EU Commission challenges key pillar of Ireland's Renewable Heat Obligation scheme

The European Commission found that a core part of Ireland's Renewable Heat Obligation scheme is incompatible with EU market rules. This decision is likely to delay the scheme's 2026 launch. Our Energy team examines why the Commission intervened and what the Government must do next to align with EU law.

What you need to know

• The Renewable Heat Obligation scheme requires fuel suppliers to use more renewable energy.
• The EU Commission objected to a "multiplier" that favoured Irish biomethane over imports.
• Ireland must postpone the draft law until at least June 2026.
• Failure to amend the Bill could lead to infringement proceedings against the State.

The Renewable Heat Obligation (RHO) is a proposed Government scheme that will require Irish suppliers of fossil fuels used for heating to ensure that a defined proportion of their supplied energy comes from renewable sources. The scheme aims to reduce emissions from the heating sector and support the development of Ireland's biomethane industry. This will help to decarbonise the agricultural sector and enhance energy security.

Drafting of the Renewable Heat Obligation Bill 2025 commenced in July 2025. However, on 29 March 2026, the European Commission issued a detailed opinion in response to Ireland's notification of the proposed RHO scheme[1].

The proposed RHO

The RHO will apply to large suppliers of fuels used for heating purposes who are liable for payment of excise duty, or other Government levies, on the supply of:

• Natural gas
• Liquefied petroleum gas
• Mineral oils, or
• Solid fuels

It was intended to begin in mid-2026, with an initial obligation rate of 1.5% of renewable fuel for a six-month "year one", mid-2026 to end-2026. This would ultimately increase to 3% for the full calendar year of 2027. Given the Commission's intervention, these timelines are now subject to revision.

European Commission intervention

The Commission found that a key feature of the RHO scheme - a domestic production certificate multiplier for biomethane - is incompatible with EU internal market rules. Under the draft scheme, one unit of biomethane produced in Ireland would count as 1.5 units towards a supplier's obligation, compared to 1 unit for imported biomethane. This 0.5 additional certificate value was intended as a temporary measure to support a newly developing domestic industry, though no fixed end date was specified.

The Commission concluded that this multiplier constitutes a measure having equivalent effect to a quantitative restriction on imports, contrary to Article 34 of the Treaty on the Functioning of the European Union (TFEU). This is because the proposed scheme would actively treat biomethane from other EU Member States less favourably than domestic production. The Commission concluded that Ireland's submitted justification for the measure under Article 36 of the TFEU failed on every ground.

Next steps

Ireland must now postpone adoption of the draft legislation until at least 29 June 2026 and formally respond to the Commission’s concerns. If Ireland proceeded with the scheme as drafted, without taking account of the Commission’s objections, the Commission has stated that it is prepared to bring infringement proceedings against Ireland under Article 258 of the TFEU. The Commission also indicated a willingness to engage with Irish authorities further to identify less restrictive alternative measures that are compatible with free movement rules. The Irish authorities will now need to revise the domestic multiplier aspect of the draft RHO scheme before the legislation can be finalised.

This development introduces a material degree of uncertainty for fuel suppliers, renewable heat market participants and investors in Ireland’s emerging biomethane sector. The explanatory notes to the Bill had already flagged that, following preliminary engagement with the Commission, the use of a domestic product multiplier was considered a ‘measure of equivalent effect’ under Article 34 TFEU. It appears that subsequent engagement with the Commission seeking to justify the measure and its design was not successful.

If you would like to discuss how these developments may impact your business or investment strategy, please get in touch.

Contact our Energy team

The content of this article is provided for information purposes only and does not constitute legal or other advice.

[1] Notified on 23 December 2025 under Directive (EU) 2015/1535