EU leaders unlikely to agree climate and energy targets

EU unlikely to stand up to Putin with domestic energy agenda

Those who are hoping to see the EU Heads of State agree on targets for greenhouse gas emission reductions, renewable energy and energy efficiency at their Summit in Brussels Thursday and Friday this week are likely to be disappointed. According to a 17 March version of the draft Council conclusions, seen by Recharge, the EU Member States are aiming at “taking a final decision before the end of the year” on a new energy and climate policy framework and use this week’s meeting to agree on procedure and orientation.

We will be well into the second half of 2014 before a policy is likely to be agreed. Europe’s leaders plan to use their June meeting to “take stock of progress made” rather than nailing down overall targets for climate and energy in 2030. The energy and climate discussion has been planned for many months and was initially set for Thursday. It is now likely to be moved to Friday, to make room for a debate about the situation in Ukraine.

On 22 January, the Commission proposed a 27% target for renewables in 2030, binding at EU level but not at national level. The renewables lobbies, supported by the outgoing European Parliament, are hoping to convince Europe’s governments to increase the share to 30%.

The main policy objective of the Commission’s proposal is to rescue its malfunctioning Emissions Trading Scheme (ETS). A new governance structure that the Commission publically state should ensure the fulfilment of the EU renewables target was thrown in at the very last minute before publication, according to sources close to the process. Since January, the Commission has tried to convince the public that the new governance structure would ensure investor confidence. The truth is that neither the Member States, nor the Commission itself have any idea about what the proposed structure means in practice.

For this reason, the EU leaders “invites the Council and the Commission to continue work,” especially in relation to the national implications of the proposals on emission reductions and renewable energy, effort sharing between Member States, carbon leakage and energy efficiency.

The draft conclusions do not make any references to the situation in Ukraine – the issue is too sensitive to put in papers that are likely to leak. However, they do state that “efforts to reduce Europe’s high gas energy dependency rates should be intensified”. Ecofys, a consultancy, this week published a paper showing that gas imports would be 30% lower than business-as-usual if the 40% GHG reduction target was combined with 30% renewables and energy efficiency. If Europe went for a 45% renewables share in 2030, Europe’s energy imports would be reduced by 100 million tonnes of oil equivalents (Mtoe), compared to the Commission’s proposal. That is about equal to Europe’s current gas imports from Russia.

Out of fear of gas supply disruptions, Europe finds it difficult to send a strong message to President Putin on Ukraine. Many European countries – not least those Eastern European countries, most dependent on Russian fossil fuel – would welcome the day they are no longer held hostage by energy policy. Unfortunately, those countries still do not believe that renewables have the potential that Ecofys does and are likely to miss a perfect – if not the only – opportunity for EU leaders to stand up to Vladimir Putin.

There is still a theoretical chance that the European Heads of State make decisions on targets this week. If they do, however, the renewables industries will not get the 30% target they hope for. Member States have grouped themselves into two major camps – those that want decisions delayed – or abandoned altogether – and those who fight for an early agreement in order for Europe to send a strong message to the UN Secretary General’s Climate Summit in September. None of these two groups have an increase to 30% renewable energy as their main priority and the issue of national targets for renewables is almost completely off the table.

Most EU countries support the Commission’s proposal for a 40% reduction in greenhouse gasses by 2030. Poland, the Czech Republic, Bulgaria, Hungary and Slovakia are against or want to delay until national impacts have been further analysed. Most Member States support the Commission’s 27% target for renewables with Portugal, Ireland, Luxembourg, Denmark and Germany calling for a target higher than the 27%. France, Spain and Italy are also among the countries likely to support a EU renewable energy target. The UK is opposing EU targets for renewables but is likely to accept it as long as it comes without national targets.

The proponents of renewable energy are speculating whether the Council’s expected failure to agree targets this week is good or bad for renewables. Some believe that 27 birds in the hand are better than 30 in the bushes. Others believe that a delay of the decision increases the chances of gaining, at least, another three percentage-points on the target. However, with the Council’s current draft conclusions, status is that even the 27 birds are out of reach in the short term.

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RWE: First loss since 1949

Time to switch to modern energy, RWE?

Germany’s largest power company RWE posted its first loss since the establishment of the German Republic in 1949. €2.8 billion was lost in 2013, caused by massive write downs in assets of almost €5 billion.  Last week French power company reported €15 billion euro in write downs.

Solar and wind energy expansion in Germany have reduced profitability of RWE’s coal- and gas-fired plants. Since 2008, the share has lost 70% of its value.

“I grant we have made mistakes,” RWE Chief Executive Peter Terium said today. “We were late entering into the renewables market – possibly too late.”

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Ministers mute on national RE targets

National renewable targets barely featured as EU environment ministers discussed climate and energy policy today, ahead of a similar meeting by the Union’s energy ministers tomorrow.

At discussions of the European Commission’s (EC’s) Climate and Energy Package, there seemed to be a general consensus over a 40% greenhouse gas reduction target for 2030 – although Poland referred to the level of the target as “an open issue” on which it is not yet able to take a position.

The Czech Republic only supported a 35% GHG reduction target in the absence of a global agreement.

The energy elements of the Commission’s proposals are to be discussed at tomorrow’s meeting of energy ministers.

However, most of Europe’s environment ministers unveiled their government’s position on the proposed EU-level 27% renewable energy target. And there was little sign at today’s meeting of what European renewables bodies had hoped for – namely a serious pushback against proposals by the EC that national governments should not be legally bound by member state-level renewable energy targets.

Germany and Denmark supported a 30% renewable energy target and targets on energy efficiency. Portugal supported a 40 % binding renewables target and a 30% efficiency target as well as a 25% target for interconnections.

Luxembourg pointed out that the 27% renewable energy target merely reflects business as usual. “A more ambitious objective of at least 30% is advisable,” the Luxembourg minister said.

Both France and the UK supported the EU-level target for renewables, with the UK stressing its opposition to binding national renewables targets.

We have previously raised concerns about a renewable energy target,” UK secretary of state for energy & climate change Ed Davey said.

“Today I can say that we have moved. The UK is ready to support a binding renewable energy target of 27%, so long as it can never become binding on individual member states or be translated into national targets by EU level action,” he told his colleagues, most of whom shied away from taking a position on national targets for renewables.

The East-West divide on the approach to renewables and timing of decisions was apparent at today’s Environment Council.

While many eastern countries want to postpone decisions, western countries want the Heads of State to make decisions, at least on the overall targets, at their meeting later in March. Denmark stressed the importance of making such an early decision on all targets simultaneously, including for efficiency and renewables.

An overall consensus seems to be gathering on 40% GHG reductions and a binding EU-level renewables target of 27% to 30%.

But many Member States appeared perplexed and confused about the European Commission’s proposed governance structure. France expressed its concern that the governance structure would confer additional powers over energy policy from national governments to the European Commission.

Energy ministers meet tomorrow for a similar exchange of views, which is likely to result in little additional information.

The question in the short term is whether the Heads of State meeting will confine itself to a general debate when they meet later in March, or make decisions on the overall targets.

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EU Commission: Dedicated EU renewable energy policy gone after 2020

The European Commission proposes to replace EU renewable energy policy with a low-carbon policy that would add nuclear energy, shale gas and carbon capture and storage (CCS) to its post-2020 policy.

EU renewables policy has become a low-carbon policy after 2020, and emissions reductions take precedence over jobs and fuel savings in the European Commission (EC) proposal for a 2030 climate and energy framework.

The European Commission has proposed a 40% reduction in greenhouse gas (GHG) emissions compared to 1990 and a renewables target of “at least 27%”, which would be “binding on the EU” — but not on individual member states.

The Commission refers to the GHG target as “the centrepiece of the EU’s energy and climate policy for 2030”. Moreover, it displays its lack of ambition by stating that Europe would reach 27% renewables even without an EU-level target. And had the GHG goal been set at 35%, as suggested by Energy Commissioner Günther Oettinger, the renewables target would have been 25%.

The proposals are incompatible with the EU’s agreed ambition of reducing GHG emissions by 80-95% by 2050. One renewables lobbyist in Brussels refers to the 2030 debate as the “twenty-dirty debate”.

In June 2012, member states agreed with the commission that there are three main planks in developing energy policy up to 2050: a substantially higher share of renewables beyond 2020; increased energy efficiency; and smart and flexible infrastructure. The EC’s package does not come anywhere near adequately reflecting those top priorities from a year ago.

EC president José Manuel Barroso and Climate Action Commissioner Connie Hedegaard insist that a 27% renewables target would send a strong signal to investors, despite the lack of national targets.

But a proposed new governance structure, supposedly aimed at ensuring investor confidence, has already attracted criticism, not least because it is not exclusively targeted at renewables. It would bring nuclear, shale gas, carbon capture and storage (CCS) and other technologies together with renewables under a new “low-carbon framework”. The idea dates back to the EC’s 2011 Low Carbon Economy Roadmap, which established that the power sector must reduce CO2 emissions by 93-99% by 2050 compared with 1990 to reach the lower level of the agreed GHG reductions of 80-95%, but shied away from defining what a low-carbon energy technology is. That definition is now becoming clearer.

The National Renewable Energy Action Plans that currently govern the 28 member states’ policies would, under the EC proposal, be replaced by National Plans for Competitive, Secure and Sustainable Energy. These would detail how countries are going to deliver on a range of objectives, including GHG reductions, renewables, energy savings, energy security, research and innovation, nuclear energy, shale gas and CCS.

The commission’s approach resembles the outcome of the failed 2009 global climate talks in Copenhagen, where countries made explicit emission pledges, without any possibility of enforcement. Ironically, the EC admits that this “bottom-up” approach to GHG reductions has created a “significant ambition gap” between pledges made and the reductions needed to limit global warming to 2°C. It will be difficult for the commission to convince investors that a similar approach to European renewables policy would lead to a better outcome.

The EC is sending three signals. It wants the Emissions Trading Scheme to be the main driver for climate and energy policy after 2020; it will no longer let fragmented national renewables policies remain unco-ordinated at EU level; and it wants to replace the renewables framework with a broader low-carbon framework after 2020.

The European Parliament was quick to ring the alarm bells. It is calling for binding targets for GHG reductions (at least 40%), renewables (at least 30%) and energy efficiency (40%), combined with national targets, while expressing “deep concern” about the proposals for a new governance structure for the 2030 framework.

In the Commission’s view, national targets equal national support mechanisms. The Commission believes that the absence of national targets will ensure that the renewable energy markets are “not renationalised by way of state aid,” as was expressed by the Commissioners during their meeting on the morning of the 22 January.

It would therefore be wrong to assume that the commission has given up on its 15-year-old dream of having a harmonised European framework for renewables. One only has to read its guidelines on support mechanisms and its proposal on state aid reform to conclude that it wants to end all European FITs.

This has not yet sent Europe’s renewables industries to the barricades. It will. But only after the targets — whatever they end up being — have been agreed by the 28 states.

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The ETS allowance bubble

Carbon prices are depressed due to a 2 billion surplus of allowances, created by too generous free allocation to heavy industry and a massive inflow of external credits from outside of the EU.

The Commission’s lack of renewable energy ambition is closely linked to its efforts to save Europe’s oversupplied Emissions Trading Scheme. The more renewables in the system, the less demand there will be for allowances and the bigger the Commission’s challenge will be to rescue its prestige project.

 

Carbon prices are depressed due to a 2 billion surplus of allowances, created by too generous free allocation to heavy industry and a massive inflow of external credits from outside of the EU. Even with the Commission’s proposal on structural measures (changing the so-called linear reduction factor from 1.74% to 2.2%), the surplus will continue to grow and stay above 2.5 billion until 2025 and reach 2.3 billion in 2030.

The only legislative measure that was tabled by the European Commission on 22 January is a proposal for a “stability reserve” from 2021, intended to address the market imbalance through EU intervention. Allowances would be added to the reserve if the surplus is higher than 833 million.

While the European Commission deserves credit for proposing a target that excludes the use of external credits after 2020, the ETS starts resembling the Common Agriculture Policy or OPEC’s interventions in the oil market more and more, although the Commission will viciously deny that. The physical storage requirements are less for carbon allowances, so we will not see a return to the “butter mountains” and “wine lakes” of the 1980s, but one could wonder how much market there will be left on the other side of all the political interventions in the ETS.

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EU Commission’s last will

European Commission publishes 2030 Energy and Climate Framework

Brussels, 22 January 2014

When José Manuel Barroso in October closes the door for the last time as President, he takes with him a 15-year old ambition of the European Commission to have a EU renewable energy policy framework, having tabled a binding renewable energy target for 2030 in Brussels today.

This Commission’s last will on energy and climate was released today in the form of a 2030 package of climate and energy policies. It proposes a 40% reduction in domestic greenhouse gas emissions compared to 1990 and a target of “at least 27%” renewable energy which would be “binding on the EU” but “not be binding on the Member States individually.”

A third target for energy efficiency was dead long before the real discussions inside the Commission began and will be addressed during this summer’s planned review of the Energy Efficiency Directive.

It is evident from today’s package that the Commission wants the ETS to be the main driver for Europe’s climate and energy policy after 2020. It refers to the greenhouse gas target, as “the centre piece of the EU’s energy and climate policy for 2030”. Meanwhile, the Commission is surprisingly honest about its lack of ambition for renewable energy, and directly writes that 27% renewable energy would be reached, even without a target.

“A greenhouse gas reduction target of 40% should by itself encourage a greater share of renewable energy in the EU of at least 27%. The Commission proposes, therefore, that this should be the EU’s target for the share of renewable energy consumed in the EU”, the text reads. Had the GHG target been set at 35% instead of 40%, which was the subject of heated debates inside the Commission, the renewable energy target would have been set even lower, at 25%.

In a remarkable turnaround, president Barroso and his college of commissioners, today proposed to hand back to the 28 member states of the European Union, control over a renewable energy policy area that has been one of its biggest EU policy successes.

It is an extraordinary shift for an institution that, since the second half of the 1990s, has been consistently pushing for an ever more integrated European policy framework for renewable energy. An interesting question is whether this means that the Commission is giving up on the idea of establishing a EU-wide support-mechanism for renewables.

Even without any new targets and policies, the Commission’s own analysis shows that renewables would reach 21% in 2020 and 24% in 2030. GHG reductions would be 32% by 2030 without additional enabling policies, due to the continuation of the 1.74% linear factor per year that continues beyond 2020, in accordance with the existing Directive.

In this light, the proposed 2030 targets are very modest and compared to the ambition level of environmental groups and the European renewable energy industries, they are extremely modest.

The European Renewable Energy Council (EREC), the umbrella organisation of the European renewable energy industries, has called for a 45% binding renewable energy target.

Environmental groups says that a domestic 55% carbon reduction target is needed for the to EU do its part in keeping climate change at manageable levels. On 9 January, the Parliament’s Environment and Industry Committees asked for a three-targets approach, including a greenhouse gas reduction target of “at least 40%”, “at least 30% renewable energy” and an energy efficiency target of 40%. The European Parliament is scheduled to debate the issue in a Plenary session on 4 February followed by a vote on a non-legislative resolution on the 5 February.

The Commission is proposing to hand over the initiative on energy policy to Member States while asking renewable energy project developers and investors to put their faith in the ETS and a patchwork of national renewable energy legislation.

It could be credibly argued that this is not much different from today, except for the fact that those national frameworks are driven by the national binding targets for 2020 that each country has committed to in the 2009 Renewable Energy Directive.

It was only the sound of the starting gun for the political negotiations over Europe’s future energy and climate policy we heard today from the Commission. Unlike most testaments, the Commission’s will does not have to be respected by the two co-legislators of the European Union: the Council and the European Parliament.

Therefore, the idea of binding national renewable energy targets is far from dead. While it is hard to imagine the EU as whole being taken to Court for not meeting its binding renewable target, the fact that the text includes a binding EU target, leaves the door open for the Council and European Parliament to agree on an approach that could include national binding targets in some shape or form.

The Commission itself suggests that the binding EU renewable energy target “would be fulfilled through clear commitments decided by the Member States themselves which should be guided by the need to deliver collectively the EU-level target”.

That seems like an awfully optimistic “should” – at least in relation to some Member States. However, it also proposes a review and governance process for the national commitments and “if necessary, they could be complemented with further EU action and instruments to ensure delivery of the EU target.”

On June 2012, 26 of the then 27 Member States agreed with the Commission that there are three ‘no regret’ options when it comes to development of energy policy up to 2050: “a substantially higher share of renewable energy in EU gross final energy consumption beyond 2020, including in 2030”; “increased energy efficiency” and “smart and flexible infrastructure”.

Today’s package does not come anywhere near adequately reflecting those top priorities from a year ago.

The next events to follow are a European Parliament vote on 5 February, a Franco-German ministerial Summit on energy cooperation on 19 February, the meeting of EU energy ministers on 4 March and the European Council meeting of Heads of State on 8 and 9 March.

The noise, from a European Commission, internally split over renewable energy policy, that we have been hearing all over Brussels in the past weeks, ceased in an instant today. From noon today, all 28 members of the college of Commissioners will stand behind the package presented– at least until the last day of October when they all leave the Berlaymont building.

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Council throws a bone to ETS

 

ThrowAbone

The council has agreed to advance a proposal to withdraw 900 million allowances from the crippled EU emissions trading system (ETS) to trialogue talks with the European Commission and the European Parliament.

This is the latest of many attempts by the Commission to create confidence in the failed European market for carbon emissions. The Commission continues to be confused about whether it wants the system to reduce carbon at least cost, drive innovation or both. Member States are in violent internal disagreement as a block.

Everytime the politicians are forced to intervene in what was supposed to be a market, it adds another nail in the ETS coffin. Unfortunately, the system is so flawed from incoherent compromises and bad initial design that intervention is badly needed if the system is ever to gain economic relevance beyond accountants, academics and civil servants.

And if the 900 million allowances are withdrawn as a result of the trialogue, the effect will be negligible in a market where supply will exceed demand by over 2 billion allowances.

 

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