European Union: The Future Of European Energy And Climate Policy Beyond 2020

The long-awaited white paper of the Commission on climate, renewable energy, and energy efficiency going forward beyond 2020 was released on 22 January 2014 (the Communication).

The Communication builds on the Green Paper "A 2030 Framework for climate and energy policies" that was published in 2013 (the Green Paper) and also on the "Energy Roadmap 2050" released at the end of 2011 (the Energy Roadmap). The Green Paper had also launched a public consultation that pointed towards the fact that there is a need to continue with policies that drive progress towards a low-carbon economy. Along with the Communication, the Commission also published a legislative proposal for a market stability reserve for the EU emissions trading system (the EU ETS) and a report and communication on energy prices and costs.

Since its publication, the Communication has received a mixed welcome on account of being either too ambitious or lacking any ambition, depending on from which side of the fence the document is looked at.

Voices from environmental NGOs and those stakeholders focusing on climate change mitigation believe that a 40 per cent reduction in greenhouse gas emissions will not help limit the global warming at 2 degrees C. On the other hand, those voices focusing on Europe's economic growth and industrial revival argue that a renewable energy target of 27% remains very ambitious.

Reacting to some criticism during the press conference for the publication, EC president José Manuel Barroso stated: Let's have some realism: no member state, even the ambitious ones, wanted more than a 40% cut.

In brief, the Commission proposes:

  • A greenhouse gas emissions reduction target of 40 percent below 1990 levels, to be achieved through domestic measures alone (i.e. without the use of international carbon credits).
  • Renewable energy target EU-wide of at least 27 percent of energy consumption above 1990 levels. No binding targets are set on individual member states.
  • Energy efficiency is stated to be a key component of the 2030 framework, and the Commission will return to this later in 2014, following its assessment of progress made towards meeting the 2020 target provided for in the Energy Efficiency Directive.

Greenhouse gas emissions

The Communication argues that the current policies and the legislation that has been implemented so far in the member states is expected to deliver a 32 per cent reduction (relative to 1990 levels) by 2020, if fully implemented. In this context, a 40 per cent target for 2030 is considered achievable.

The 40 per cent target covers both the EU ETS and non-ETS sectors. A target of 43 per cent reduction has been set for the EU ETS sector, while a reduction of 30 per cent (compared to 2005 level) is envisaged for the non-ETS. The annual factor by which the cap on the maximum permitted emissions reduction in the ETS sector will need to be increased from 1.74 per cent (the current value) to 2.2 per cent post 2020.

The impact assessment study accompanying the Communication estimates that those countries with a GDP below 90 per cent of the EU average would individually need to make investments between 2021-2030 of some EUR 3 billion higher than the EU average increase over that same period of time. The Commission does not propose a certain allocation of the greenhouse gas reduction for each member state, but suggests this target should be equitably shared among the member states.

Renewable energy target

The highly debated policy going forward for renewable energy has been settled by a compromise of non-binding targets for the member states and a general EU-wide binding target of at least 27 per cent of energy consumption at 1990 levels.

The Commission recognized that the rapid deployment of renewable energy has affected the competitiveness of other energy sources and has reduced investment incentives in generation capacity that is needed for the transition towards a low carbon economy.

The Communication brings forward a fundamental principle for any future development of renewable energy sources: such deployment should be market-driven to the furthest extent possible.

The Commission has also moved away from the current policy on biofuels, stating in the Communication that it "does not think appropriate to establish new targets for the greenhouse gas intensity of fuels used in the transport sector or any other sub-sector after 2020." This conclusion is based on the results of the assessment on indirect land-use change emissions, which showed that first generation biofuels have a limited role in decarbonising the transport sector. Food-based biofuels will not receive any support from 2020 onwards.

There will also be a revision of the biomass policy to allow for verifiable greenhouse gas savings and to support fair competition between various uses of the biomass resources in the construction, paper and pulp, biochemical, and energy industries.

Energy efficiency

Pending the review of the Energy Efficiency Directive, the Commission does not propose any new targets. However, the Communication mentions that considering the 40 per cent target of greenhouse gas emissions reduction, a 25 per cent increase in the level of energy savings by 2030 would be required.

Reforming the EU Emission Trading System

The Commission is planning to address the problem of an accumulated surplus of EU allowances by this time proposing a market stability reserve mechanism at the start of phase 4 in 2021. This mechanism as explained in further details in the proposal for legislation that accompanies the Communication would provide an automatic adjustment of the supply of auctioned allowances downwards or upwards based on a pre-defined set of rules designed to improve the resilience of the carbon market and enhance its stability. The mechanism also proposes a tool to increase the supply of allowances in case of sudden, temporary increase in demand to mitigate the impact on industry and on the sectors at risk of carbon leakage.

Also relevant

The Communication also touches on topics such as the competitiveness of the energy prices and the affordability and security of supply.

On competitiveness, the Commission recognizes the risk of high energy prices for those industries that have a high share of energy costs in their overall expenses and that are exposed to international competition. In all future scenarios, there will be an upward trend of the energy costs in the EU generated by the need to replace aging infrastructure, the rising prices of fossil fuel, the costs involved with implementing the climate change and renewable energy policies, and the impact from a potential increase in carbon price. Considering these factors, the Commission is prepared to maintain the existing policy framework until 2021 for those industrial sectors most at risk of carbon leakage.

On security of supply, the Communication reiterates the choice each member state has in setting its own energy mix (including the development of unconventional gas resources and the further deployment of nuclear energy). The Communication also calls for a collective effort on the part of the member states to diversify the sources and routes of supply for imported fossil fuels and for greater efforts for improving the economies' energy intensity.

What's next?

As regards the 40 per cent reduction target for emissions, the Council and the Parliament will have to agree by the end of 2014 for the EU to go ahead with this commitment as part of the international negotiations on climate change due for early 2015 in an effort to reach an international agreement in Paris at the end of next year. It is the Commission's view that the reduction target should be shared equitably by the member states.

As regards renewable energy, the Commission will be taking a bottom-up approach, whereby member states will have to submit clear commitments on deploying renewable energy that should be guided by the need to collectively deliver the EU level target, indicating how this should be delivered considering the compliance requirements with state aid rules. These commitments will be reviewed by the Commission as part of the governance process and, if necessary, they could be complemented by further EU action to ensure the 27% target is met. Accordingly, the Renewable Energy Directive will undergo a massive revision to facilitate the member states collectively reaching the 27 per cent target. The Council and the Parliament will have to agree on this target.

On carbon leakage, the Commission intends to present a draft decision on a review of the carbon leakage list that would maintain the current criteria and the existing assumptions. It also points to that fact that should there be no international effort on climate change beyond 2020, similar policies will need to be set in place after 2020 to ensure the competiveness of Europe's energy-intensive industries.

All relevant documents referred to in this legal insight can be accessed here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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