2 Climate and energy policy: 2020 to
2030
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5644/14
+ ADDs 1-2
COM(14) 15
| Commission Communication: A policy framework for climate and energy in the period from 2020 to 2030
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| Legal base | —
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| Document originated | 23 January 2014
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| Deposited in Parliament | 28 January 2014
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| Department | Energy and Climate Change
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| Basis of consideration | EM of 19 February 2014
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| Previous Committee Report | None; but see footnotes
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| Discussion in Council | See para 2.20 below
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| Committee's assessment | Politically important
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| Committee's decision | For debate in European Committee A, with the Commission Communication and Recommendation on High Volume Hydraulic Facturing (Fracking) in the EU
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Background
2.1 The EU's climate and energy package has sought
to achieve by 2020 a 20% reduction in greenhouse gas emissions,
a 20% share for renewable energy, and a 20% increase in energy
efficiency. According to the Commission, much has been accomplished,
with the Union well on track to meet these targets — an
achievement which it describes as all the more significant, given
that the European economy has grown by about 45% in real terms
since the base year of 1990. However, the Commission comments
that much has changed, most notably the effect of the economic
and financial crisis on the capacity of Member States to invest;
the impact of the high level of fossil fuel prices on the Union's
trade balance and energy costs; the substantial shift in global
energy demand towards the emerging economies; the increasing price
differential with many of the EU's trading partners, most notably
the United States; the extent to which the Emissions Trading System
(ETS) has failed to drive investment in low-carbon technologies;
and the new challenges posed by the further development of renewable
energy technologies.
2.2 At the same time, the Commission suggests that
there has been further confirmation of the likely impact of human
influence on climate change, and of the consequent need for substantial
and sustained reductions in greenhouse gas emissions. It says
that it is therefore now time to consider the policy framework
needed until 2030 in the light of the responses to the Green Paper[6]
it issued in 2013. In particular, it sees the need to make an
ambitious commitment to further reductions in greenhouse gas emissions
in line with the cost-effective pathway described in the 2050
roadmaps[7] it produced
in 2011, and in the process to provide regulatory certainty for
investors, and to spur research and innovation into, and the development
of, new technologies. It says that this approach should be based
on the full implementation of the 20/20/20 targets, together with:
· a simplification of the European policy
framework, combined with improving coherence between objectives
and instruments;
· within that framework, providing flexibility
for Member States to adopt an approach appropriate to their own
circumstances, preferred energy mix, and energy security needs;
· strengthening regional cooperation between
Member States;
· building upon the momentum behind the
development of renewables;
· a clear understanding of the factors which
determine energy costs, so as to clarify what can, and cannot,
be influenced by national and Union policy;
· improving energy security, whilst delivering
a low-carbon and competitive energy system;
· enhancing investor certainty by providing
clear signals on the policy framework after 2020; and
· a fair sharing of effort between Member
States, which reflects their specific circumstances and capacities.
KEY ELEMENTS
2.3 The Commission says that, although views differed
on the level of ambition to be achieved, there was a broad consensus
among respondents to its Green Paper that a new target for greenhouse
gas emissions is desirable, but that there were mixed views on
the need for new targets for renewable energy and energy efficiency.
It also says that an analysis confirms the conclusion of the Energy
Roadmap 2050, that the costs of a low carbon transition do not
differ substantially from those which will be incurred in any
event because of the need to renew an aging energy system and
rising fossil fuel prices, but that there will be a major shift
away from expenditure on fuels towards innovative equipment with
a high added value. It also suggests that this process should
be assisted by the targeted industrial policy outlined in its
Communication[8] for an
Industrial Renaissance, and it goes on to observe that increased
flexibility for Member States should be combined with a strong
European governance framework, which is coherent with the wider
principles of European energy policy, including further integration
of the internal market and the delivery of a competitive, secure
and sustainable energy system.
2.4 The framework would include the following specific
elements.
Greenhouse gas emissions target
2.5 The Commission proposes a reduction target for
domestic EU emissions of 40% in 2030 relative to those in 1990,
noting that existing measures arising from Member States' current
obligations will continue to have an effect after 2020, and can
be expected to deliver a 32% reduction (which, whilst requiring
considerable effort, shows that the proposed target for 2030 is
feasible). It adds that this target must be shared between the
ETS and the sectors not covered by it, with the ETS delivering
by 2030 a reduction of 43% in greenhouse gases compared with 2005
(implying that the annual reduction in the cap on the maximum
permitted emissions should increase from 1.74% to 2.2% after 2020),
whilst the non-ETS sector would have to make a corresponding reduction
of 30%, which will need to be allocated between Member States
in an appropriate way. However, unlike the framework to 2020,
the Commission does not propose a higher conditional target ahead
of any wider international agreement, suggesting that, if a more
ambitious EU target is warranted, this could be achieved by access
to international credits.
Renewable energy target
2.6 The Commission says that a transition to a more
sustainable energy system will not be possible without a significantly
higher share for renewable energy, but that its rapid deployment
already poses challenges, particularly for electricity systems,
which need to adapt to increasingly decentralised and variable
production. It also notes that most development of renewables
in the EU is driven by national support schemes which can hinder
market integration, and that their rapid deployment can affect
the competitiveness of other fundamental energy sources and reduce
investment incentives for generation capacity. It suggests that
renewable energy must in future be exploited in a way which is
market driven as far as possible, but it notes that a 40% greenhouse
gas reduction target should by itself encourage a greater share
of renewable energy in the EU of 27%, and it proposes therefore
that this should be the EU's target. However, whilst the target
would be binding on the EU, the Commission believes that this
should not be the case for individual Member States, but should
instead be achieved through clear commitments determined by the
Member States themselves, guided by the EU target and by what
each can deliver in relation to its target for 2020, including
its specific circumstances, energy mix and production capacity.
2.7 The Commission also says that it is not appropriate
to establish new targets after 2020 for renewable energy or the
greenhouse gas intensity of fuels used in transport (or any other
sub-sector), and that it has already indicated[9]
that food-based biofuels should no longer receive public support
after 2020. It notes that, building on its Transport White Paper,
a mix of policy measures is needed for 2030 and beyond, including
a focus on steps such as improving the efficiency of the transport
system, the development of electric vehicles and alternative,
sustainable fuels, in line with the alternative fuels strategy.[10]
However, the Commission also says that greater flexibility for
Member States must be combined with an increased emphasis on completing
the internal energy market, and based on a new governance framework
under which each Member State would produce a national plan indicating
how its commitment to renewable energy would be delivered. It
also points out that this will require a substantial revision
after 2020 in the Directive on renewable energy sources, as well
as an improved policy on biomass in order to maximise its resource
efficient use.
Energy efficiency
2.8 The Commission comments that there is broad political
consensus on the importance of improved energy efficiency, noting
also that the EU target is not binding, with progress being delivered
by specific policy measures at Union and national levels. However,
it points out that the Energy Efficiency Directive takes a more
holistic approach, and says that an assessment in mid 2014 will
look at progress towards meeting the 2020 target (where a shortfall
is currently predicted), following which it will consider whether
any amendments to the Directive are needed. In the meantime, it
says that the analysis underpinning this Communication shows that
achieving a 40% reduction in greenhouse gas emissions by 2030
would require an increased level of energy savings of about 25%,
with a significant increase required in areas such as housing,
transport other than passenger vehicles, and electrical equipment,
and with national efforts being complemented by ambitious EU-wide
energy efficiency standards.
Emissions Trading System
2.9 The Commission recalls that its 2012 report[11]
on the functioning of the carbon market noted that, as a result
of the downturn in economic activity during the crisis, a surplus
of allowances had accumulated, and that it has recently been agreed
that the auctioning of 900 million allowances should be postponed
until 2019 and 2020. However, it says that, despite this, a structural
surplus will remain well into the period after 2020, even if the
cap is tightened to meet a 40% target, thereby eroding the effectiveness
of the ETS (which it is generally agreed should remain the central
instrument to bring about a transition to a low carbon economy).
It says that it has therefore put forward, in parallel with this
Communication, a proposal[12]
for the establishment of a market stability reserve, providing
an automatic adjustment after 2020 of the supply of auctioned
allowances based on a pre-defined set of rules.
Competition in integrated markets
2.10 The Commission says that the completion of the
internal energy market remains an immediate priority, and it notes
that it recently adopted guidelines[13]
on public intervention in electricity markets to minimise distortions.
It adds that state aid guidelines for energy and environment also
need to evolve, with subsidies for mature technologies, including
those for renewable energy, being phased out entirely between
2020 and 2030, and it says that it is currently consulting on
a revision to those guidelines. The Commission also points out
that the internal energy market, together with increased electricity
from wind and solar sources, has exerted a downward pressure on
wholesale prices, although retail prices have increased as the
costs of support schemes are passed onto consumers, with the retail
sector also being characterised by high levels of market concentration
and price regulation, effectively limiting competition and consumer
choice. It therefore stresses that high levels of competition
in the internal market will be pivotal in delivering the EU's
energy policy objectives up to 2030, and it says that it will
continue to monitor the concentration on the retail and wholesale
markets, and to ensure effective antitrust and merger control.
Affordable energy for consumers
2.11 The Commission notes the importance of energy
in terms of affecting industrial competitiveness and the purchasing
power of households, and it highlights the recent increase in
the price gap between the EU and many major economic partners,
notably with the availability of shale gas in the US. It says
that there is a risk of energy price disparities shifting global
trade patterns for certain industries, unless compensated by improvements
in energy efficiency, where many manufacturers have sought to
achieve sustained improvements in energy intensity and to focus
on products with a higher added value. It also points out that
an analysis[14] of energy
prices and costs published alongside this Communication shows
that, although this varies from sector to sector, improved energy
efficiency means that there has been little impact on the EU's
relative competitiveness directly attributable to higher energy
prices and the carbon price under the ETS, and that current policies
to prevent carbon leakage[15]
under the System have also been successful. On the other hand,
it says that all future scenarios suggest an upward pressure on
EU energy costs, and that it would therefore be prudent to maintain
until the end of trading in Phase III of the ETS the existing
policy framework for the sectors most at risk of carbon leakage,
and to continue to monitor the situation.
Security of energy supply
2.12 The Commission comments that the International
Energy Agency projects an increased EU reliance on imported oil
from around 80% at present to more than 95% by 2035, with gas
import dependency expected to rise from 60% to more than 80%,
and it says that, with sustained high commodity prices, this increases
the EU's vulnerability to supply and energy price shocks. It suggests
that EU policy to improve security of supply must involve the
further exploitation of sustainable indigenous energy sources,
including renewables, conventional and unconventional fossil fuels,
and nuclear energy; collective action by Member States to diversify
their supply countries and routes for imported fossil fuels; and
greater efforts to improve energy intensity, and to generate savings
from buildings, products and processes.
EUROPEAN GOVERNANCE
2.13 The Commission says that increased Member State
flexibility in choosing policies which best suit them must be
compatible with further market integration, increased competition,
and the attainment of EU level climate and energy objectives through
Member States' national plans which also provide greater coherence
of approach, promote further market integration and competition,
and provide certainty for investors. It adds that these plans
should also set out a clear approach to achieving objectives relating
to greenhouse gas emissions in the non-ETS sector, renewable energy,
energy savings, energy security, research and innovation, and
other important choices such as nuclear energy, shale gas, carbon
capture and storage. It also envisages this would involve the
development of detailed guidance by the Commission, followed by
the preparation of plans, and their subsequent assessment.
2.14 However, the Commission says that systematic
monitoring of key indicators is needed to assess progress and
to inform any future policy. This includes the energy price differential
between the EU and major trading partners, diversification of
energy imports and the share of indigenous energy sources; deployment
of smart grids and interconnections between Member States; intra-EU
coupling of energy markets; competition and market concentration;
and technological innovation.
KEY COMPLEMENTARY POLICIES
2.15 These include:
Transport
The Commission recalls that the Transport White Paper[16]
established the goal of reducing greenhouse gas emissions from
the sector by 60% by 2050 compared with 1990, and by about 20%
by 2020 compared with 2008. It also notes that emissions increased
by 33% between 1990 and 2007, but have since fallen back —
a trend it expects to continue up to 2020, after which it believes
that greater efforts will be needed to achieve the targets in
the White Paper. It adds that the further reduction of emissions
will require a gradual transformation of the public transport
system towards better integration between modes, greater exploitation
of non-road alternatives, improved management of traffic flows,
and extensive innovative in, and deployment of, new propulsion
and navigation technologies and alternative fuels, supported by
coherent infrastructure design and smarter pricing of infrastructure
usage, with Member States also considering how fuel and vehicle
taxation could be used to support greenhouse gas reductions. It
believes that the EU should participate actively within the International
Civil Aviation Organisation to create by 2016 a global market-based
mechanism in the aviation sector, and that maritime emissions
should be integrated into the EU's greenhouse gas reduction policies,
with the EU working with the International Maritime Organisation
on a global approach.
Agriculture and land use
The Commission says that agriculture, land use change
and forestry both emit and remove greenhouse gases, and that these
are currently treated in different parts of the EU's climate policy,
with non-carbon dioxide emissions from agriculture being covered
in the Effort Sharing Decision, whilst carbon dioxide emissions
related to land-use and forestry are excluded from the EU's domestic
reduction target, but accounted for under international commitments.
It considers that land use change and forestry should be included
in the reduction target for 2030, with further analysis being
undertaken to assess the mitigation potential and most appropriate
policy approach.
Carbon capture and storage
The Commission says that emissions must come down
significantly to be compatible with the EU's long term greenhouse
gas objective, and that, as theoretical limits of efficiency are
being reached in some sectors, carbon capture and storage may
be the only option available to reduce direct emissions on the
scale needed in the longer term, and may in particular be a key
technology for fossil fuel-based power generation. It considers
that increased research and commercial demonstration are essential
to enable the technology to be deployed within the 2030 timeframe,
requiring a supportive EU framework through the continued and
strengthened use of auctioning revenues.
Innovation and finance
The Commission says that the Strategic Energy Technology
Plan has increased research and development investment across
the EU from €3.2 to €5.4 billion a year, and that, under
Horizon 2020, a new Union programme for 2014-20, close to €6
billion will be dedicated to energy efficiency and to secure,
clean and low carbon technologies. However, it says that the EU
will need to step up its research efforts to support the post-2020
climate and energy framework, and that consideration should now
be given to how best to do this, and what the priorities should
be, for example by using revenues generated by the ETS to accelerate
the market uptake of low carbon technologies and greenhouse gas
mitigation measures, by leveraging greater private investment
via the European Investment Bank, and by drawing on the €23
billion earmarked under the European Structural and Investment
Funds for 2014-20 to facilitate a shift to a low carbon economy.
INTERNATIONAL CONTEXT
2.16 The Communication notes that global energy demand
will increase in the period to 2030, with much of this being met
through the use of fossil fuels, but it says that international
efforts to reduce greenhouse gas emissions are mixed, in that,
although China, India, Brazil, the USA, the EU and more than 100
countries (together accounting for 80% of global emissions) pledged
to reduce emissions in the Copenhagen-Cancun process, planned
climate change mitigation efforts are still short of what is necessary
to limit the expected rise global temperature. Consequently, Parties
to the UN Framework Convention on Climate Change (UNFCCC) launched
a process in 2011 to conclude a new international agreement in
Paris in December 2015, which would be applicable to all Parties
and cover the period after 2020. The Commission notes that the
EU and other developed regions will need to show ambition in their
climate mitigation plans if they are to encourage less-developed
regions to make serious efforts, and it points out that, as the
EU is currently a global leader in low carbon technologies, an
ambitious global approach to climate and energy policy would allow
it to exploit its advantage in those markets.
2.17 The Commission concludes by inviting the Council
and the European Parliament to endorse a 40% greenhouse gas emissions
reduction target for 2030 and an EU level renewables target of
at least 27%, in order to feed into UNFCCC negotiations which
will take place throughout 2015. It also asks for endorsement
of its proposed new governance system.
The Government's view
2.18 In his Explanatory Memorandum of 19 February
2014, the Minister of State for Energy and Climate Change (Gregory
Barker) says that the Government will examine carefully the subsidiarity
implications of any more detailed proposals on the 2030 climate
and energy framework, including the process for preparing Member
State national plans, but, in the meantime, it supports the 40%
emissions reduction target proposed by the Commission. However,
it considers that the EU should be prepared to offer to commit
to a 50% emissions reduction target in the context of an ambitious
global climate deal, which it believes is required to remain on
the cost-effective pathway necessary to limit the increase in
the average global temperature to 2° centigrade.
2.19 As regards specific aspects of the Communication,
the Minister says that:
· whilst the Government will examine the
proposals for an EU-level renewables target of 27%, it opposes
binding targets for Member States, and thus welcomes the explicit
statement that the 27% target would not be binding on Member States
individually, believing that they must retain maximum flexibility
in choosing the energy mix most appropriate to their circumstances
if they are to decarbonise in the most cost-effective way possible;
· the ETS is a central component of the
UK's policy for delivering cost effective emissions reductions
in the UK and across the EU and for fostering the transition to
a low carbon EU economy in a technology neutral manner, and the
Government has called for urgent reforms to address the surplus
of allowances in the ETS and strengthen the incentive which it
provides for investment in low-carbon technology;
· whilst the factor by which the EU-wide
ETS emissions cap is reduced annually will need to be increased
to meet the 2030 targets, this alone will not be sufficient to
ensure the level of EU decarbonisation necessary to limit global
temperature increases, and the Government therefore broadly welcomes
the Commission's proposals for ETS reform: it also open to considering
the potential for a market stability reserve, but continues to
call for the permanent removal from the system, or cancellation,
of an ambitious volume of allowances as the simplest and clearest
way to address the surplus;
· the Government welcomes the potential
simplification and streamlining of the currently separate processes
for reporting action on renewable energy, energy efficiency and
greenhouse gas reduction, and believes that the proposed new governance
processes could increase investor certainty, enhance policy coherence
and transparency, reduce costs and foster progress towards completion
of the internal energy market: it also points out that there are
links between the proposed new reporting processes and those under
the European Semester, and will seek to prevent duplication of
efforts.
2.20 The Minister says that there will be an exchange
of views on these proposals at the Energy and Environment Councils
in March and at the European Council meeting that month, and he
notes Commission's suggestion the Council should endorse its proposals
by the end of the year.
Conclusion
2.21 This wide-ranging Communication clearly addresses
a subject of considerable political, environmental and economic
importance, and, whilst it envisages a somewhat greater degree
of freedom than at present for Member States in certain areas,
it nevertheless identifies a wide range of issues on which views
will need to be taken at both EU and national levels. In view
of this, we think its early consideration by the House would be
highly desirable, and we are therefore recommending it for debate
in European Committee A (alongside a Commission Communication
and Recommendation on High Volume Hydraulic Fracturing (Fracking)
in the EU, considered at chapter 3 of this Report).
6 (34814) 8096/13: see HC 83-i (2013-14), chapter
5 (8 May 2013) and HC 83-viii (2013-14), chapter 2 (3 July 2013). Back
7
(32592) 7505/11: see HC 428-xxiii (2010-12), chapter 8 (5 April
2011) and (33563) 18597/11: see HC 428-xlix (2010-12), chapter
14 (1 December 2012). Back
8
(35749) 5489/14: see chapter 1 of this Report. Back
9
(34342) 15189/12: see HC 86-xxi (2012-13), chapter 8 (28 November
2012) and HC 83-xxiii (2013-14), chapter 14 (4 December 2013). Back
10
(34647) 5736/13: see HC 86-xxxiv (2012-13), chapter 3 (6 March
2013), HC 86-xxi (2012-13), chapter 8 (20 November 2012) and HC
83-xxiii (2013-14), chapter 15 (4 December 2013). Back
11
(34430) 16537/12: see HC 86-xxv (2012-13), chapter 14 (19 December
2012). Back
12
(35755) 5644/14: see chapter 5 of this Report. Back
13
(35531) 15776/13: see HC 83-xxviii (2013-14), chapter 9 (22 January
2014). Back
14
(35750) 5599/14: see chapter 15 of this Report. Back
15
This arises when, as a result of the cost of climate policies,
businesses transfer production to areas with less severe constraints,
leading to an increase in their total emissions. Back
16
(32639) 8333/11: see HC 428-xxvi (2010-12), chapter 3 (11 May
2011). Back
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