European Scrutiny Committee Contents

35 Reductions in EU greenhouse gas emissions



+ ADDs 1-2

COM(10) 265

Commission Communication: Analysis of options to move beyond 20% greenhouse gas emission reductions and assessing the risk of carbon leakage

Legal base
Document originated26 May 2010
Deposited in Parliament3 June 2010
DepartmentEnergy and Climate Change
Basis of considerationEM of 16 June 2010
Previous Committee ReportNone, but see footnotes
To be discussed in CouncilSee para 35.16
Committee's assessmentPolitically important
Committee's decisionCleared


35.1 In February 2007, our predecessors reported on a number of documents relating to climate change and energy — notably a Commission Communication "Limiting global climate change to 2 degrees Celsius — The way ahead for 2020 and beyond",[147] which identified the crucial need, on both climate change and energy grounds, to reduce atmospheric concentrations of greenhouse gases. In particular, it suggested that the Community should make a firm independent commitment to achieve at least a 20% reduction in such emissions by 2020 through its Emissions Trading Scheme (ETS) and other climate change policies. The European Council subsequently agreed that this aim should be achieved by Member States being given precise, legally binding targets, and, following a proposal[148] from the Commission, these were set out in April 2009 in Decision No 406/2009/EC[149] in relation to sources not covered by the Community's ETS, such as transport and housing. (Other measures which formed part of this wider package included a new Directive on renewable energy, amendments to the ETS, and measures relating to carbon capture and storage.)

35.2 At the same time, the Commission has pointed out that a 20% cut, or action by the EU alone, would not be enough to combat climate change, and that all countries will have to make an additional effort, including cuts by developed countries of 80-95% by 2050: for that reason, the EU has also offered to make a 30% cut by 2020 as part of an overall international agreement. However, the Commission has noted that, since that commitment was made, circumstances have changed significantly, with an unprecedented economic crisis and the failure of the Copenhagen summit to reach a full, binding agreement — though it adds that, under the so-called Copenhagen Accord, countries (as well as the EU) accounting for some 80% of current emissions have made pledges to cut these, and that it will be essential to integrate the Accord with the continuing negotiations within the United Nations Framework Convention on Climate Change (UNFCCC).

The current document

35.3 Following a request from the Environment Council on March 2010, it has now put forward this Communication, which does not seek to press the case for moving now towards to a 30% target — for which it says the necessary conditions have clearly not been met — but rather to stimulate a debate on the implications of achieving different target levels, and the options for doing so.

The 20% target today

35.4 The Commission says that the starting point must be to consider what the 20% target currently implies. It points out that the economic crisis has had a major impact, although this has worked in different directions. Thus, on the one hand, it has produced a significant cut in EU emissions, which had already fallen between 2005 and 2008 as a result of high energy prices and action on climate change, and which fell by a further 11% between 2008 and 2009, accompanied by a corresponding fall in the carbon price (from €25 to €8 per tonne of carbon dioxide). Consequently, whereas the cost in 2008 of meeting the 20% target in 2020 was estimated to be at least €70 billion, that figure has now fallen to €48 billion. On the other hand, the Commission notes that the crisis has also left business with much less capacity to fund the necessary investment, coupled with uncertainty over the time it will take to recover, and that the lower carbon price will cut the revenue which governments can expect from auctioning allowances under the ETS, putting added pressure on public finances.

35.5 The Commission also notes that there is a widespread consensus that the development of resource-efficient and green technologies will be a major driver of growth, a point recognised in the emphasis within the Europe 2020 programme on the need to re-orientate the EU's industrial base towards a more sustainable future in the face of stiff global competition, not least in areas such as automobile emissions and renewable energy. Given this, and the increasing need for energy security, the Commission suggests that the EU needs to boost still further the incentives to develop these industries at a time of tight public spending. It also comments on the steps required after 2020 to maintain the trajectory needed to limit temperature increases by 2050 to 2°C. Against a background where developed countries will need by then to have reduced emissions by 80-95%, it says that, even if some of this reduction could be achieved by EU efforts outside its own borders, its domestic emissions would need to fall by about 70%, and that the trajectory agreed in 2008 — which reduce these by 20% by 2020 (and up to 25% by 2030, if unchanged) — would not be sufficient. It adds that, the more the necessary action is delayed, the greater the cost, and that a long-term roadmap to 2050 is needed to plan investment in the most cost-effective way.

The 30% target

35.6 The Commission suggests that the factors which have affected the 20% target also highlight the issues arising on a 30% target, which it suggests would in all probability entail increasing the stringency of existing policies or taking new initiatives. It goes on to examine possible options, including:

—  Options outside the Emissions Trading Scheme

The Commission states that this Scheme is the primary tool for achieving emissions reductions, and that action could principally involve a gradual reduction in the quantities auctioned by perhaps 15% over the period 2010-30, adding that auctioning revenue could still increase as a result of the expected rise in the carbon price. At the same time, it also suggests that those who invest in top performing technology could receive extra unallocated free allowances.

—  Technological options

The Commission observes that regulation can contribute to increased energy and resource efficiency, through product standards in areas such as eco-design and carbon dioxide emissions from motor vehicles, and from implementing the Digital Agenda in relation to smart grids and meters.

—  Carbon taxes

In noting that some Member States already calibrate their tax system for fuels and products to reflect the carbon dioxide component, the Commission says that the introduction of taxes which target carbon dioxide emissions in areas not covered by the ETS would represent a straightforward market-based instrument, which could make an important contribution to reaching targets, whilst generating considerable revenues.

—  Using EU policies to drive emissions reductions

The Commission says that the EU could encourage low-carbon investment through a greater volume of cohesion policy funding, and that significant energy savings remain unused due to market and regulatory barriers. It also highlights the potential contribution of land use, land use change and forestry (LULUCF) measures, and of providing incentives under the Common Agricultural Policy to encourage more sustainable practices.

—  Using the leverage of international credits

The Commission observes that the EU took the lead in recognising that efforts outside its borders, such as under the Clean Development Mechanism[150] (CDM), can stimulate action by the private sector, but suggests that such initiatives could slow down innovation within the EU and may now be more appropriate for emerging economies themselves. However, it says that one solution might be to replace CDM credits with new sectoral credits, which would redirect finance towards areas with the greatest potential for carbon reduction. It also says that the EU will continue to pursue agreement through the International Maritime Organisation (IMO) and UNFCCC on maritime emissions, but will take its own steps if no agreement has been reached by the end of 2011, and that, following the significant progress made in Copenhagen in the fight against the loss of tropical forests, further cooperation with the developing countries in question should be fostered.

35.7 The Commission next assesses the challenge of meeting the 30% target. It notes that the €70 billion which it was initially assumed would be needed to achieve a 20% reduction would now be sufficient to take the EU more than half way towards meeting a 30% target, and that, with the additional costs of moving from 20% to 30% now being put at €33 billion, the overall cost of doing so (including that of meeting the 20% target) would be €81 billion (or 0.54% of GDP), only €11 billion more than the projection made in 2008 for achieving 20%. However, it again cautions that reduced profitability of companies, lower spending power of consumers, and reduced access to bank loans has affected the EU's ability to invest in low carbon technologies.

35.8 It also identifies the sectors which might provide the greatest potential for emissions reductions as including electricity (through improved demand-side efficiency and a reduction on carbon-intensive supply-side investments), heating from households and services, and reductions in methane and nitrous oxide emissions from agriculture; it suggests that the potential for reducing emissions is greatest among the poorer Member States, provided the necessary resources, for example, through the cohesion policy, can be found to do this without jeopardising economic growth; and it believes that in relative terms the cost-effective split between efforts within and outside the ETS are largely the same for a 30% reduction target as for one of 20%.

35.9 The Commission says that achieving a 30% target will also have a variety of other consequences. These include the restoration of incentives for innovation; a reduction by 2020 of some €40 billion in imports of oil and gas; significant long-term benefits to Europe's competitiveness; improvements in air quality, reducing by €3 billion the costs of meeting the target levels for particulates, sulphur dioxide and heavy metals set out in the Thematic Strategy on Air Pollution (and thereby also achieving additional health benefits of between €3.5 and €8 billion in 2020).


35.10 The Communication also addresses, in the context of Directive 2009/29/EC on the Emissions Trading Scheme, the issue of "carbon leakage" (whereby, in the absence of sufficient global effort, domestic action leads to a shift in market share towards less efficient installations elsewhere, resulting in increased emissions globally). It notes that, the more competitor countries sign up to comparable efforts to cut emissions, the less the risk of such leakage, and adds that the reduction in the carbon price and fall in emissions means that those energy-intensive sectors within the ETS before 2013 are likely to end up with a very considerable number of unused free allocations, which can be carried over to the Scheme's third phase (2013-20), thus putting them in a comparatively better position internationally as compared with 2008. The Commission also points out that the continuing UNFCCC negotiations make a definitive assessment difficult, but that implementation of the Copenhagen Accord would clearly be a move in the right direction. In the meantime, it comments that evidence of the extent to which economic activity has relocated outside Europe is so far inconclusive, but that the incremental impact of moving to a 30% target is likely to be limited, so long as special measures for energy-intensive industry remain in place.

35.11 The Commission goes on to observe that the main issue regarding carbon leakage is the competitive difference between the EU and third countries, and that there are three broad ways in which this could, if necessary, be tackled — by giving support to energy-intensive industries through continued free allowances; by adding to the costs of imports to compensate for the advantage of avoiding low-carbon policies; or by taking measures to bring the rest of the world closer to EU effort levels. It says that the most obvious step to take within the EU is to maintain the free allocation of allowances, but that it would also be possible to include imports within the ETS, as for example in the case of international aviation, though it adds that this does raise issues about the EU's trade policy in relation to an open trade system and its compatibility with WTO requirements, as well as the increased costs of imported inputs for EU manufacturers and a number of practical difficulties.

35.12 The Commission has also provided in an accompanying document an assessment of how the mitigation commitments and actions which countries have pledged relate to the goal of limiting the global average temperature rise to below 2°C. It suggests that, provided all high end pledges put forward are fully implemented, a major part of the efforts required by 2020, including the peaking of global emissions, could be bridged, though it adds that there are a number of risks and uncertainties relating to the offers tabled which will need to be carefully managed in order to secure the highest level of ambition. The Commission also says that global emissions will be around 48Gt CO2e (Gigatonnes or billion tonnes of carbon dioxide equivalents) in 2020 if countries implement their highest mitigation offers, with 46Gt in 2020 considered to be the highest total compatible with the 2 degrees goal. The document goes on to provide a short assessment of the merits and drawbacks of alternative legal forms for an international agreement, concluding that a global legal framework which builds on the essential elements of the Kyoto Protocol should remain the EU's preferred outcome: and it ends by analysing the scope for, and implications of, the development of green low-carbon technology in terms of employment within the EU and the EU's wider competitive position.

The Government's view

35.13 In his Explanatory Memorandum of 16 June 2010, the Minister of State at the Department for Energy and Climate Change (Gregory Barker) says that the UK agrees with the Commission that the Copenhagen Accord represents an important step towards an ambitious global agreement, and should be the basis for further progress in the international negotiations. He adds that it is working with other countries to incorporate the Accord into the ongoing UNFCCC negotiations and make it operational at the earliest opportunity: and he also points out that the Government's coalition programme states that it "will push for the EU to demonstrate leadership in tackling international climate change, including [by] supporting an increase in the EU emissions reduction target to 30% by 2020". It therefore very much welcomes this Communication, which it says will act as an evidence-base, and starting point for discussions, about a 30% reduction among EU Member States over the coming months.

35.14 As regards individual aspects of the Communication, the Minister says that:

  • the Government looks forward to discussing with the Commission over the coming months how the ETS would work in practice towards achieving a 30% emissions reduction target;
  • that the other possible policy options identified by the Commission for delivering further emissions reductions in those sectors which are not covered by the ETS are in very general terms, and a long way from being legislative proposals, but that the UK will be talking to other Member States and the Commission in the coming months to better understand what the implications might be, and whether or not it should endorse them;
  • that, before an assessment can be made of the UK's share of the EU-wide cost of moving beyond a 20% target, it will be necessary to have a better idea of the policy options which will be used, and the Government will be working with the Commission and other Member States over the coming months to develop a shared understanding of how the target will be split;
  • likewise, the benefits which the Commission associates with moving to a 30% target are all set out at EU level, and the extent to which these benefit the UK depends on the exact policy mechanisms which are put in place;
  • although not referred to in the Communication, a major benefit of a higher EU target will be a reduction in global emissions, both in terms of a direct reduction of 530MtCO2e in 2020, and the further impact on the ambition of others under the Copenhagen Accord;
  • the first three UK carbon budgets, running from 2008 to 2022, were set in 2009, and are based on the UK's share of an EU-wide 20% target: so, if the EU moves to a 30% target, the UK's second and third carbon budgets will need to be amended accordingly, once the policy proposals to achieve this, and their allocation between Member States, have been agreed; and
  • the UK has been encouraging the Commission to take an evidence-based approach to carbon leakage, and believes that the risk of this is limited to a small number of energy-intensive sectors, and could be managed by the measures in the EU ETS Directive.

35.15 The Minister also says that the UK shares the Commission's analysis as regards the likelihood of attaining the 2 degrees target, and the associated risks and uncertainties. He adds that the UK view, based on existing analysis from Lord Stern and the Hadley Centre, is that it could be possible to establish a credible 2 degrees trajectory with emissions as high as 48Gt in 2020, provided countries are prepared to make deeper cuts in later years, although it recognises that stronger early global action is likely to be a more cost effective approach. He also says that the Government is committed to working towards an ambitious global climate deal, and welcomes the work of the Commission in looking at the benefits and drawbacks of different options for the legal form of such an agreement.

35.16 As regards the timetable, the Minister says that the Communication was due to be discussed at the Environment Council on 11 June and the European Council on 17 June, and would then be the subject of more detailed discussion later in the year in preparation for the next UN Climate Change Conference in Cancun in November 2010.


35.17 Although this Communication deals with a subject of obvious importance, it deliberately avoids an attempt to press the case for a move towards a 30% emissions reduction target, seeking to concentrate instead on analysing the implications of achieving different targets and the options for doing so. Moreover, as the Government has pointed out, it does so in fairly general terms and in relation to the EU as a whole, making it difficult at this stage to identify how individual Member States might be affected. Consequently, although we think it right to draw the document to the attention of the House, we do not consider that further consideration at this stage is necessary, bearing in mind that the Council will now be concentrating on developing the EU's negotiating mandate for the Cancun meeting. We are therefore clearing it.

147   (28275) 5422/07: see HC 41-x (2006-07), chapter 1 (21 February 2007). Back

148   (29401) 5849/08: see HC 16-xiii (2007-08), chapter 3 (27 February 2008). Back

149   OJ No. L.140, 5.6.09, p.136. Back

150   This enables countries seeking to reduce emissions to do so by means of projects in developing countries. Back

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