Climate change and energy package

1
Climate change and energy package
Jürgen Lefevere Policy Coordinator
International Climate Negotiations ENV.C.1 Europea
n Commission
2
Objectives agreed for 2020

• Introduction
• EU Package a shared effort
• Non-ETS
• ETS review
• Renewables Directive
• Impacts
• Conclusion

3
Introduction to the EU climate change and energy
package

• 20 GHG reduction compared to 1990
• Independent commitment
• 30 GHG reduction compared to 1990
• In context of international agreement
• 20 renewables share of final energy consumption
• 10 biofuels in transport, with
• production being sustainable
• second generation biofuels commercially available

4
IntroductionWhat is in the package?

• Overall Communication
• Revision of EU Emissions Trading System (the ETS)
• Effort sharing in non-ETS sectors
• Carbon Capture and Storage
• Directive on promotion of renewable energy,
  report on renewable energy support schemes
• Directive on carbon capture and storage, and
  Communication on demonstration plants
• Revised environmental state aid guidelines
• Accompanying integrated impact assessment

5
IntroductionWhere do we stand today?

• In 2005
• -6.5 GHG emissions compared to 1990
• including outbound aviation
• 8.5 renewable energy
• mainly through large scale hydro and conventional
  biomass
• Targets are ambitious
• -14 GHG compared to 2005
• 11.5 renewable energy share

6
A shared effort between sectors
GHG Target -20 compared to 1990
-14 compared to 2005
EU ETS -21 compared to 2005
Non ETS sectors -10 compared to 2005
27 Member State targets, stretching from -20 to
20
7
A shared effort - Cost efficient achievements of
the GHG and Renewables targets

• Allocating targets between sectors and Member
  States on the basis of pure cost efficiency
  causes high compliance costs/GDP for poorer
  Member States
• Package approach is to increase fairness but
  foresees policy instruments to achieve cost
  efficiency

8
A shared effortApproach EU package

• Cost-effectiveness Fair distribution
• Solution
• Fairness differentiate efforts according to
  GDP/capita
• national targets in sectors outside EU ETS
• national renewables targets (partially half)
• redistribution of auctioning rights (partially
  10)
• Cost-effectiveness
• Auctioning ETS sectors
• introduce flexibility and use market
  based-instruments (EU ETS, transferability of
  Guarantee of Origin for renewables, access to
  JI/CDM)

9
EU packageEfforts Member States Non ETS

• Member States have an emission target in Non ETS
• GDP/capita criterion for differentiation (ability
  to pay)
• Limitation target between -20 and 20 compared
  to 2005
• Consequences
• poorer Member States can see some growth in
  sectors such as transport
• overall costs increases marginally compared to
  cost-effectiveness
• but significant equalisation of overall effort
  (EU ETS and Non ETS sectors) between Member States

10
EU packageEfforts Member States Non ETS
11
EU packageEffort Member States Renewables
BE BG CZ DK DE EE IE EL ES FR IT CY LV LT LU HU MT
NL AT PL PT RO SI SK FI SE UK
1.4
RES share in 2005
7.5
1.5
Flat rateincrease of 5.5
Additional effort weighted by GDP per capita
Figures adjusted byearly starter bonus
0
0.7
4.7
EU-27
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EU packageMember States Auctioning share ETS

• Allocation harmonised in ETS, so differentiation
  not possible with equal treatment of companies
  and auctioning as main principle of allocation
• 90 of auctioning amount is distributed between
  Member States on the basis of share 2005 ETS
  emissions

• Remaining 10 is distributed taking into
  account
• expected GDP growth
• GDP/capita,
• only to Member States with middle and low GDP/cap
  compared to EU average

13
A Fair shared effort

• The package requires all Member States and
  sectors to take action to reduce GHG and increase
  renewables

• The package creates a competitive level playing
  field
• The package distributes costs more fairly
  between Member States

14

• Effort sharing
• in non ETS sectors

15
Non ETS targets compared to 2005

• Distribution between Member States. Highest
  reduction is -20 compared to 2005, lowest
  reduction is 20.
• Linear path between 2013 2020 towards 2020
  target
• 2013 starting point is equal to the average
  emissions in 2008-2010.
• When an international agreement is reached the
  target is automatically adapted to stricter
  target.
• Flexibility allowed
• Overachievement during 2013-2020 can be carried
  over to next year
• Carry forward max. 2 of emission limit from next
  year

16
Non ETS targets compared to 2005

• Project based emission credits capped on a yearly
  basis up to 3 of 2005 non ETS emissions in
  Member State
• Member States that do not use their 3 limit in
  any specific year can transfer their unused part
  for that year to other Member States
• Certainty for participants on the type of
  projects from which credits can be used after
  2012
• In case that there is no international agreement
• CERs, ERUs issued for the period 2008 -2012
• CERs Issued after 2012 for projects registered
  2008-2012
• Projects implemented in LDCs after 2012
• Credits based on bilateral agreement with EU
  (post-2012)
• In case that there is an international agreement
• All credits issued in countries that have
  ratified the agreement
• Substantial additional use of credits allowed
  automatically, in order to meet a stricter
  reduction target (half the additional effort)

17
Non ETS, flexibility from linear path use of
credits from projects
Emissions
Starting point
CDM
-X
Effort
3
-22
2020
2005
08
10
13
18

• Revision of the EU Emissions Trading System

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Objectives Scope

• Objectives
• Cost-effective contribution to -20 GHG target
  for 2020, or to stricter target under
  international climate agreement
• Improvement of the EU ETS based on experience
• A clear long-term carbon price
• Scope
• Cover all big industrial emitters extension e.g.
  to chemical sectors and aluminium
• Extension to other GHG nitrous oxide
  (fertilisers), perfluorocarbons (aluminium)
• Leads to new abatement opportunities, lower
  overall costs, and higher efficiency
• Potential opt-out of small emitters, if
  equivalent emission reduction measures in place
  (e.g. tax)

20
Cap setting

• New single EU-wide cap instead of 27 caps set by
  Member States
• CO2 allowances available in 2020 1720 Mt
• - 21 compared to 2005 emissions
• Linear decrease
• predictable trend-line to 2020 and beyond (review
  in 2025)
• Is automatically adjusted to stricter target if
  international agreement is reached
• Aviation to be included in line with political
  agreement
• Non-compliance penalties (100/ton CO2) to
  increase by inflation rate to keep deterrent
  effect

21
Allocation principles

• Harmonised allocation rules ensure level playing
  field across the EU
• Basic principle for allocation is auctioning
• Eliminates windfall profits
• Simplest and most transparent allocation system
• Full auctioning for sectors able to pass on costs
  
• Power sector
• Partial free allocation to industry as a
  transitional measure
• Phased out by 2020 for normal industry
• Exception possibly higher levels (up to 100) of
  free allocation to industries particularly
  vulnerable to international competition (carbon
  leakage) to be determined in 2010
• European Commission to report on carbon leakage
  by 2011 and make a proposal, if appropriate
• To review free allocation levels and/or
• To introduce system to neutralise distortive
  effects
• With international agreement total cap linear
  factor adjusted

22
Auctioning and earmarking

• Auctioning rights distributed to Member States
• Relatively more rights to MS with lower
  GDP/capita to balance high investment costs
• Auctions must be
• non-discriminatory,
• open to everybody and
• will be carried out by Member States on the basis
  of harmonised rules (EC regulation)
• 20 of auction revenues should be earmarked for
  combating climate change, promoting renewable
  energies and addressing social impacts

23
International aspects JI/CDM, linking

• Companies can already use credits from Joint
  Implementation and Clean Development Mechanism
  projects (the latter carried out in developing
  countries) for compliance in the ETS
• Total amount credits up to 1.4 billion tons can
  be used for compliance over the period 2008-2020.
• When international agreement is reached,
  substantial additional use of credits allowed
  automatically, in order to meet a stricter
  reduction target (half the additional effort).

24
International aspects JI/CDM, linking

• Improved certainty for participants on type of
  projects from which credits can be used after
  2012
• Up to 1.4 bn tonnes and in case that there is no
  international agreement
• CERs, ERUs issued for the period 2008-2012
• CERs issued after 2012 for projects registered
  2008-2012
• Projects implemented in LDCs after 2012
• Credits based on bilateral agreement with EU
  (post-2012)
• EU harmonisation of quality for CERs ensured
• In case that there is an international agreement
• Only those credits accepted which were issued in
  countries that have ratified the agreement

25
International aspects linking

• Currently, EU ETS covers 30 countries including
  Norway, Iceland and Liechtenstein
• Linking agreements can be concluded with
  developed country which has ratified the Kyoto
  Protocol
• In revision, Commission proposes to enable EU ETS
  to also link with other mandatory emission
  trading system capping absolute emissions
• with any third country, or
• in sub-federal and regional systems

26

• Carbon captureand geological storage

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Carbon Capture and Storage- background

• CCS capture CO2, transport, store in geological
  formations
• While energy efficiency and renewable energy
  are shorter-term solutions, other options are
  needed in longer term if we are to reach 50 GHG
  reduction globally in 2050
• It is crucial from a global perspective
• CCS has been demonstrated as functioning, but not
  yet as an integrated process or at reasonable
  costs

28
Carbon Capture and Storage-proposals

• Enables CCS by providing legal framework to
• Manage environmental risk
• Remove barriers in existing legislation
• Provisions for ensuring environmental integrity
  through the life-cycle of the plant (site
  selection up to post closure)
• CO2 captured and stored will be considered not
  emitted under the ETS
• CCS can be opted in for Phase II (2008-2012)
• CCS explicitly included for Phase III (2013-2020)
• Communication on promotion of demonstration plants

29

• Impacts
• from the package

30
What are the benefits of the package?

• The ultimate goal avoid the cost of climate
  change impacts 5-20 of global GDP (Stern)
• Large scale innovation in the energy sector
• First mover advantage, aiming for technological
  leadership in low carbon technology
• Significant energy efficiency improvements
• Energy security reduction of oil and gas import
  of 50 billion per year (at 61 per barrel
  of oil)
• Reduced air pollution giving significant health
  benefits
• Reduced need for air pollution control measures
  11 billion per year in 2020

31
What are the costs of the package?

• Direct cost increased energy and non CO2
  mitigation cost to meet both targets
  domestically 0.6 of GDP in 2020, or some 90
  billion
• Investments in project based mechanisms reduces
  costs by a quarter to 0,45 of GDP
• Macro-economic GDP effects GDP growth reduced
  by some 0.04-0.06 between 2013 and 2020, or in
  2020 some GDP reduction of 0.5 of GDP compared
  to business as usual
• These are conservative estimates
• Oil price of 100 per barrel instead of 61 would
  make the whole energy system 275 billion more
  expensive. It makes the costs for the package
  cheaper 30 billion
• Does not include positive macro-economic rebound
  effects of re-injecting auctioning revenues back
  into the economy, estimated at maximum 0.15 of
  GDP

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• Conclusion

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Conclusion Timing

• Jan 2007 Policy proposal of the Commission
  endorsed by the European Council and Parliament
• Legislative proposal of the Commission, January
  2008
• Discussion by Council of Ministers, European
  Council and Parliament
• good starting point for agreement
• Amendments in Council working group
• Amendments of Parliament
• Adoption late 2008?

34
Concluding remarks

• EU showing leadership in climate change
• EU on a path towards a low-carbon economy
• Cost-efficiency and fairness at the heart of the
  package
• A significant effort, but future benefits far
  outweigh the costs
• Will deliver important economic, energy security
  and environmental co-benefits, also in the short
  term

35

• http//ec.europa.eu/environment/climat/climate_act
  ion.htm
• http//ec.europa.eu/environment/climat/future_acti
  on.htm

36

• Renewable energy

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The renewables Directive

• Sets mandatory national targets for renewable
  energy shares, including 10 biofuels share, in
  2020
• Requires national action plans
• Standardises guarantees of origin (certifying
  the renewable origin of electricity or heat) and
  enables the transfer of these to provide
  flexibility to Member States
• Reduction of administrative and regulatory
  barriers, improvements in provision of
  information and training, and improved access to
  the electricity grid
• Creates a sustainability regime for biofuels

38
EU-27 efforts in Renewables
BE BG CZ DK DE EE IE EL ES FR IT CY LV LT LU HU MT
NL AT PL PT RO SI SK FI SE UK
RES share in 2020
39
National action plans

• Sectoral targets now set by Member States
• Measures adequate to achieve the targets
  including planned development of biomass
  resources
• Provides policy stability for investment

40
Trajectory to 20Renewables
41
Standardising guarantees of origin

• Guarantees of origin (certifying the renewable
  origin of electricity or heat)
• Builds on the framework created by 2001/77/EC
• Standardises information requirements, issuing,
  transfer and cancellation procedures
• Requires the nomination of an independent
  competent body to manage GOs.

42
Transferability of Guarantees of Origin

• The transfer of guarantees of origin gives the
  flexibility to meet national targets by
  developing cheaper renewable energy in other
  Member States
• Member States meeting their trajectory may
  transfer extra GOs to other Member States
• GOs from new installations may be transferred by
  companies (persons)
• Member States may create a system to require
  prior government approval of such transfers

43
Administrative reforms

• Reforms, or requires reforms of administrative
  and regulatory barriers to the growth of
  renewable energy
• simplification and streamlined procedures
• planning authorities to consider renewable energy
  and district heating and cooling systems
• minimum levels of renewable energy in building
  codes for new or refurbished buildings
• promotion of energy efficient renewable energy
• Certification regimes for installers mutual
  recognition

44
Grid access

• Improves renewables access to the electricity
  grid
• Repeats existing access conditions given in
  2001/77/EC
• Requires Member States
• to provide priority access to the grid system for
  electricity from RES
• to develop grid infrastructure
• to review cost sharing rules

45
Promotion of biofuels (1)

• Sustainability criteria for biofuels
• GHG savings minimum of 35
• No raw material from undisturbed forests,
  biodiverse grassland, nature protection areas
  (unless taken harmlessly)
• No conversion of wetlands and continuously
  forested areas for biofuel production (to protect
  carbon stocks)
• All EU biofuels must meet environmental
  requirements for agriculture

46
Promotion of biofuels (2)

• Consequences of not meeting the criteria
• Biofuels do not count towards targets
• Not eligible for national biofuel obligations
• Not eligible for tax exemptions and similar
  financial support
• Verification of compliance
• Responsibility of Member States
• To reduce the administrative burden, Commission
  can decide that certification schemes give
  reliable proof of compliance
• If so, all Member States have to accept these
  certificates as proof
• Member States to give a bonus in their biofuel
  obligations to biofuels from wastes, residues,
  cellulosic and lignocellulosic material