35 Reductions in EU greenhouse gas emissions
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10230/10
+ 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
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| Legal base | —
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| Document originated | 26 May 2010
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| Deposited in Parliament | 3 June 2010
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| Department | Energy and Climate Change
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| Basis of consideration | EM of 16 June 2010
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| Previous Committee Report | None, but see footnotes
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| To be discussed in Council | See para 35.16
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
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).
CARBON LEAKAGE
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.
Conclusion
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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