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If European climate policy is put ‘on hold’, investors will be spooked

The need for investor certainty beyond 2020 and the need for rapid carbon dioxide emissions reduction mean that procrastination could be extremely costly – warns Stephen Tindale

The European Commission is due to publish its proposals for a 2030 climate and energy framework on January 22. The European Council will discuss the commission’s proposals in March. European institutions should be commended for focussing on climate policy at a time when the eurozone crisis is not over, MEPs face elections and the commissioners are in their last year. However, there is too much focus on targets – whether there should be one or three, how ambitious they should be and whether they should be legally binding. Well-constructed targets can play a useful role in guiding subsequent policy-making. But effective policies are more important, and could be crafted even without targets.

The 2030 framework will replace the 20-20-20 targets: that there must be a 20 per cent reduction in greenhouse gas emissions, 20 per cent of total energy must be from renewables and there should be a 20 per cent improvement in energy efficiency – all by 2020. For 2030, the commission favours three targets, again on greenhouse gases, renewables and energy efficiency. The European Parliament also supports three. The Czech Republic, Poland and the United Kingdom argue for one, on greenhouse gas reductions. Commission officials say that it is the pro-nuclear member-states, which oppose a renewables target. But Paris has joined seven other governments in calling for a 2030 renewables target, proving that it is quite possible to be pro-nuclear and pro-renewables.

London and Prague say, rightly, that greenhouse gas reduction is the most important climate issue. So, they argue, there should be just one, technology-neutral target. Poland, which gets most of its energy from coal, would prefer no climate targets at all but does not take this line in public. Some other Central and East European member states would privately prefer no further renewables target because they and their publics dislike Brussels ‘interference’ in their energy mix.

A greenhouse gas reduction target alone would not be a disaster for climate policy, as long as it was sufficiently ambitious, for example, to cut greenhouse gas emissions in half by 2030. But the parliament voted for a 40 per cent reduction target and European Energy Commissioner Günther Oettinger is arguing for only 35 per cent. Neither of these would be strong enough to propel the European economy towards reliance on clean energy. 35 or 40 per cent greenhouse gas reduction by 2030 could essentially be delivered through business as usual. If there is to be only a greenhouse gas reduction target, it must be 50 per cent.

However a 50 per cent greenhouse gas reduction target would work better if combined with a renewable energy target. The flaw in the British/Czech argument for a single target is that climate change is not the only issue that matters when deciding energy policy. Affordability and energy security matter, too. So do other types of pollution, and the problems of nuclear waste and proliferation. Taking all these issues into account, technologies are not neutral, so a technology-neutral target is insufficient. The ‘best’ form of energy is energy, which is not used so efficiency should be top of the energy policy agenda, rather than forgotten or near the bottom, as it too often is in member-states.

Renewables are the best form of energy supply. They will never run out, produce very little pollution and are widely spread across Europe – wind in the north, wind and sun in the south. Most renewables are expensive at present but the cost is falling fast. Europe could eventually get all of its energy from renewables: electricity, renewable gas – for heating – and biofuels for aviation and heavy goods vehicles. Energy policy should therefore promote renewable energy above other energy sources.

But the move from the current level of renewable energy in the EU – around 13 per cent – to close to 100 per cent will take many decades. Widespread installation cannot be done overnight. Advances in technology for electricity storage and aviation biofuels are needed. Denmark has set itself a target to get all of its energy from renewable sources by 2050. There is no guarantee that this will be met, and other member states will take longer. The EU should set a target to obtain 40 per cent of energy from renewables by 2030, 60 per cent by 2040, 80 per cent by 2050 and 100 per cent by 2060.

This clear timetable would provide greater certainty to the renewable industry and investors. It would also underline to the public that the move to a renewable energy economy cannot be achieved overnight. This would help people understand that low-carbon energy sources are needed as “bridge technologies” – the phrase used by German Chancellor Angela Merkel before her post-Fukushima nuclear U-turn. The two options are nuclear power and carbon capture and storage. In parts of Europe, notably Germany, the public opposes both nuclear and CCS. German greens argue that gas is a low-carbon bridge technology. Gas is lower carbon than coal, but without CCS is much more climate-damaging than renewables or nuclear are.

To help expand renewable energy, the commission must give priority to the improvement and extension of electricity grids including North Sea and Mediterranean grids. To help reduce greenhouse gas emissions, the Commission should also propose to strengthen the 2010 ‘industrial emissions directive’ by including an emissions performance standard for power stations. This would limit the amount of greenhouse gas that a power station can emit per unit of electricity generated. California introduced such a standard in 2007, and the Obama administration is now introducing one across the US. Canada has also introduced an emissions performance standard. In Europe, the UK is the only member state to have introduced one, although this only applies to new power stations. Obama’s policy will also apply to existing power stations. The European Union should follow his lead.

Should there be a 2030 energy efficiency target alongside the greenhouse gas and renewables targets? The case for this is less clear, not because energy efficiency is less important – as argued above, energy efficiency is the best form of energy – but because the value of a target as opposed to stronger policies is less obvious for energy efficiency. The 2020 energy efficiency target is not legally binding. ‘Legally-binding’ has become a mantra for campaigners in the United Nations global negotiations, even though the UN has no means of enforcing anything that is agreed, and in the EU. The commission has tools to enforce legal targets but they are not strong enough to ensure compliance. To take one example: the UK will not meet its 2020 legally-binding renewable energy target. Nobody will go to prison. Whoever is in power will blame previous governments for the failure.

When pressed to make the 2020 energy efficiency target legally-binding, Commission officials argued, rightly, that legally-binding measures were more important than targets. The commission proposed one such measure for the ‘energy efficiency directive’ – that new power stations should have combined heat and power technology. Unfortunately this proposal was not accepted by the council.

The commission should propose this again, as an amendment to the 2012 ‘energy efficiency directive’. It should also propose a strengthening of the 2002 ‘energy performance of buildings directive’. This currently requires that buildings should meet high-energy efficiency standards when they are substantially renovated. It should be strengthened to require buildings to be energy efficient when they are sold or rented out, as is already the case in Sweden.

So the commission should propose a combination of targets and policies in its 2030 climate and energy framework. It should propose a 50 per cent greenhouse gas reduction target and a 40 per cent renewable energy target. To help deliver these targets, the commission should propose that CCS becomes mandatory on new coal-fired power stations, that CHP becomes mandatory on all new power stations that involve combustion, and that buildings are required to be made more energy efficient whenever they are sold or rented out. And the council should accept these proposals in March. Otherwise climate and energy policy will be on hold for the rest of 2014. The need for investor certainty beyond 2020 and the need for rapid emissions reduction mean that such a gap would be extremely costly.

Stephen Tindale is an associate fellow at the British-based Centre for European Reform think-tank, which first published this article: Climate policies are more important than targets

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