E3G, January 2014

The EU’s 2030 Climate and Energy Package

About E3G

• About us– E3G is an independent, non-profit organisation operating in the public

interest. We have a global outlook and reach, with offices in London, Brussels, Berlin and Washington DC, together with a regular presence in China.

• Mission– E3G works to accelerate the transition to sustainable development

• Strategy– E3G mobilises multi-sector coalitions to deliver strategically important

outcomes– E3G develops and disseminates new methods and models for change

E3G - Third Generation Environmentalism

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Presentation Outline

1. What is the EU 2030 Package?

2. How ambitious is the 2030 package?

3. How the EU’s 2030 Ambition Compares

– What It Means for Paris

4. The Politics of 2030E3G 3

Background: The EU “20-20-20 Package”

• The EU first developed a unified approach to climate

and energy policy in 2008: 20-20-20 package:

Building momentum before Copenhagen

Personal commitment by political leaders, including

the President of the European Commission

EEA Report: targets will be met

• 2030 Package following the same structure E3G 4

Continues Trajectory of EU Decoupling GDP Growth and Carbon Emissions

• 1990-2013: EU GDP increased by 42%, GHG emissions decreased by 17%:

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The 2030 Framework for Climate & Energy: Agreed Headline Targets

E3G Ref: European Commission

The 2030 Framework for Climate & Energy: Agreed Headline Targets II

• A binding EU target of at least 40% domestic reduction in GHG emissions compared to 1990, delivered collectively with reductions in– ETS sectors: 43% by 2030 compared to 2005– non-ETS sectors: 30% by 2030 compared to 2005.

• An EU-wide binding target of at least 27% for the share of renewable energy consumed in the EU by 2030.

• A non-binding EU target of 27% energy efficiency improvements against future energy consumption projections; will be reviewed by 2020, having in mind an EU level of 30%.

• A target of 15% by 2030 for interconnections; the minimum interconnection target of 10% is to be met urgently, and no later than 2020.

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What Legal Force for the 2030 Package?

• 2030 package a political agreement between EU Heads ≙of State and Government.

• EP more ambitious: achieved inclusion of EE target. • EU Commission to implement the agreement through

legislative and non-legislative procedures (2015-20) period.

• Approval for legislation necessary by European Parliament and Council of the European Union:ETS reform, RES and EE targets.

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The 2030 Framework for Climate & Energy:The ETS Elements of the 2030 Agreement

• ETS cap to decline with 2.2% from 2021 onwards, from 1.74%.• Continued free allocation (to prevent carbon leakage)• Innovation Fund (“NER400”)

• 400m allowances• For CCS, RES, low carbon innovation in industrial sectors• For projects in all Member States

• New Modernisation Fund• 300m allowances• For energy efficiency improvements and modernisation of energy systems• For 10 lower income Member States (same states benefiting from free

allocation to energy sector)• Involvement of EIB

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All items subject of the European Commission’s consultation on

the revision of the EU ETS directive running until mid-

March 2015

Structural Reform of the European Carbon Market: New ETS Legislation in 2015

• In January 2014, the European Commission proposed an automatic mechanism

• to remove the 2bn surplus of ETS allowances – to meet the medium-term target in a cost-effective manner.

• to make the ETS more resilient to possible future demand shocks.

• The Market Stability Reserve (MSR) would introduce more flexible auction supply by:

• Putting allowances in the reserve in case of too high surplus

• Releasing allowances from the reserve when allowances get scarce.

• MSR to come into force in 2021, institutionalising a surplus of ETS allowances between 400 and 833 million tonnes.

• Next steps: The European Parliament is currently examining the proposals; negotiations between Parliament, European Council and Commission are expected in March-April, for a possible plenary vote on the final text in July 2015.

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Market Stability Reserve (MSR)

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Alongside the 2030 FrameworkA Resilient Energy Union

Vice-President for Energy Union Maroš Šefčovič’s vision evolves around 5 pillars:

• Security, solidarity and trust: Better coordination, cooperation with neighbours (Energy Community & Mediterranean countries), potential common purchasing of gas.

• Completion of a competitive internal energy market: through more regional cooperation, better and smarter infrastructure, and with support of the Investment Package.

• Moderation of demand, by improving energy efficiency; possibly supported by a higher EE target for 2030.

• The decarbonisation of the EU energy mix, notably through a commitment to renewables and to the international process.

• Research and innovation for new energy technologies.E3G 12

Presentation Outline

1. What is the EU 2030 Package?

2. How ambitious is the 2030 package?

3. How the EU’s 2030 ambition compares – What It

Means for Paris

4. The Politics of 2030

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EU 2030 Agreed by Consensus: Coal Dependency of Poland Pulled Down EU Ambition

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[Ref: E3G analysis]

Most CEE Countries Still Low Efficiency and Low Carbon “Technology Takers”

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Large EE potential& High carbon intensity

Low innovation capacity – “technology takers”

Need positive low carbon economy offer

[Ref: E3G analysis based on Eurostat]

Central and East European countries to benefit most from energy efficiency

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Low Efficiency/ High Import Dependency Countries

40% GHG Cuts Are Not the Most Cost-Effective Trajectory

• -40% GHG goal based on modelling in 2013 on cost effective trajectory to meet 80% reduction by 2050.

• Since this modelling was undertaken:– Uncertainty in the oil markets has increased,– Natural gas prices have increased due to Ukraine-Russia

crisis,– Renewable and LED prices dropped by 40%-100%

between 2001 and 2011.– GDP growth forecasts for the EU have fallen by half

• A more cost-effective goal would be 45-47% domestic cuts.

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Renewable Energy Deployment Rates Would Have to Slow

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Potential for Increased Investment in Energy Efficiency including before 2020

• Europe far from utilising its cost-effective EE potential in all sectors:– a 27% EE target was agreed big battle, but not over.– a 40% target would have increased EU GDP by 4.5% GDP in 2030 (or

around €457 billion) vs. 1% for a 30% target.– EE could drive job creation: construction (+20%), engineering (+4%) &

manufacturing (+2%).• Energy Security concerns driving more interest in EE through EU Energy

Union especially in low efficiency, gas-dependent countries.• Individual EU MS developing their own EE measures and policies: Germany

and France. • More EU funding available for EE but challenges with MS capacity and

expertise: struggle to deliver effective projects.• Juncker Plan for €300bn stimulus prioritises EE and renewables investment. More reforms needed to enable large-scale EE uptakes (e.g. Buildings).

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Energy Intensity in Comparison

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Turk

ey

EU-2

8

Austri

a

Belgium

Bulga

ria

Croat

ia

Cypru

s

Czech

Rep

ublic

Denm

ark

Esto

nia

Finland

Fran

ce

Germ

any

Greec

e

Hunga

ry

Ireland

Italy

Latv

ia

Lithu

ania

Luxe

mbo

urg

Malta

Nethe

rland

s

Poland

Portu

gal

Roman

ia

Slov

akia

Slov

enia

Spain

Swed

en

Unite

d King

dom

00.050.1

0.150.2

0.250.3

0.350.4

0.450.5

Relative energy intensity (toe/€1000), 2012

Source: Eurostat 2014

1. What is the EU 2030 Package?

2. How ambitious is the 2030 package?

3. How the EU’s 2030 ambition compares – What It Means for Paris

4. The Politics of 2030

Presentation Outline

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What Does This Mean for Paris?

• Package is focused on EU domestic policy.

• Package will form basis of EU INDC in March 2015. Unclear if GHG target (“at least”) will increase: could allow use of external offsets and ETS trading.

• Process for translating package into INDC still unclear.

• EU also needs to make decisions on pre-2020 action and finance (pre and post 2020) before Paris.

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How the EU Compares: US-China Agreement

• US to reduce GHG emissions by 26-28% by 2025 (1990 levels)

• China to peak emissions by 2030 latest

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Presentation Outline

1. What is the EU 2030 Package?

2. How ambitious is the 2030 package?

3. How the EU’s 2030 Ambition Compares – What It

Means for Paris

4. The politics of 2030

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Businesses Backing More Ambition

• High carbon/energy intensive businesses concerned about competitiveness due to high electricity prices in Europe.

• But: Business Europe not representing all businesses: e.g. Unilever left in August 2014.

• Counter-arguments by low carbon business champions lobbying for more ambition on EE (e.g. Prince of Wales Corporate Leaders Group):– Incentivising energy savings to reduce dependence on

electricity prices.– Business opportunities: wind turbines, power lines,

smart demand services, insulation, etc. E3G 25

Cities Backing More Ambition

• Cities more vocal because of increased vulnerability to climate impacts.

• Covenant of Mayors, Committee of the Regions and city networks including Energy Cities backed more ambitious, binding 2030 targets (50% GHG, 40% RES, 40% EE).

• The Covenant of Mayors includes over 5,000 EU cities and regions which voluntarily committed to cut CO2 emissions by over 20% by 2020.

• Compact of Mayors (incl. Turkish Mayors) initiative alongside COP20 in Lima setting climate targets and reporting mechanisms.

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Four Conclusions on EU 2030

1. The EU 2030 package is a major contribution to global efforts to keep global climate risk below the agreed 2C threshold.

The “at least 40%” domestic GHG reduction target is (just) consistent with EU 2050 goal of 80% GHG cuts.

The politics of economic crisis prevented a stronger target.

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Four Conclusions on EU 2030

2. The EU is likely to achieve more than a 40% GHG cuts by 2030.

EU 2030 targets for renewable energy and energy efficiency continue business-as-usual growth rates.

The efficiency target does not utilise EU cost-effective potential.

Energy security concerns will drive national policies to go beyond EU goals.

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Four Conclusions on EU 2030

3. The EU will increase action before 2020. The EU is likely to deliver 24-25% GHG cuts by 2020, mostly due to policy actions & the impact of the economic crisis. Low carbon investment will be prioritised in the €300 billion stimulus package.ETS reform and further efficiency measures will be agreed by 2016, including in increased in vehicle efficiency.

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Four Conclusions on EU 2030

4. The EU and Member States are implementing deep reforms. Member States such as UK, Denmark, Germany and France have legislated deep reforms to their energy markets, including power sector decarbonisation goals. The EU Energy Union will drive more coherent energy policy and the 2030 interconnection target will support the emergence of regional electricity free trade areas. All new buildings will be zero carbon from 2020.

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What Are the Messages from Lima?

• COP20 highlighted need for fossil fuel phase-out.

• Climate Finance as a political tool: rebuilds confidence amongst developing countries that developed countries are serious about their commitments.

• Climate Finance provides the means and incentives for developing countries to act on both mitigation and adaptation measures.

An EU Perspective on Paris COP 21

• 2015 must reframe success – we need a new mindset of reciprocity and trust.

• A “deal” ≠ success – a deal is necessary but not the arbiter of success.

• The immediate reaction to and perception of the agreement from business and media is critical.

• There is a spectrum of success –2015 will unlikely deliver an outright 2°C outcome.

• Vital to cap worst case scenarios, build effective capacity to ratchet up ambition.

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What Does This Mean for Turkey?

• EE as a way to tackle issues around energy dependence and competitiveness.

• RES potential in Turkey one of the biggest in the OECD (wind, solar, hydro, geothermal).

• Energy trading hub: to include RES?• Climate risks and extreme weather events = the “new

normal”? Impact on cities. • Resource pressures and economic interdependence

requiring cooperation in energy and climate policy

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Thank You

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