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February 05, 2014
Europe factors costs into climate framework

There is an emphasis on reducing costs in the European Commission’s (EC) new policy framework covering climate and energy from 2020 to 2030.  While concerned about delivering on commitments in its 2050 roadmap (an 80 percent to 95 percent reduction from 1990 greenhouse gas (GHG) emissions), the EC believes member states should be held to “a cost-efficient approach that responds to the challenges of affordability, competitiveness, security of supply and sustainability, and which takes account of current economic and political circumstances.” 

With those concerns as a background, the framework contains binding 2030 targets of a 40 percent reduction in GHG emissions from 1990 levels and a renewable energy target of 27 percent.  

Reactions

The emissions reduction target, the major element of the framework, was generally accepted by the European business community.  “This package puts us on the right path to delivering a competitive, low-carbon future,” said Katja Hall, chief policy director of the Confederation of British Industry (CBI).  “It’s important that member states have flexibility to decarbonize in the most cost-effective way.” 

But the framework was heavily criticized by European environmental groups.  According to the European Environmental Bureau the framework “represents barely more than a business-as-usual scenario and most crucially fails to set targets for Member States, and postpones discussions on an energy savings target.”

Seven issues
The framework addresses seven issues:

  • GHG emissions,
  • Renewable energy,
  • Energy efficiency,
  • The emissions trading system (ETS),
  • Competition in integrated markets,
  • Competitive and affordable energy for consumers, and
  • Security of the energy supply. 

As noted by Hall, there are binding targets only for GHG emissions and the use of renewable energy. 

Regarding energy efficiency, the EC notes that it expects to fall short of its 2020 target of a 20 percent energy savings.  Recognizing that there is “broad political consensus” about the importance of energy efficiency, the framework relies on “specific policy measures at Union and national levels including for domestic and industrial appliances, vehicles, and for the building stock.” The EC does add that its analysis shows that a GHG reduction target of 40 percent would require an increased level of energy savings of approximately 25 percent in 2030. 

Even without a hard target, the need for increased energy efficiency is highlighted by the European Union’s (EU’s) growing reliance on petroleum and gas imports.  The framework notes that the International Energy Agency projects that EU imports of oil will grow from around 80 percent today to more than 90 percent by 2035.  Dependency on gas imports is expected to rise from 60 percent to more than 80 percent over the same period. 

Trading

The framework also proposes fixes for the ETS, which has been deflated by a surplus of allowances due to decreased industrial activity and resulting low carbon prices.   The proposed cure in the framework is the creation of a “market stability reserve” in 2021 that would “provide an automatic adjustment of the supply of auctioned allowances downwards or upwards based on a pre-defined set of rules and would improve resilience to market shocks and enhance market stability.”

EC’s framework

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