The European Commission has this week published its Green Paper on a 2030 framework for climate and energy policies, launching the debate on a package of measures for 2030, a kin to the 20:20:20 package agreed more than five years ago.
We recognise and support the need for a 2030 carbon emissions target for Europe; this is not surprising as we support the UK's longer term goal, through the climate change act, to reduce emissions by 2050, which staging posts along the way. However, this draws out two distinct points; should Europe's timeframe not be much longer than simply a 2030 package. Then is a more focused emissions reduction target, the best way of achieving this 2030 and 2050 goal, rather than other conflicting targets?
In terms of the focus on the 2030 timeframe, we must be mindful that although it seems a long way off, even to 2050 represents only one or two investment cycles for some sectors. If these sectors are to meet the significant challenge of decarbonizing, immature technologies and technical solutions must be developed, demonstrated and made commercially available. The endeavor for technological innovation and break-through technologies is at a critical juncture, and a focus on 2030 may be too short for many sectors.
On the second point, it is clear that many in the Commission and indeed Connie Hedegaard herself will be pushing for another renewables target; we simply do not support this. Policies must be designed, which aim to provide the outcome and not prescribe the route. A strong decarbonisation target for Europe will be sufficient to provide the incentive to invest in the most cost effective decarbonisation strategy for each Member State and assist the transition from high carbon, through to low carbon on to no carbon.
The paper also highlights the option for a new energy saving target in the guise of an energy efficiency target, but again we have our reservations. Although the paper does suggest that this could be a relative target, matched to GDP, policy makers should be mindful of overestimating the benefits of energy efficiency by conflating it with energy reduction. Raising energy efficiency is an important policy objective which can help reduce the pressure that rising energy prices place on business competitiveness. However, there is little or no historical evidence to suggest that increasing energy efficiency will significantly reduce energy consumption.
Arguably, the reverse, that improvements in efficiency will stimulate demand for energy, is more likely. Improving efficiency makes using energy less expensive and encourages much needed economic growth, both of which tend to encourage energy consumption.
The paper also asks for views on the current policies, including EU Emissions Trading System. While many may agree that EU ETS is broken, views are divided on what the fix needs to be. Our view is that the significant structural problems with the EU ETS are best fixed in a full review that looks to Phase IV (post 2020), rather than short term fixes. A robust, global means of pricing carbon would be of significant benefit; however the EU ETS is in our view, no longer fit for purpose. This is particularly true for internationally traded sectors, such as steel. The EU ETS, in isolation, restricts growth in carbon efficient countries, inversely incentivising production in countries with no carbon standards and hence has little or no impact on global emissions.
We would call on the Commission to considering the case for moving trade-exposed, energy-intensive sectors to a single trading bubble under the EU ETS, where the cap is adjusted in line with the emergence of cost-effective abatement opportunities, particularly in the continued absence of a global deal on climate change.
There is also a question of what to do with the revenues from EU ETS we have recommended that the Commission adopt a technology-neutral approach when allocating further project finance through NER300. Currently it is solely focused on CCS and renewable energy projects. For consistency, it should adopt the same criteria for innovation investment as Horizon 2020.
Finally the debate on the future of climate change policy is likely to be a fractious one, with industry on one side and the Commission on the other. It is a shame that European politics is still dominated by this stark division. At a recent meeting between industry and Hedegraard, the Commissioner warned industry not to try and “water down” the Commission's proposals. In the UK, we have an open and honest debate with government which is firmly grounded in evidence, and increasingly, we seek to find our common ground and discuss the areas where we have less agreement. This constructive, evidence based debate, has led to a number of significant policy changes such as the Energy Intensive Industry package, and Brussels should take note.
As we highlighted in our recent report, Tech for Growth, we know what the prize (the clean tech sector value) is, £880bn between now and 2050 for the UK, and we need to work together with the UK government and the Commission to avoid policies which create the market, but ensure that EU manufacturers are unable to compete in that market. What we need from the Commission and the UK, is a strong focus on innovation and the technologies which will deliver the solutions to climate change, both in Europe and beyond. With this in mind, we must understand what Europe's vision for manufacturing is, not just what the top line climate policy will be. We need to imbed competitiveness at the heart of European policy making.
Chief amongst the proposals are new targets for 2030. The 20:20:20 package set a target for 2020 to reduce European emissions by 20% relative to 1990, to achieve a share of 20% for renewable energy sources in energy consumption, and a saving of 20% in energy consumption.