3 Investing in the development of low
carbon technologies
| (30998)
14230/09
+ ADDs 1-4
COM(09) 519
| Commission Communication: Investing in the development of low carbon technologies (SET Plan)
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| Legal base | — |
| Document originated | 7 October 2009
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| Deposited in Parliament | 13 October 2009
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| Department | Energy and Climate Change
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| Basis of consideration | EM of 21 October 2009
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| Previous Committee Report | None, but see footnotes 18 and 19
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| To be discussed in Council | See para 3.18 below
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| Committee's assessment | Politically important
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| Committee's decision | Cleared, but relevant to the debate recommended on international climate finance
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Background
3.1 As we have noted from time to time, the Commission has long
believed that the Community needs to act quickly to increase the
use of low-carbon energy technologies (including renewable energy),
and it put forward in November 2007 a European Strategic Energy
Technology (SET) Plan.[18]
The aim of this would be to match the most appropriate set of
policy instruments to the needs of different technologies at their
different stages of development, and to identify those beyond
the capacity of any single country, where the Community as a whole
needs to find a way of mobilising resources, and public intervention
is necessary since there is neither a natural market nor a short-term
business benefit in supporting energy innovation.
3.2 The Commission went on to identify a number of
measures which are either in place, or in the pipeline, as well
as certain new long-term technologies, and to suggest that the
Community should evolve a "new model of focussed cooperation",
with the private sector at the forefront, but with Member States
taking the action needed to increase investment, provide clear
market signals, and strengthen the research base, and with the
Community enabling the pooling of resources and sharing of risks,
facilitating strategic planning, bringing about a better gathering
and sharing of information, and addressing common problems and
non-technological barriers. It also noted that the challenges
arising require a global effort, and suggested that the Community
has a significant role in fostering international cooperation.
3.3 The Plan then explored ways of achieving joint
strategic planning (through the creation of new initiatives, such
as a SET Plan Steering Group, a European Energy Research Alliance,
a SET Plan Information System, and a number of private sector
led European Industrial Initiatives); international cooperation;
and the resources needed, adding in the latter case that the Commission
intended to produce a further Communication on low-carbon technologies.
The current document
3.4 The current document seeks to fulfil that remit,
and reiterates both the role which technology and the efficient
use of resources can play and the need to act now to accelerate
the development of those technologies with the greatest potential.
It also says that a European approach is essential in order to
provide the necessary scale and financial leverage, though it
stresses that the figures it has produced should not be seen as
a formal proposal for funding from the Community budget, but rather
as an indication of orders of magnitude, with the bulk of the
funds required having to come from the private sector and Member
States.
EU CARBON TECHNOLOGY ROAD-MAP FOR 2010-20
3.5 The Commission says that investments over the
next 10 years will have profound consequences for energy security
and climate change in Europe, and that it has drawn up Technology
Roadmaps for this period, which prioritise the different needs
of the various technologies, depending upon their stage of development,
but which will be subject to periodic review and amendment as
necessary.
European Industrial Initiatives
3.6 The Commission says that these aim to turn into
reality the opportunity to develop clean and efficient energy
technologies, and will be accompanied by detailed implementation
plans. It then highlights the position in a number of areas, as
follows:
— European
wind initiative
The Commission says that wind energy has to accelerate
the reduction of costs, move increasingly offshore and resolve
associated grid integration issues if it is to fulfil its "huge"
potential, and it suggests that there is a need to develop a better
picture of wind resources in Europe, to build five to ten testing
facilities for new turbine components, up to ten demonstration
projects of next generation turbines, at least five prototypes
of new offshore substructures tested in different environments,
demonstrate new manufacturing processes, and test the viability
of new techniques in remote and often hostile environments. It
also suggests that these steps should be underpinned by a comprehensive
research programme to improve the conversion efficiency of turbines.
It estimates that the total public and private investment
needed in Europe over the next ten years is €6 billion, and
it says that the return would be fully competitive wind generation
capable of contributing up to 20% of Community electricity by
2020 (and 33% by 2030).
— The
solar Europe initiative
The Commission says that solar energy, including
photovoltaics and concentrated solar power, has to become more
competitive and gain mass market appeal, and to resolve problems
arising from its distributed and variable nature. It suggests
that this requires a long-term research programme focussed on
advanced photovoltaic concepts and systems, up to five pilot projects
for automated mass production, and a portfolio of demonstration
projects for both decentralised and centralised photovoltaic production.
As regards concentrated solar power, it sees the overriding need
as being industrial scaling up of demonstrated technologies, supported
by a research programme to reduce costs and improve efficiency,
particularly through heat storage.
It says that this will require an estimated €16
billion of public and private investment in Europe over the next
ten years, and that 15% of Community electricity could be generated
by solar power in 2020 as a result.
— European
electricity grid initiative
The Commission says that electricity networks have
to respond to three inter-related challenges — the creation
of a real internal market, integrating a massive increase of intermittent
energy sources, and managing complex interactions between suppliers
and customers. It believes that this requires a strongly integrated
research and development programme to develop new technologies
to monitor, control and operate networks, as well as optimal strategies
and market designs to provide the incentives needed to increase
the overall efficiency and cost-effectiveness of the supply chain,
with up to 20 large scale demonstration projects across Europe.
It says that the total public and private investment
needed over the next ten years is estimated at €2 billion,
the goal being the seamless integration of renewables in 50% of
networks by 2020.
— The
sustainable bio-energy Europe initiative
The Commission says that bio-energy has to bring
to commercial maturity the most promising technologies, but notes
that different pathways are at various stages of maturity, with
the most pressing need for many being the demonstration of the
technology at an appropriate scale. It suggests that up to 30
such plants will be needed to take full account of differing geographical
and climate conditions and logistical constraints, and that a
longer term research programme should support the development
of a sustainable bio-energy industry beyond 2020.
It estimates that the total public and private investment
needed over the next ten years is €9 billion, and that the
contribution of cost-competitive sustainable bio-energy to the
Community's energy mix could be 14% by 2020.
— The
European carbon dioxide capture, transport and storage initiative
The Commission says that these technologies have
to be widely commercialised if the Community is to achieve almost
zero carbon power generation by 2050 and the continued use of
coal is not to exacerbate climate change. It suggests that there
is a pressing needing to demonstrate the full carbon capture and
storage chain for a different range of options, in addition to
which a comprehensive research programme will deliver improved
components, integrated systems and processes to make carbon capture
and storage commercially feasible in fossil fuel power plants.
It estimates that some €13 billion public and
private investment will be needed over the next ten years, with
a target of reducing by 2020 the cost to €30-50 per tonne
of carbon dioxide abated, making it cost-effective within the
carbon pricing environment.
— The
sustainable nuclear fission initiative
The Commission says that nuclear fission has to move
towards long-term sustainability with a new Generation-IV reactor
type, designed to maximise inherent safety, increase efficiency,
produce less radioactive waste, and minimise proliferation risks.
It adds that commercial deployment of these reactors is envisaged
for 2040, but that this requires work to start now. It also says
that the bulk of the programme up to 2020 will comprise design
and construction of prototypes, fuel fabrication workshops and
experimental facilities, and the development of new materials
and components.
It estimates that the total public and private investment
needed over the next ten years is €7 billion, and that the
first Generation-IV prototypes should be in operation by 2020.
— Fuel
cells and hydrogen
The Commission notes that the Joint Technology Initiative
(JTI) on fuel cells and hydrogen was established for 2008-13 with
€470 million of Community funding, to be at least matched
by industry. It says that the JTI has the minimum critical mass
needed to develop efficient and cost-competitive technologies
for the various applications, but that meeting market entry targets
will require substantial additional effort, notably large-scale
demonstrations and pre-commercial deployment activities. Also,
long-term research and technology development is required to build
up a competitive fuel cell chain and sustainable hydrogen infrastructure.
It says the additional public and private funding
needed is currently put at €5 billion for the period 2013-20.
Energy efficiency — Smart Cities Initiative
3.7 The Commission says that energy efficiency is
the simplest and cheapest way to secure carbon dioxide reductions,
and that this new initiative aims to support ambitious pioneer
cities to transform their buildings, energy networks and transport
systems. Participating cities and regions will be expected to
test and demonstrate the feasibility of going beyond current Community
energy and climate objectives, involving a 40% reduction of greenhouse
gas emissions by 2020. It says that this is likely to require
€11 billion public and private investment over the next ten
years, with the initiative putting 25 to 30 European cities at
the forefront of the transition to a low carbon future, leading
to the wider development of smart networks.
European Energy Research Alliance
3.8 The Commission says that this Alliance is elevating
cooperation between national research institutes to a new level,
involving the collective devising and implementation of joint
programmes, but that there is a need to build on this momentum
in order to accelerate the development of new generations of low
carbon technologies, and to shorten the time between ideas being
taken out of the laboratory and adopted by industry. It says that
over the next two years the Alliance will launch and implement
joint programmes addressing key challenges with concrete technological
objectives, developing strong links with Industrial Initiatives.
It suggests that the Alliance could expand its activities to manage
an additional public investment of €5 billion over ten years.
Complementary activities and initiatives
3.9 The Commission says that it is examining other
avenues with great potential, such as alternative sources of offshore
renewable energy, energy storage and renewable heating and cooling:
and it suggests that the two key challenges for the nuclear sector
are the life time extension of facilities and the disposal of
waste. It also identifies fusion as a promising long-term
energy source; draws attention to the "chronic" under-funding
in the Community of breakthrough science in areas such
as motor fuels from sunlight and battery storage, compared with
the US; and stresses the need, in addition to the Energy Research
Alliance, to activate other areas of science and research
on energy and climate-related challenges, such as the European
Space Agency and the proposed Knowledge and Innovation Communities.
It also highlights the importance of international cooperation
in stimulating investment in low carbon technologies and energy
efficiency and providing support for such projects in developing
countries, drawing attention to the potential role of the EU Strategic
Forum for International Scientific and Technical Cooperation,
and to the EU-China Near Zero Emissions Coal Project.
SHARING RISKS AND POOLING RESOURCES
3.10 The Commission believes that investment in the
Community needs to increase from the current €3 billion a
year to around €8 billion, representing an additional public
and private investment of €50 billion over the next ten years,
and it says that there is a need for a risk-sharing approach,
with public support being justified where there are market failures,
but with the private sector otherwise having to cope on its own.
It adds that industry must be ready to accelerate the development
and roll out of new technologies, and that banks and private investors
will have to finance companies which will drive the transition
to a low carbon economy (though it recognises that this represents
a major challenge in the current financial crisis, requiring public
authorities to offer appropriate incentives and policy signals).
It points out that 70% of non-nuclear energy research in 2007
was financed privately, and that policy requirements call for
a significant rise in the public share to a more equal level of
commitment: it also says that 80% of public investment in this
area has been at national level, and that an increase in the proportion
of public investment at Community level may need to be explored
in the budget review, with the level of funding required depending
upon the interest of Member States in co-financing initiatives.
POSSIBLE SOURCES OF PUBLIC FUNDING
3.11 The Commission suggests that as from 2013 the
new Emissions Trading Scheme will enable revenues from the auctioning
of allowances to be reinvested at national level for the development
of more efficient and lower cost clean technologies, with at least
50% having to be used for activities related to climate change.
It adds that allowances set aside from the New Entrants Reserve
will be used to support carbon capture and storage and innovative
renewables, and will be made available through Member States to
fund demonstration projects selected on criteria defined at Community
level, subject to the proviso that this only facilitates the commercialisation
of existing technologies, and does not cover technological risks.
The Commission also says that current Community programmes, such
as the Research Framework Programme, the Intelligent Energy-Europe
Programme and the European Energy Programme for Recovery, are
the natural instruments for this purpose, but that current resources
are not sufficient to address all the actions envisaged.
IMPROVING COHERENCE AND MOBILISING THE FINANCIAL
COMMUNITY
3.12 The Commission stresses the need for any public
funding to be spent well, by maximising the incentive and leverage
effect and ensuring the highest possible returns to society, and
notes that the tools available include research and innovation
programmes at national and Community level; debt based financing;
venture capital funds; infrastructure funds; and market-based
instruments. It also says that insufficient resources, fragmentation
and lack of cross-fertilisation are a problem, but that the more
coherent partnership approach now envisaged should help to address
this.
3.13 In particular, it says that it will focus on
the implementation phase, moving progressively towards co-investing
in programmes rather than individual projects, and creating public-private
partnerships with industry, striking the right balance between
control and risk. However, it says that it will at the same time
look for new ways to combine resources to finance large-scale
demonstrations, and that the European Investment Bank (EIB) could
play a pivotal role in mobilising and leveraging other public
and private sector resources. It notes that, in response to the
economic crisis, the EIB has increased its target in the energy
field from €6.5 billion in 2008 to €9.5 billion in 2009
and €10.25 billion in 2010, and it says that it will be working
with the EIB on a number of initiatives to achieve increased funding
to finance the Plan. These include reinforcing the Risk Sharing
Finance Facility; significantly increasing the resources of the
2020 European Fund for Energy, Climate Change and Infrastructure;
developing a dedicated joint energy efficiency and renewable energy
instrument to finance initial take-up of low carbon technologies;
increasing Community support for venture capital markets, under
the Competitiveness and Innovation Programme to encourage increased
investment in such technologies; assessing the optimal financial
packages for large demonstration or market replication projects;
and establishing stronger links between the EIB and the European
Community Group on Strategic Energy Technologies.
The Government's view
3.14 In his Explanatory Memorandum of 21 October
2009, the Parliamentary Under Secretary of State at the Department
for Energy and Climate Change (David Kidney) says that the UK
agrees with the Commission's analysis that more investment will
be needed over the next ten years and beyond, in order to deliver
the significant energy technology development that will be needed
to meet SET Plan objectives, and that a collaborative approach
between Member States has the best chance of success. He adds
that the scale of the challenge, the investment needed, and the
source of funding are matters requiring continued debate and consideration,
and he welcomes the Commission's suggestions that more investment
can be delivered in partnership with the European Investment Bank
and through strategically redirecting resources from current EU
programmes towards SET Plan activity. He also notes the non-binding
nature of the Communication's recommendations on additional Member
State national spending, and says that the UK looks forward to
continuing discussion of the ideas in the Communication and active
participation in the SET Plan more generally.
3.15 However, the Minister is disappointed that the
Commission has been unable to identify significant central EU
funding, and says that this will need to be addressed urgently.
In the meantime, he regards the expectation of significant additional
national and private sector spending in the current financial
climate as impractical, and points out that the call for significant
increases in Member States' public expenditure would pose major
challenges for many of them under the current financial situation.
However, he notes that the Communication's recommendations on
such increases are not binding, and suggests that the effect of
the Communication is therefore likely to concentrate wider debate
within the Community and in individual Member States on priorities,
rather than to create immediate policy issues or budget difficulties.
3.16 The Minister
says that there is no specific timetable attached to this Communication
as its recommendations are non-binding. However, the underlying
structures which will guide and support the additional spending
it proposes, are due to be set-up by the end of 2010, and the
increasing investment and activity is due to take place over the
next ten years, in line with the technology roadmaps produced
to support the Communication. With that in mind, engagement with
the EIB has already started, as has the redirection of the Framework
Programme Energy budget spending towards SET activity. Also, additional
funding has been allocated from the European Economic Recovery
Plan, leaving any additional central EU budget allocations still
to be negotiated, along with any Member State national spending
increases which remain a matter of national sovereignty.
Conclusion
3.17 This is an important document, which fulfils
the Commission's intention of following up its earlier Communication
on the Strategic Energy Technology Plan with an indication of
the resources needed to develop low-carbon technologies over the
next ten years to the extent necessary to contribute towards the
Community's climate change objectives. As such, it covers a good
deal of ground, but it also makes it clear that the figures quoted
do not constitute a formal proposal, and are essentially an attempt
to provide a broad order of magnitude of the levels of finance
required.
3.18 Consequently, whilst we are drawing the document
to the attention of the House, we are content to clear it, but
we do regard it as relevant to debate in European Committee A
which we recommended recently on a Commission Communication[19]
on international climate finance.
18 (29194) 15458/07: see HC 16-vii (2007-08), chapter
12 (9 January 2008). Back
19
(30910) 13183/09: see HC 19-xxviii (2008-09), chapter 1 (21 October
2009). Back
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