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Simon Evans

Simon Evans

24.10.2014 | 4:45pm
EU policyQ&A: The EU’s 2030 climate targets
EU POLICY | October 24. 2014. 16:45
Q&A: The EU’s 2030 climate targets

Last night EU leaders came to a  compromise deal on climate targets for 2030.

The headline target is to cut EU emissions by “at least” 40 per cent of 1990 levels by 2030. The EU has also agreed targets to get at least 27 per cent of its energy from renewable sources by 2030 and to cut energy use by at least 27 per cent against business as usual.

Is the deal ambitious and world-leading, as some EU countries are  claiming? Or is it more a case of bungs to the Polish coal industry and weak ambition on energy saving and renewables?

We take you through the essential questions about the 2030 deal.

How ambitious is the EU being?

The EU announcement is certainly world-leading in at least one sense: it is the first major player to lay down its commitment to tackling climate change out to 2030. UN secretary general Ban Ki-Moon says the target demonstrates the continued global climate leadership of the EU.

The likes of China and the US are expected to  take note when deciding their own commitments in the run up to next year’s talks in Paris, where a global climate deal is due to be signed.

In this context the two little words, “at least”, are all-important. The UK pushed hard to secure this wording, with David Cameron giving it his explicit support.

Some scientists have said a 40 per cent reduction should be the absolute minimum EU contribution if the world is to avoid dangerous climate change. And consultants Ecofys says it would leave the EU behind the curve against its 2050 aspiration to cut emissions by 80 to 95 per cent. This could mean expensive accelerated efforts are needed to get back on track after 2030.

The EU target to cut emissions by “at least” 40 per cent leaves the door open to raised ambition and allows EU negotiators to hold out the prospect of doing more, if other major economies show willing in Paris. This prospect won’t guarantee success, however. The EU tried a made a similar offer in the run up to the failed climate talks in Copenhagen in 2009.

The EU 2030 emissions target will be revisited after next year’s Paris meeting. Outgoing European Council president Herman Van Rompuy says the target’s ambition can only be increased, not reduced, though there are concerns the text does not state this explicitly.

Wasn’t Poland resisting a deal?

Central and eastern European countries, led by Poland, threatened to veto the EU 2030 agreement over fears it would increase energy bills. Poland ultimately agreed to sign up, but only because it secured a series of concessions.

The most significant is a clause that allows poorer member states to give their power sectors free emissions permits under the EU’s Emissions Trading Scheme (EU ETS). This clause applies to 10 of the EU’s 28 countries including Poland, Bulgaria and Romania.

A similar concession is already funnelling funds to these countries’ power sectors up to 2020 and has mostly gone to support their coal industries. Under the 2030 deal this flow of funding has been restricted: only 40 per cent of EU ETS permits can be given out for free.

Philipp Ruff at carbon market analysts ICIS Tschach says this will not be enough to give the whole power sector free credits. Chris Littlecott of thinktank E3G says support for Poland in the decade to 2030 could amount to around 200 million emissions credits, half the support it is receiving up to 2020. Those credits could be worth around â?¬4 billion at a carbon price of â?¬20 per tonne.

NGO Carbon Market Watch says with other poorer member states Poland will get about 550 million credits in total, worth â?¬11 to â?¬16.5 billion at prices of â?¬20 to â?¬30 per tonne.

The 2030 text says the free credits should be used “to promote real investments modernising the energy sector” and that the transparency of this process should be increased. This wording is intended to address concerns the funding will once again go to the coal sector.

The second major concession to Poland is a new fund using two per cent of all EU ETS permits to help modernise the energy sectors of poorer EU countries. The UK, France and Germany had pushed for this fund to be managed by the European Investment Bank, as it has rules that would heavily restrict support for new coal-fired power stations.

The final 2030 text nods towards this idea but says only that the bank must be “involved” in allocating the funds. This could mean member states would be able to use the money for coal investment. The fund is worth â?¬6 billion in the decade to 2030, according to NGO Carbon Market Watch.

A separate fund of 400 million EU ETS allowances, known as NER400, will be used to fund low-carbon innovation across the EU. This is an extension of the NER300 fund that is already in operation. It is being extended to help industry cut emissions and to explicitly signal support for carbon capture and storage.

This fund will be worth around â?¬8 billion at a carbon price of â?¬20 per tonne. Whatever the carbon price, it will be worth less than the estimated 550 million free power sector allowances handed to Poland and others.

How will the 40 per cent goal be reached?

The emissions reductions required to meet the headline 2030 goal will be split in half. The first half will fall to power companies and other industrial units covered by the EU ETS, in the form of a 43 per cent cut in 1990 emissions by 2030.

The second half will fall to sectors outside the trading scheme, like transport and buildings. These must make an average 30 per cent reduction against 2005 levels.

Larger and wealthier countries like the UK, France and Germany will have to achieve an above-average cut, probably around 40 per cent. Importantly, this means they will have to roughly match the UK’s independent and legally binding carbon targets.

Poorer member states are given a helping hand here, too, as they will be given below-average reduction targets. In addition to the free power sector allowances and modernisation funds, countries like Poland and Romania are likely to have to achieve reductions in their buildings and transport sectors of between one and eight per cent.

The 2030 text also includes flexibility for countries that already have efficient buildings and transport networks, where further emissions cuts could be difficult. If they cut more emissions than required in the power and industrial sectors, they can use this over-achievement to counter under-achievement in buildings and transport.

Will the EU carbon market be reformed?

The 2030 agreement says the EU ETS should be the centrepiece of the EU’s efforts to cut emissions. The price of emissions under the EU ETS stands at around â?¬6 per tonne, however, far too low to drive low-carbon investment. That’s why the UK government is among those saying strong EU ETS reform is a must.

EU leaders have now endorsed the need for reform: the 2030 text calls for a “well-functioning, reformed” scheme that includes a market reserve designed to bolster prices. The text says reforms should be “in line with” proposals made by the European Commission earlier this year. The precise details will have to be agreed later.

The UK wants excess carbon credits to be cancelled. Market analyst Philipp Ruff says this is unlikely to be agreed, even though they could flood the market and push prices even lower. He says excess credits could be placed in the planned market reserve instead. This would control their release on to the market and so limit the downwards pressure on prices.

Carbon market analyst Thomson Reuters Point Carbon says it expects reforms that will push the price up to around â?¬23 per tonne in the 2020s. However, prices have barely shifted today in response to the announcement, trading at â?¬6.35 per tonne.

The 2030 text includes language that suggests EU leaders on the European Council want to retain control over any planned EU ETS reforms. This would be a departure from the usual EU policy-making process, under which the details of reforms are the joint responsibility of the elected European Parliament and member state ministers on the Council of Ministers.

What about renewables and energy efficiency?

The text includes a binding target to get at least 27 per cent of EU energy from renewable sources in 2030. It is not yet clear how this target will be governed because it will not be binding on member states.

Greenpeace says the target would reduce the pace of renewables investment after 2020. Others may consider that a good thing: free-market thinktank Open Europe argued against renewables targets in a report yesterday. It even wanted the UK to drop its commitment to the 2020 renewables target unilaterally. But the 2030 text – backed by Cameron – says the 2020 target must be met.

The 2030 target for energy efficiency is a 27 per cent reduction against business as usual projections. This non-binding goal is lower than the 30 per cent put forward by the European Commission in July and below the level called for by incoming commission president Jean-Claude Juncker.

The key uncertainty on the energy saving target is what the 27 per cent reduction will be compared to. Predicting the future is notoriously difficult and the 2030 text doesn’t say exactly what it means by business as usual.

The EU has made at least two, very different, sets of projections for 2030 – one set made before the financial crisis and the other after it. An efficiency target set against post-crisis projections would be a little bit more ambitious, but again the detail is yet to be agreed.

The council agreed to consider upping the target to 30 per cent as part of a review in 2020.

Compromise

Overall, the EU 2030 framework has left campaigners disappointed. It is more ambitious than draft texts in some areas and less ambitious in others – in other words it’s a messy compromise.

Given the challenge of securing agreement among 28 EU leaders, that is probably no surprise.

Update 27 October: we amended the figure on the value of free power sector carbon credits being given to Poland and other poorer member states. We had got our figures in a twist and said 200 million credits would be worth 600 million. Given expected carbon prices of at least â?¬20 per tonne in the 2020s, this was clearly incorrect. We also added an estimate from Carbon Market Watch.


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