European leaders agreed new climate and energy targets for 2030 of “at least” 40% greenhouse gas emission reductions, 27% renewables and 27% energy efficiency at a summit in Brussels on 23 October. Central and Eastern European countries led by Poland succeeded in getting substantial financial concessions in return for signing up to the package. Stakeholder reaction ranged from bitter disappointment among NGOs and energy efficiency advocates to reluctant acceptance of at least some kind of political signal by renewables stakeholders and investors to insistence on success by EU policymakers.
EU climate commissioner Connie Hedegaard called EU leaders’ conclusions on Thursday night an “important and ambitious step forward” even as NGOs condemned them as an “abysmal result”. The headline result is that Europe has agreed to cut greenhouse gas emissions by “at least 40%” by 2030, relative to 1990, with that target to be revisited after UN climate talks in Paris in December 2015. That post-Paris review can only raise not lower ambition, President of the European Council Herman Van Rompuy insisted: “Be assured, we will not go below what we have agreed today.” For others, a review is a review – in either direction. In any case, this was Van Rompuy’s last council – former Polish Prime Minister Donald Tusk takes over in December.
Poland led a hard fight for Central and Eastern European nations united in the Visegrad Group to get maximum flexibility and financial assistance to modernise their energy systems and meet future climate targets. Their biggest win – and it was Poland’s main ask – is that “member states with a GDP per capita below 60% of the EU average may opt to continue to give free allowances to the energy sector up to 2030”. There is cap however: the maximum amount handed out for free should be no more than 40% of the allowances handed out to member states in total to sell to industry as emission permits. Yes, transparency should be improved compared to today, leaders acknowledged, when some have complained such modernisation money is simply supporting fossil fuels plants, not helping transform the energy system.
“This 2030 package is very good news for our fight against climate change. No player in the world is as ambitious as the European Union when it comes to cutting greenhouse gas emissions.” – José Manuel Barroso, outgoing European Commission President
Three other funds are set out in the council conclusions. First, as foreseen in drafts leading up to the summit, the NER300 facility – a carbon-market fed fund for carbon capture and storage (CCS) and renewables today – will be bulked up into an NER400 facility and its scope extended to support low-carbon innovation in the manufacturing sector (steel, cement etc). Second, also as foreseen, 2% of EU ETS allowances will be set aside to address “particularly high additional investment needs in low income member states” – i.e. with GDP per capita below 60% of the EU average. Funds will be distributed “based on the combination of a 50% share of verified emissions and a 50% share of GDP criteria”. How projects are selected will be reviewed by the end of 2024. And finally, again as foreseen, 10% of EU ETS allowances to be auctioned to industry by member states will be distributed among those countries whose GDP per capita did not exceed 90% of the EU average in 2013.
“For the first time in 6 years, European Council Conclusions have made an explicit reference to Carbon Capture and Storage. This is a significant breakthrough.” – Graham Sweeney, Chairman of the Zero Emissions Platform (ZEP)
Van Rompuy said that fairness, solidarity and thriftiness (read: cost-effectiveness) had been the three guiding principles of the talks.
About half of the 40% target will be delivered by the EU Emission Trading Scheme (ETS), which remains “the main European instrument” on climate change. Importantly, the summit’s conclusions reference a “reformed ETS with an instrument to stabilise the market”. This is the first solid indication that all leaders back a proposed Market Stability Reserve (MSR), which would mandate officials to add or remove carbon allowances from the EU ETS according to pre-set rules. This would let the system absorb economic shifts and the effects of intersecting policies such as renewables targets, without crashing the carbon price.
The MSR proposal will now be taken up by the European Parliament and member states in earnest. The key question to decide is when the reserve should kick in. France, the UK and Germany are all calling for a pre-2020 start date.
“Today’s agreement is the political signal that business has been looking for. Investments in Europe’s low-carbon future need to be made now – this decision is a sign that such investments will still have a value beyond 2020.” – Dirk Forrister, IETA CEO and President
To keep European industry competitive, the summit’s conclusions stipulate that extra free carbon allowances will continue to be granted after 2020 to those industries at risk of carbon leakage, or leaving Europe for regions with weaker carbon constraints. The conclusions specify “at risk of carbon leakage due to climate policy” to be clear that leaving Europe for other reasons – e.g. for cheaper labour – does not render one eligible for compensation.
For the first time, leaders say that indirect as well as direct carbon costs should be taken into account here – previously only direct effects were covered, while compensation for indirect effects (i.e. a higher electricity price due to the price on carbon) was left to member states to deal with. Industries complained that member states did so patchily.
The other half of Europe’s emissions – the “non-ETS” part i.e. emissions from buildings, transport and agriculture – will be tackled through “national, tradable [greenhouse gas emission reduction] targets” for member states ranging from 0% to 40%. The big change from the way things work now is that member states will be able to trade these targets, or parts of them, amongst themselves. The targets themselves will continue to be set as they have been until now, with efforts distributed on the basis of relative GDP per capita. Targets for well-off member states will be adjusted for take into account cost-effectiveness.
“40% is off the radar of climate science. This deal does nothing to end Europe’s dependency on fossil fuels or to speed up our transition to a clean energy future.” – Brook Riley, climate justice and energy campaigner, Friends of the Earth Europe
On top of this, European leaders have controversially introduced the possibility for some member states to swap reductions in the non-ETS sector for reductions in the ETS sector: before 2020, the EU will decide a “limited one-off reduction of ETS allowances” for member states with “national reduction targets significantly above both the EU average and their cost effective reduction potential as well as for member states that did not have free allocation for industrial installations in 2013”.
“EU leaders agreed on new trading options that avoid necessary mitigation measures in important sectors such as transport and buildings.” – Carbon Market Watch, an NGO
Equally controversially, leaders also reminded member states that they can “opt to include the transport sector within the framework of the ETS”. Green transport NGO T& said that this “will do nothing to reduce transport emissions and only postpone the necessary transformation of the sector”. Policymakers may be calculating that demand from the transport sector for ETS allowances could help reduce the current surplus in the system however. Transport remains the EU’s fastest growing source of greenhouse gas emissions. But a study this week by Cambridge Econometrics suggested that the EU ETS price would need to reach over €200 a tonne for it to work for transport.
EU leaders set renewables and energy efficiency targets of “at least 27%” for 2030. The renewables target is binding at EU level only; the efficiency target is “indicative, to be reviewed by 2020 “having in mind an EU level of 30%.” In the meantime, the Commission will propose priority sectors in which significant energy efficiency gains can be reaped and how to address them at EU level. Leaders are very clear: these efficiency and renewables targets “will not be translated into nationally binding targets.”
“Without binding national targets for renewable energy and energy efficiency, these two sectors will not develop properly in Poland.” – Polish Climate Coalition of 23 environmental NGOs
Energy efficiency advocates were deeply disappointed with the outcome. “One would expect leaders to lead. In March energy efficiency was declared the top priority to increase energy security and boost growth. Today the target presented is so low that it is meaningless and would prevent the EU from cutting gas dependency by a third”, said Stefan Scheuer, Secretary General of the Coalition for Energy Savings,
Renewables investors were also disappointed, but looked for a silver lining: “The renewables target is a very small step to support the enormous potential that solar and other renewables represent [but] it is still an important signal of political resolve.” said Frauke Thies of the European Photovoltaic Industry Association Policy Director.
Some NGOs pointed out that even business had asked for more: “It is shocking that business leaders called for higher – and binding – targets than those agreed by EU leaders,” said Natalia Alonso, Oxfam’s Deputy Director of Advocacy & Campaigns
The European Prince of Wales’s Corporate Leaders Group welcomed the emission target of “at least 40%” but said indeed that leaders had “failed” on renewables and efficiency: “European leaders have signalled to the rest of the world a clear ambition to achieve a robust international climate agreement in 2015. However, with weak targets for renewables and energy efficiency, and a low carbon price the EU must act urgently to unlock investment and spur the innovation needed to deliver its ambitions.” said Philippe Joubert, Chair of the Prince of Wales’s Corporate Leaders Group
The EU will now need to put in place “clear governance rules, legislation and standards to enhance the uptake of low carbon technologies and energy efficiency, especially in transport and buildings”, the group said. 25 companies wrote an open letter to EU President Herman Van Rompuy and European leaders earlier this week calling for a 40%-30%-30% package also to support EU jobs and competitiveness.
Finally, on interconnections, Spain and Portugal did not succeed in getting their fellow leaders to commit to a binding 15% interconnection target for 2030. Instead, they agreed that the Commission will take “urgent measures” to ensure at least 10% electricity interconnection capacity in those member states currently below that – notably the Iberian Peninsula and Baltic States – as soon as possible and no later than 2020. The same is to be done for member states that constitute their main market access points. To inspire confidence, leaders added that the Commission will monitor progress and report on all possible sources of financing to make this a reality, including from the EU (another veiled claim to Juncker’s famous €300 billion private public investment partnership to come).
And yes, the objective is to get to 15% interconnection capacity across Europe by 2030, although this is not imposed as a binding target. The Commission is invited to present a proposal by next March on how Europe might get there.
The European Wind Energy Association (EWEA) said the decision to set a non-binding interconnectivity target showed “a lack of aspiration”: “The interconnectivity target is bewildering. We’re in the midst of an energy crisis with Russia holding member states to ransom over gas supplies. Yet heads of state see fit to trot out a meaningless target that will do nothing to improve connection in the Iberian Peninsula or the security of supply in the Baltic States, let alone allow an internal energy market to develop”, said Thomas Becker, CEO of EWEA.
In conclusion, European leaders did what they do best: they looked out for their own interests, cashed in where they could and compromised when no other alternative presented itself. The result is a climate and energy policy framework for 2030 that does the bare minimum to get Europe on track to a low-carbon economy by 2050. But new Commission President Jean-Claude Juncker has said he wants Europe to be a world leader on renewables. And he wants a binding 30% energy efficiency target for 2030. Meanwhile, the EU supports an international “pledge and review” process for climate targets that is designed to push countries towards deeper commitments with an eye on two degrees. Could Europe get pushed?
In Brussels, reform of the EU ETS is the next big legislative item on the agenda – concretised in the MSR proposal – and governance proposals for renewables and efficiency will follow. These are more important than ever, in the absence of nationally binding targets.