is technically and geologically feasible.

It should be noted that before 1 March 2023, the complexity of the procedure often made it difficult to launch geothermal projects, as the licensing process was complicated and involved several authorities and agencies, which made it difficult to promote sustainable green energy in the country.

References

[1] EEA (2024), Transport and mobility, https://www.eea.europa.eu/en/topics/in-depth/transport-and-mobility#:~:text=Transport%20is%20responsible%20for%20about,noise%20pollution%20and%20habitat%20fragmentation (accessed in October 2024).

[2] IEA (2023), Tracking Clean Energy Progress 2023, Licence: CC BY 4.0, https://www.iea.org/reports/tracking-clean-energy-progress-2023.

Notes

← 1.  Including: Research and Innovation, international co-operation, communication and dissemination, integrating adaptation into spatial planning and integrating adaptation into water resources management, biodiversity, economy, energy, forests, health, safety of people, transport, communications and coastal areas and sea.

← 2.  Resolution 639/2023/R/idr.

← 3.  This contribution has been prepared by the staff of the CNMC and shall not be regarded as the official position of the CNMC unless it refers to CNMC approved documents.

← 4.  Please note that the aforementioned Spanish regulation has been recently repealed by Law No. 7/2022 of 8th April on Waste and Soil Contamination for Circular Economy and Royal Decree No.1055/2022 of 27th December on Plastic Containers and Packaging Waste.

← 5.  See, for instance, the documents PRO/CNMC/001/21 and IPN/CNMC/041/21 (in Spanish).

← 6.  Sektoruntersuchung duale Systeme, Bundeskartellamt, 2012.

← 7.  More information available here.

← 8.  More information available here (in Spanish).

← 9.  See Ofwat, “Our duties”.

← 10.  UK government, Strategic policy statement for Ofwat, February 2022, and Welsh Government, Written Statement: Strategic Priorities and Objectives Statement for Ofwat (SPS), July 2022.

← 11.  Ofwat, Time to act, together: Ofwat's strategy, October 2019.

← 12.  Ofwat, Net Zero Principles Position Paper, January 2022.

← 13.  For more details, see Department for Environment, Food & Rural Affairs, Water industry national environment programme (WINEP) methodology, May 2022.