The 2030 Climate and Energy Framework: The Regulatory Follow-Up

This article follows up a recent piece I wrote on the importance of agreeing a 2030 climate and energy framework at last month’s European Council. Following that agreement in Brussels, this article analyses some of the interesting (and surprising) elements of the agreement, and looks ahead to how the agreement will be followed up over the next few months.

Agreement

As expected, and despite the usual waving around of veto cards by some member states, the 2030 framework and targets were agreed at the European Council on 23/24 October. There were no major changes to the main targets - 40% binding GHG emissions reduction target; 27% renewables target binding at only EU level; 27% (not 30) indicative energy efficiency target - but some interesting and potentially important changes were made to the Conclusions late on. These merit some comment. In addition, it’s worth taking stock of the implications of the conclusions for policy and the all-important politics of climate and energy, at the opportune moment when the new Commission (and associated Commissioners) take office under the leadership of Jean-Claude Juncker.

Review Clause

A lot of fuss has been made about a clause inserted that the EU will revert to the question of the targets after the Paris COP in December 2015 and that the EU will “keep all the elements of the framework under review.” The Poles in particular are keen to portray this as an opportunity to lower European ambition post-Paris, should that meeting end in comparative failure. Conversely, as UK Climate and Energy Secretary of State Ed Davey has emphasised, the EU might be able to raise its ambition should the US, China and other industrialised countries make substantial domestic commitments at Paris to tackling climate change. In short, the review clause seems to be a common sense measure, marking the understandable need to assess the situation after Paris.

EU ETS

There had been speculation before the Council about whether a reference to the Market Stability Reserve (MSR), the Commission’s principal ETS structural reform measure, would appear in the Conclusions. The expectation had been that the Poles would summon up sufficient support to oppose this. In the event, it seems like Germany, the UK and others were able to extract this concession from the Poles in return for what the latter had negotiated on free allowances and protection for their carbon-intensive industries. The reference inserted late on to a well-functioning, reformed Emissions Trading System (ETS) “with an instrument to stabilise the market in line with the Commission proposal” is a positive step for the ETS and of course for the MSR itself, where the legislative process within the Brussels institutions is now beginning (NB: a workshop in the Environment Committee on 5 November, where parliamentarians will have a first experts hearing on the legislative proposal).

Inter-Connectors

This passage was the subject of wrangling up to the last minute, with the French sticking to a 10% target for electricity interconnections, while Spain and Portugal were pushing for a higher target. The Conclusions produced a compromise, with the 10% target reinforced for 2020 and the emphasis placed on those parts of Europe which are less well-integrated into the internal market, i.e. Iberia and the Baltic States. The Commission was also requested to “report regularly to the European Council with the objective of arriving at a 15% target by 2030”. In addition, the Conclusions also singled out interconnectors as priorities for EU financing from the multi-framework financing budget. Investors also eyeing the EU’s Projects of Common Interest (where energy infrastructure projects are a priority) and President Juncker’s aspirations for a €300 billion public/private infrastructure programme should take note.

Transport

The Conclusions contained an interesting passage on transport, indicating a renewed emphasis on low-carbon technologies. The Commission was invited “to further examine instruments and measures for a comprehensive and technology neutral approach for the promotion of emissions reduction and energy efficiency in transport, for electric transportation and for renewable energy sources in transport also after 2020”. There was also a reminder that existing legislation permits a member state to include the transport sector within the framework of the ETS. Not that we should necessarily expect a push to expand the ETS to incorporate the transport sector overall; this was a particular request of Denmark for domestic reasons.

Reserve for Low-Income Countries

The reserve for low-income countries was a vital element of the Conclusions which helped seal the deal. The agreement included a decision to establish a new reserve of 2% of EU ETS allowances, to be set aside to address particularly high additional investment needs in low income member states. An important aspect of this decision was that the reserve should concentrate on helping low income EU member states to modernise their energy systems, with energy efficiency and clean energy to the fore. In return for this, the Poles and others got their expected concessions of free ETS allowances. But this push on the expansion of clean energy in central and eastern Europe was something which was conspicuously lacking in the 2008/09 agreement on the 2020 framework and it will be interesting to see if over time it does help to ease the passage of decarbonisation in the CEE region.

Overall Implications

The Polish Prime Minister returned to her country proclaiming that she had “won” the negotiation. In the narrow, more immediate sense, she might be justified in making these claims. Moreover, green campaigners have proclaimed their disappointment in the 2030 targets which they say are inadequate to meet the scale of the climate challenge. All that said, the single most important outcome of the agreement on 2030 is that it maintains the direction of travel on decarbonisation. Disagreement or procrastination would have been a case of the EU putting the brakes on; but that didn’t happen.

The Conclusions also represent, as we foreshadowed, a substantial boost for the EU ETS and carbon pricing as the core policy instrument of decarbonisation. Supported by the MSR process, the ETS is now facing a more confident future than at any time since 2010 when European recessions started exerting downwards pressure on prices. There will still be bumps along this road. But political will behind the ETS, at least among member states, seems firmer - even the Poles acknowledge that the European Council has ensured the ETS as the “cornerstone” of EU climate policy. What has probably helped clear this wider political space for the ETS has been the line which member states have agreed on carbon leakage: the Conclusions are very clear that leakage measures will continue post-2020, to support international competitiveness, while other countries are not undertaking comparable climate mitigation efforts.

The international dimension to Council Conclusions is important. Given the efforts which American and Chinese political leaders are now making on climate change, plus the heightened emphasis on climate science and impacts engendered by the recent Global Climate Summit and the IPCC synthesis report published over the weekend, failure to agree a 2030 framework would have been lambasted as a failure of European political leadership. Despite the inevitable NGO criticisms, Europe can now play a credible and active role in the countdown to Paris 2015, including peer pressure on other industrialised nations to make significant offers on targets. Commentators have also speculated whether the political deal cut between high and low-income EU member states can act as a template for the global deal - that might be wishful thinking, but perhaps Europe can potentially hold a mirror to the international community about how countries at differing points of development can find an accommodation on taking forward climate action and decarbonisation.

The Follow-Up

This is where the rubber should hit the road. Juncker’s new Commission formally started work yesterday (3 November), under the leadership of Jean-Claude Juncker. The 2030 framework agreement has given Juncker’s senior climate and energy lieutenants - Energy Union Vice President Sefcovic and Climate and Energy Commissioner Cañete - the ideal platform to take forward relevant legislative, policy and financing initiatives. Eyes will be fixed firmly on these two politicians - and what they say on their priorities - as they settle into their portfolios.

As mentioned above, the MSR process has already started to roll. But this was in any case independent of the 2030 framework. Commission officials will have been considering for the last few months how the conclusions and the targets can be translated into material legislation. The political test for Cañete, and possibly Sefcovic, will be how quickly and firmly they grasp the clear direction which EU heads of government have set for them. On the substance, national governments, the European Parliament and business will be on the look-out for policy statements and Commission drafts which:

• can make sense of the binding EU-wide renewables target and, in particular, how it will apply to national policies. Will it herald a more flexible approach at national level which enables greater cross-border co-operation on support schemes and projects?
• give any indication about whether the Commission (who might well be backed by the Parliament) intends to drive energy efficiency harder, despite the lack of a binding EU-wide target. Advocates from politics and business are already asking the reasonable questions that, if policymakers are so keen on tackling security of supply and climate change, why aren’t they prepared to do the obvious and support targets and primary legislation on energy efficiency?
• join up the further integration of the single energy market with objectives on investment and infrastructure.

It should be a busy autumn and winter.