Energy & Climate: 2030 Strategy

New binding targets for reducing greenhouse gas (GHG) emissions reduction and increasing the share of renewable energy in the EU’s energy mix, to be achieved by 2030, have been proposed in a new EU strategy for energy and climate policy presented by the Commission on 22 January 2014.

The new “Climate and Energy Framework for 2030”, published in a Communication, sets out the Commission’s vision for the EU climate and energy policy up to 2030.  It is accompanied by a proposal revising the EU Emission Trading System (ETS) to support its implementation.

The strategy was presented along with two other Communications; the first on unconventional fossil fuels (UFF) - supported by a non-binding Recommendation on shale gas exploitation, and a second on energy prices and costs. The new strategy will have to be implemented through legislation to be presented by the next Commission, to take office in November 2014.

The new strategy builds upon the current climate and energy framework for 2020, which set binding 20% targets for GHG emissions reductions and the share of renewable energy in the EU energy mix and an additional non-binding 20% target for energy efficiency.

The Communication, which is the outcome of discussions between different Commission services, Member States, business organisations and NGOs, addresses the following key issues presented below.

Greenhouse gas emissions target in 2030

The key element of the new strategy is a proposed 40% binding GHG emission reduction target, compared to 1990 levels. In order to achieve this target, emissions from ETS sectors would have to be reduced by 43%, while emissions from non-ETS sectors would have to be cut by 30% below the 2005 levels, with an equal sharing of efforts among Member States. Additionally, the annual reduction of the factor related to the cap of the maximum permitted emissions within the ETS would be increased to 2.2% (from 1.74%) after 2020.

The Commission calls for the target to be endorsed by the European Parliament and the Council by the end of 2014 in order for the EU to have a stronger negotiating position in the Paris international climate conference in 2015.

Renewable energy

An EU-level binding target of 27% of energy consumption coming from renewable energy sources (RES) is proposed. This target would only be binding at EU level, meaning that there would not be national targets, in order to leave flexibility for Member States with regard to their energy mix.

The figure of 27% is a direct consequence of the 40% target for GHG reduction, which will itself encourage a greater share of RES in the EU energy mix (although other low-emitting technologies, such as nuclear, are also expected to significantly contribute to the emission reduction target).

The RES target is expected to increase the share of renewable energy in the electricity sector to at least 45% by 2030 (compared to 21% today). In order to ensure the achievement of the RES target at EU level, a new system of governance, based on national energy plans, would be established. The Commission also points out that new targets for the greenhouse gas intensity for fossil fuels are not foreseen after 2020.

With regard to biomass, the Commission highlights the need for an improved policy, in order to maximise an efficient use and to allow fair competition between the various uses of biomass in the construction, paper and pulp industries, as well as in biochemical and energy production.

Energy efficiency

The Communication underlines the importance and benefits of increasing energy efficiency however, no specific target is proposed.

The Commission will review the Energy Efficiency Directive in June 2014. After that, it will assess the need for additional legislative proposals. According to the Commission, achieving the 40% in emission reduction would require increased energy savings of around 25% by 2030. 

The Communication also points out that the current policy in industry and passenger vehicles will need to continue, while there will be the need for a stronger action in sectors such as housing, other transport modes and electrical equipment.

Reform of the Emissions Trading System (ETS)

From 2021 (start of Phase 4 of the EU ETS), a market stability reserve should be put in place according to the proposal presented along with the 2030 climate and energy package. The market stability reserve set out in the Commission's proposal would allow the auction volumes of carbon allowances to be adjusted in an "automatic manner" under pre-defined conditions applied as of phase four of the EU ETS starting in 2021. 

This market stability reserve would function by triggering adjustments to annual auction volumes in situations where the total number of allowances in circulation is outside a certain predefined range:

(1) Adding a number of allowances equal to 12% of the total number of allowances in circulation in year x-2 to the reserve by deducting them from future auction volumes if this amount is equal to or greater than 100 million allowances; 

(2) Releasing 100 million allowances from the reserve and adding them to future auction volumes if the total surplus is below 400 million allowances. According to the proposal, a predefined volume of 100 million allowances per year should be released from the reserve if the total surplus is above 400 million allowances, in order to ensure predictability and more gradual changes to the market stability reserve.

Internal energy market

The Communication highlights the importance of a competitive and integrated internal energy market, which could result in savings of € 40-70 billion until 2030. According to the Communication, having a well-functioning internal energy market would be complementary for the achievement of the wider EU climate and energy objectives.

Competitiveness

According to the Commission, current policies to prevent carbon leakage, such as the allocation of free allowances in the ETS, should be maintained until the end of Phase 3 for the particularly vulnerable industrial sectors. The Commission is therefore expecting to present a proposal for the review of the carbon leakage list in order to maintain the current criteria. Similar polices would also be needed after 2020 in order to protect the competitiveness of EU's energy-intensive industries.

Energy security

The International Energy Agency (IEA) projects the EU to increase its dependency on imported fossil fuels in the coming decades: the energy dependency ratio for oil is expected to increase to over 90% by 2035 (from around 80% today) and to over 80% for gas (from 60% today). Indigenous energy sources, including shale gas, should therefore be exploited, while guaranteeing the protection of the environment.

In this respect, the Commission has published non-binding recommendations for the exploration and production of shale gas together accompanying the Communication. Member States should also diversify their energy sources and supply routes as well as further develop cross-border interconnections. Energy savings can also play a major role in increasing energy security.

New governance system for energy policy

Member States would have to prepare "national plans for competitive, secure and sustainable energy", based on upcoming guidance from the Commission. These plans, which would have a common approach in order to increase transparency and coherence, would set out a clear approach to achieve domestic objectives in, inter alia the non-ETS sector, renewable energy and energy savings.

The Commission would assess Member States’ plans during an iterative process, based on three steps:

(1) Guidance from the Commission on the structure and content of national plans;

(2) Preparation of the national plans;

(3) Assessment of Member States’ plans and commitments. The Commission might set the governance structure in legislation if the cooperative approach proves to be ineffective.

Assessment of the Framework

The new strategy would be assessed over time through a set of key indicators, including, energy price differentials with major international competitors, energy supply diversification, including the share of indigenous energy sources, interconnection capacity between Member States, including deployment of smart grids, intra-EU coupling of energy markets; competition and market concentration and finally technological innovation.

The Commission will report periodically on these indicators and might come forward, if appropriate, with relevant measures.

International context

The international context must be taken into account while shaping the 2030 climate and energy framework. In particular, trends in global energy demand, in technological development and in international climate diplomacy will be of key importance.

The Commission will therefore use the 2030 climate and energy policy framework as leverage for leading the ongoing international negotiations which should bring to a new international agreement applicable  after 2020, to be concluded in Paris in December 2015.

Key complementary policies

The Commission’s strategy for the 2030 climate and energy framework interacts with a broad range of policies in other sectors including transport, agriculture, carbon capture and storage (CCS), as well as innovation and finance.

According to the Commission, in order to further reduce transport emissions, a gradual transformation of the entire transport system towards a better integration between modes would be required. This would entail greater exploitation of the non-road alternatives, improved management of traffic flows through intelligent transport systems, and extensive innovation in and deployment of new propulsion and navigation technologies and alternative fuels.

Further actions at international level would also be needed in order to create a global market-based-mechanism in the aviation and maritime sectors. With regard to the agriculture, land-use, land-use change and forestry, they should be included in the GHG reduction target for 2030. Additionally, options for the development of Carbon Capture and Storage (CCS) technology at EU and Member State level should be explored.

Next Steps

The Commission invites the European Parliament and the Council to endorse the policy framework before the end of 2014.

The European Parliament is expected to call for three binding targets (40% for GHG emissions reduction, 30 % for renewable energy and 40% for energy efficiency) at the February plenary session.

Member States seem to be divided, with Germany France and Italy supporting a target for renewable energy, while Poland and other eastern Member States are expected to raise objections to an ambitious approach. In addition, the United Kingdom is in favour of the 40% GHG emissions reduction goal, but it is believed to oppose any target which would influence its energy mix.

Legislative proposals formalising the approach outlined in the Communication are expected to follow with the new Commission in 2015