EU Council attempts to square the circle on 2030 climate and energy targets

The European Council meeting closed on Friday (Oct. 24) in Brussels after getting through with a two-days agenda packed with burning issues. On the long-awaited climate and energy package for 2030, the Council endorsed a binding target of at least 40 percent domestic reduction of greenhouse gas emissions compared to 1990 levels, an EU-wide goal of at least 27 percent of renewable energy consumption, and an indicative target at the EU level of at least 27 percent for improving energy efficiency respect to the business-as-usual scenario.

The Council’s conclusions will lay the foundation for a new climate and energy regulation to be set up by the EU Commission and approved by the Parliament, in order to take over the current 20-20-20 strategy, that the EU is mainly on track to meet.

The conclusions retrace the EU Commission’s proposal released in January, but reduces the 30 percent target on energy efficiency proposed more recently by 3 percentage points. It will be reviewed by 2020, “having in mind an EU level of 30 percent”. A “flexibility clause” was added to the final text, making it possible for the EU Council to return to the targets after the UN conference in Paris in December 2015.  The 40 percent cut was presented as “the world’s most ambitious 2030 climate energy policy”, that strenghtens the EU-bloc position in view of the upcoming international climate summit in Lima. It will be followed “in the most cost-effective manner possible, with the reductions in the ETS and non-ETS sectors amounting to 43 percent and 30 percent by 2030 compared to 2005, respectively”, “all Member States will participate in this effort, balancing considerations of fairness and solidarity”, the document said.

The agreement among EU leaders was difficult as discussions on how to share the financial burden of the 2030 targets drag the negotiations through the night into Friday, Reuters reported. In order to help weaker EU member states in achieveing the targets and persuade the opposition led by heavy industry and Poland (whose Prime Minister Ewa Kopacz  declared to be pleased with the terms of the agreement reached in Bruxelles),  some specific measures were set:

– free allocation of carbon permits will remain as means “to prevent the risk of carbon leakage due to climate policy, as long as no comparable efforts are undertaken in other major economies, with the objective of providing appropriate levels of support for sectors at risk of losing international competitiveness”. According to the document, Member States with a GDP per capita below 60 percent of the EU average “may opt to continue to give free allowances to the energy sector up to 2030”.

– a fund aimed at helping poorer EU countries in modernizing their energy sectors was designed. EU leaders agreed to that “a new reserve of 2 percent of the EU ETS allowances will be set aside to address particularly high additional investment needs in low income Member States (GDP per capita below 60 percent of the EU average)”.

–  10 percent of the EU ETS allowances auctioned by the Member States will be distributed among those countries whose GDP per capita did not exceed 90 percent of the EU average (in 2013).

In addition, in order to spur investments in renewables and low carbon technologies (including carbon capture and storage), EU leaders also agreed to renew the NER programme, “with the scope extended to low carbon innovation in industrial sectors and the initial endowment increased to 400 million allowances (NER400)”.

Overall, the Council’s agreement has been well-received, especially by EU industry and reluctant member states, even though environmental and advocay groups as well as green and low-carbon companies criticized the climate and energy package as envisioned by the Council’s document, claiming that it would not be enough to keep the EU-bloc on track to meet its GHG reduction goal of 80 percent below 1990 levels for 2050, and that it would not guarantee sufficient incentives to invest in renewables, energy saving and low-carbon technologies.

However, the European climate and energy policy is far from being legally formalized, and the targets may be adjusted in the future (by the EU Council itself, as stated in the conclusions adopted at the recent meeting, as well as by the EU Commission and Parliament, that hold the executive and legislative powers respectively). Which measures will be taken to solve the by-now-chronic oversupply in the EU ETS will be a choice of utmost importance, given that the carbon market is considered “the main European instrument to achieve” the emission target, as the Council stated in its document. According to the advocacy group Carbon Market Watch, the excess emission allowances will water down the actual reduction to 31 percent. The Council’s document confirms that “a well-functioning, reformed Emissions Trading System (ETS) with an instrument to stabilise the market in line with the Commission proposal” is needed, making reference to the proposal of a Market Stability Reserve (also MSR) put forward by the EU Commission in January and currently under discussion in Bruxelles.