European leaders are unlikely to deepen the bloc’s 2030 greenhouse gas emission target next month, even as officials in Brussels prepare plans to overshoot it by an even larger margin.
Although the EU is achieving steady cuts in GHGs, leaving the headline goal of a 40% reduction on 1990 levels unchanged risks undermining Europe’s reputation as a leader on climate action, frustrating investors by tying the bloc up in costly red tape and rendering obsolete its flagship carbon market.
EU leaders will meet on Mar. 17-18 to discuss whether to review the 2030 goals in light of December’s Paris Agreement, which struck a global climate accord stronger than many seasoned policy watchers had been expecting.
But the appetite is low among the leaders to build upon the assurance that Europe is no longer acting alone, even as the collective global effort based on countries’ carbon-cutting pledges still falls well short of the deal’s goal to hold temperature rises to well below 2C.
Only Sweden and France have made any noise about deepening the EU goal since the Paris summit, with others keen to not revisit the hard-fought battle fought in getting all 28 member states to agree to it.
EU parliamentarians are putting only the faintest pressure on them to act, and the European Commission’s climate chief Miguel Arias Canete has suggested the bloc should wait until 2020 before considering more ambition.
GOING DEEPER
The Commission is tasked with proposing policies to meet the 2030 goal.
Last July’s EU ETS revision proposal was the first, and before this summer the Commission is due to publish two more covering the rest of the bloc’s emissions: one for so-called ‘effort sharing’ and the other for land use.
But the EU’s executive is also planning to this year publish a raft of other policies with complementary aims that will force changes to lower the bloc’s GHG output. The most significant are likely to be revisions to the bloc’s renewables and energy efficiency directives.
Commission officials insist all of these policies are co-ordinated and the way they interact with each other is taken into account, drawing on a 2014 impact assessment that mapped the 40% GHG goal assuming a 26.5% share of renewables and a 25.1% improvement in energy efficiency by 2030.
But EU leaders have since agreed stronger goals to achieve at least 27% for both, and, emboldened by a push from the European Parliament push to go for at least 40% in energy savings, the Commission is poised to be even more aggressive this year in proposing an efficiency goal.
Arias Canete told Politico this week that he wants to raise the energy efficiency goal to more than 30%, having already promised to model the effects of pushing that up to 40%.
Member states have previously balked at such high levels, but the Commission will make the idea more palatable by applying a lower discount rate to the various scenarios.
This will slash the projected costs for member states, according to Brook Riley of environmental campaigners Friends of the Earth.
“Using these new rates, the Commission should be able to show that an energy efficiency goal of 35% is the optimum level,” he said, referring to Ecofys research his organisation commissioned.
“(With that level) the EU will be able to show very clearly it is easily exceeding on the 40% GHG goal, if the leaders wanted a way to show their deeper climate ambition.”
LOWER CARBON PRICE
The higher energy efficiency goal would drive down the bloc’s use of electricity, much of which would still be generated by coal-fired utilities, the biggest buyers of carbon allowances in the EU ETS.
“Reducing emissions via energy efficiency measures certainly impacts emissions covered by the EU ETS and the European carbon price, so it is of utmost importance to strike the right balance between the market approach and command-and-control policies,” said Marcus Ferdinand, an analyst at Thomson Reuters Point Carbon.
He estimated that a 35% efficiency goal would lower average EUA prices over the next decade by around one-eighth, or the equivalent of knocking more than €3 off the Commission’s projected Phase 4 (2021-2030) average of €25.
Lower carbon prices would undermine the market’s ability to drive emission reductions, which appears to contradict the EU leaders’ agreement for the ETS to be the “main European instrument” to achieving the 40% GHG target when they set it in 2014.
The Commission’s response to such concerns is that the ETS’ Market Stability Reserve (MSR), due to start in 2019, will mop up any excess carbon allowances caused by changes to other policies.
“The MSR will, once fully functional, strengthen the coherence between the EU ETS and energy efficiency and renewables policies, which will also lead to a lowering of emissions,” according to the Commission’s July 2015 impact assessment to its ETS revision proposal.
But the MSR is only capable of withholding 12% of the allowances in circulation each year, a rate that some policy watchers say could be too low to have a noticeable effect.
This has led business groups including EFET and IETA to raise serious concerns that the current ETS reform plans don’t adequately address the threat of overlapping policies. Industry associations Eurometeaux, Cembureau and Eurelectric have also flagged warnings.
“Lack of policy co-ordination runs the risk of increasing the overall cost of decarbonisation by reducing the effectiveness of individual policy instruments,” said IETA’s Sarah Deblock.
IETA is urging lawmakers to outline a process to ensure overlapping policies are taken into account well before the ETS reforms take effect.
“It makes sense to look at all policies together,” she said, adding that this should then trigger a discussion on whether the trajectory of the EU ETS’ emissions cap reductions should be adjusted downwards.
By Ben Garside – ben@carbon-pulse.com
