This week should see the end of ten long months of discussions in Europe over what climate and energy goals the EU and individual member countries should adopt for 2030.
There was some disappointment earlier in the year when the decision on the 2030 goals was pushed back to October but in hindsight it doesn’t seem unreasonable to spend ten months discussing an approach that will cover ten years and the extra time has allowed a range of ideas to be introduced and considered.
The series of leaks that have emerged from Brussels show how these have appeared and disappeared; a 2030 grid interconnection target, the inclusion of transport in the EU emissions trading scheme, offsets from tree planting, dynamic (ex-post) allocation of free allowances, and more recently wording on the importance of properly protecting carbon-intensive industries facing intense competition from less tightly regulated overseas competitors.
This last point is a recent addition and an important one for EEF members. It would be a major comfort if it remains in the final text.
There has also been a lengthy debate over the status of the energy efficiency and renewables targets. It now seems likely both will apply at EU level, with only the renewables target binding. This is not the position the UK government (and EEF) argued for. Having three separate sets of national targets has not been a cost-effective approach so far and it’s hard to see how the new EU-wide targets will be deliverable without some kind of responsibility being delegated out to individual countries.
However, it looks likely to be the kind of approach we will get – barring a last minute veto from Poland and other eastern European countries – and so we need to start thinking about how that will work in detail. Arguably in some ways it means the same thing as an emissions-only target for industry anyway in that it places more emphasis on the EU emissions trading system (ETS), widely seen at the moment as a bit of a basket case.
The European Commission released its proposal for a fix, the Market Stability Reserve, alongside the overarching 2030 package in January. This would start in 2021 and is designed to keep the volume of surplus allowances in the ETS from rising too high or sinking too low, theoretically leading to an ETS price of around €40/t by 2030. Yesterday, the UK government came out with its own position on the mechanism.
EEF already had concerns about the MSR being agreed ahead of other reforms of the ETS that need to be made for the post-2020 period, and potentially limiting other options for its revision (see our ETS report for some of the reforms we think are needed).
The news that the UK government is supporting Germany’s call for a 2017 start is an additional worry for industry.
This will mean carbon prices rising faster and, with other amendments proposed by the UK, potentially higher. In the meantime, there are gaps in the pre-2020 carbon leakage measures for some companies, and no details at all of the likely post-2020 situation.
While the framework for 2030 is becoming clearer, the discussion on the details has only just begun. This is an opportunity to reassess the situation from scratch. It’s another discussion that worth taking our time over.