The 2030 Energy-Climate Package: Lessons learned (or not) from 20-20-20

The 2030 Energy-Climate Package: Lessons learned (or not) from 20-20-20

The much anticipated sequel to the 2020 climate and energy package was adopted in 2014 amid extensive discussion, and within an intense economic situation. The article explains the main provisions of the 2030 Energy and Climate Policy Framework, highlights the relevant challenges, and summarizes the critical feedback received. On the 23rd October 2014, the European

The much anticipated sequel to the 2020 climate and energy package was adopted in 2014 amid extensive discussion, and within an intense economic situation. The article explains the main provisions of the 2030 Energy and Climate Policy Framework, highlights the relevant challenges, and summarizes the critical feedback received.

On the 23rd October 2014, the European Council adopted the 2030 Energy and Climate Policy Framework, setting three headline targets of at least 40% reduction of GHG (GreenHouse Gas) emissions relative to 1990, 27% contribution to the final energy consumption from renewables, and 27% improvement of energy efficiency with respect to business-as-usual by 2030.

The first two targets are binding at EU level but the third is only indicative. Unlike the 20-20-20 Package, this time the Council’s conclusions were extended to include guidance to the European Commission (EC) in a number of other areas. Thus in addition to the targets, three funds were established or enhanced:

– the first, an increase of the New Entrants Reserve – NER-300 fund for renewables to NER-400 but also with the addition of funding for CCS (Carbon Capture and Storage) projects;

– the second, funded by 2% of the allowances for needs in low-income Member States, i.e. those with GDP less than 60% of the EU average;

– the third, funded by 10% of the allowances for needs of Member States whose GDP is less than 90% of the EU average. Furthermore, it was decided to continue free allocation of allowances to industries at risk of carbon leakage and even increase it to cover indirect costs.

The 40% reduction in greenhouse gas emissions is to come from the ETS – the European Emissions Trading System (a 43% reduction relative to 2005) and the non-ETS sectors (30% compared to 2005, where individual Member States will be allocated reductions not to exceed 40%). Flexibility is allowed in the ETS sector, for inclusion of transport for example, and also in trading shares between Member States and even swapping parts of targets between ETS and non-ETS sectors.

The 27% renewables target is to be reached by contributions from all Member States, but no specific advice is given on how this is to be shared. Member States can formulate their own policies, but in full compliance with the State Aid Guidelines and the EU target model of a fully liberalized and connected internal energy market; in this respect, support for interconnections infrastructure is to be provided.

Finally, as regards the indicative energy efficiency target, the EC was asked to identify targets by sector, not by Member States, and Member States are to introduce their own policies and incentives.

Progress towards these targets/objectives is to be achieved through systematic monitoring of key indicators, coordination of
national energy policies and regional cooperation, and by building on existing tools such as the National Renewable Energy Action Plans, the National Energy Efficiency Action Plans, etc., as mandated by the respective Directives.

Looking at the details of the 2030 Package as laid out in the EC Staff Working Document, the first thing that becomes evident is that meeting the 40% GHG reduction target would almost certainly imply meeting the other two targets. By 2012, EU emissions were 19.2% below 1990 levels and they are expected to decrease by an additional 1.9% in 2013, surpassing the EU 1st
Kyoto commitment period target of 8% by 3.8%. This substantial reduction is before the 3rd Phase of the ETS and the 20-20-20 Package had time to make an impact. The EC’s estimates indicate that meeting the 40% would result in a 26.5% (vs. the 27% target) contribution of renewables to final energy consumption and 25.1% (vs. the 27% target) energy efficiency improvement
without any new policies and measures.

In examining the context of these targets, the clear frontrunner turns out to be the different political climate in 2014 as compared to the one in 2008, when the very high expectations of the upcoming Copenhagen Summit set the stage. The political will to move towards a low carbon economy on track with the 2050 Roadmaps was clearly lacking in 2014, as various Member
States concentrated on protecting their national short-term interests and industries. In this, the political leadership was influenced by worries related to the recession that continued to affect the EU in general, by higher electricity prices perceived to be due to renewables support, but also by lobbying efforts of the energy industry as well as of other energy consuming sectors considered to be under international competitive pressure. The loss of a substantial portion of the renewables equipment manufacturing to countries outside the EU in this period, and the failure to secure a meaningful international agreement in Copenhagen in 2009, also contributed to this decrease of political will.

Compared to the 20-20-20 Package, there is an increased concern on maintaining the competitiveness of EU industry in international markets, most likely brought about by the difficult economic situation. The addition of consideration for indirect impacts on industry, such as increases in electricity prices because of the cost of allowances to electricity producers, is one such provision. The concern for cost effectiveness is also seen in the flexibility provided through trading parts of targets between ETS and non-ETS sectors so as to arrive at minimal cost reductions.

The emphasis on one major target (40% reduction of GHG emissions) rather than two, as was the case in the 20-20-20 Package, also presents challenges. In view of the ambiguities in the renewables target and support schemes, industries in the energy sector are already complaining of lack of clarity leading to increased risk and higher investment costs.

Furthermore, the reliance on the ETS and the signal sent by the allowance price to drive major reductions of emissions, runs contrary to the acknowledged need for its reform, including the introduction of the Market Stability Reserve mechanism. The prices estimated in the various scenarios of the EC Staff Working Document are as low as €11/tnCO2, which may not be sufficient for adequate emissions reductions.

Turning to a different aspect of the 2030 Package, the provisions for Member State action seem to reflect a desire by Member States to retain a large amount of competence on energy and climate policy as evidenced by the many discretionary actions that have returned to Member States; this may make failure to meet individual targets difficult to police. In this respect, if one excludes the ETS part, all other targets (non-ETS, renewables, energy efficiency) remain unspecified, a fact which contributes to investment uncertainty. This is particularly clear in the energy efficiency part, where the indicative sectoral targets to be set by the EC “will not be translated into nationally binding targets”. Yet energy conservation, including in the housing sector, has a high potential for emissions reduction and economic savings which, however, need to be tapped by making sure the EU Ecodesign Directive, the Energy Performance of Buildings Directive and the EU regulation setting emission performance standards for new passenger cars, are fully operational.

In view of the period required to elaborate proposals and negotiate them in the EU institutions, there is very little time left, bearing in mind the normal energy timescale, for the development of projects to have an effect by 2030. This may become even more difficult due to the importance put by some Member States on substantially adapting policies, measures and technology mixes to the differing national circumstances and potential.

In summary, the 2030 Package represents an evolutionary extension of the general direction set by the 20-20-20 Package, which had held open the possibility for increased emissions reduction to 30%.

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