Historical EU climate deal despite weakening

Over the past weeks, the European Union has been sprayed with both praise and criticism for its energy and climate policy package. The main reason for the criticism was the considerable weakening of the far-reaching climate deal that was proposed by the European Commission earlier this year. Conversely, the praise acknowledged the leadership role the EU still takes compared to other countries in addressing climate change and promoting renewable energy and energy efficiency.

Right direction
Overall, ECN feels that the agreed energy and climate policy package – although slightly weakened by the EU government leaders – is still a historical move forwards in the right direction. In that regard, the joint statement by several environmental NGOs (“European heads of state have turned their backs on global efforts to fight climate change”) is a strong over-reaction which misses the historic meaning of the agreed deal.

The facts
The energy and climate policy package was proposed in January 2008 by the European Commission and, after some adjustments, agreed by the Member States last week during a meeting of EU government leaders. The central objectives remained in place: For the year 2020, (i) to save energy use by 20%, (ii) to increase the share of renewable energy in total energy use to 20% (compared to some 8% in 2005), and (iii) to reduce total EU greenhouse gas emissions by 20% (compared to 1990).

The main instrument to achieve the greenhouse gas reduction target is the EU-wide harmonised Emissions Trading Scheme (ETS). The most contested issue in the package was whether industries would receive their emission allowances for free or whether they would have to buy them in an auction. Currently, the allowances are given out for free, which has led to power companies charging their consumers as if they are paying a carbon price, resulting in billions of windfall profits. Auctioning of the emission allowances would solve this problem, but is politically controversial as it would lead to high costs for greenhouse gas emitting industries.

On auctioning in the ETS the following was decided:
• Starting from 2013, power companies have to buy all their emission allowances at an auction. Contrary to the original EC proposal, however, the EU government leaders agreed that for existing power generators in some (mainly East-European) countries the auctioning rate in 2013 will be at least 30% and will be progressively raised to 100% no later than 2020. This means that for instance existing coal-fired power plants in Poland still get their allowances for free, but that new power plants need to pay. In the Netherlands, all power plants will have to buy their allowances.
• For the industrial sectors under the ETS, the government leaders agreed that the auctioning rate will be set at 20% in 2013, increasing to 70% in 2020, with a view to reaching 100% in 2027. The original EC proposal included 100% auctioning in 2020 rather than 2027. Industries exposed to significant non-EU competition, however, will receive 100% of allowances free of charge up to 2020.

With regard to greenhouse gas reduction in the sectors that are not covered by the ETS, such as households and transport, which cover about 55-60% of EU emissions, the Commission proposal allowed Member States to use offset credits to meet up to two-thirds of the emission reduction and the remaining part by domestic abatement measures. The EU leaders, however, agreed to allow 11 (mainly West-European) countries – including Spain and Italy – to use additional offset credits to meet their non-ETS targets.

EU climate policy passes the political test
Compared to the ‘great leap forward’ of the well-designed policy proposals by the European Commission, most of the adjustments agreed by the EU leaders can be regarded as a step backwards. However, the EU government leaders did not become hopelessly divided, as some feared, and reached consensus on the world’s most ambitious climate deal. In addition, the EU Parliament passed the energy and climate package on December 17 with a huge majority: over 550 members backed the package while fewer than 100 voted against. There is clear political support for addressing climate change in Europe.

Nevertheless, now that the EU has accepted a far-reaching energy and climate policy package, the real challenge is to meet the agreed targets and to accordingly implement the necessary measures. The world’s eyes are on president-elect Barack Obama, who has ambitious energy and climate plans as well. It remains to be seen, however, whether he will not meet similar industrial interests leading to a weakening of his climate and energy plans. Both the Europe’s credibility and its climate change leadership position depend critically on whether it is able to achieve its targets.

Further information
ECN has been involved in various studies that informed the decision-making on the EU Energy and Climate Package. More information with Dr. Jos Sijm surf to this link. The report can be downloaded here.

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