Climate regulation round-up

25 March 2009

An epic year of European Union environmental policy-making came to a close just before Christmas 2008, with a series of deals at an EU heads of state summit and a European Parliament plenary session in Strasbourg. Agreement was reached on a number of climate dossiers that set out the EU's strategy for combating global warming over the next 15 years. French president Nicolas Sarkozy – the Duracell bunny of international relations – called the deals “historic”. Others were not so sure. Environmental groups said last-minute bargaining had weakened much of the legislative package. However, nearly every business sector, from steelmakers to lightbulb designers, can expect to feel some impact from the legislation. Renewable energy Arguably the most substantial deal concerned renewables. EU countries agreed that on average they would meet by 2020 a fifth of their energy requirements from sources such as solar, wind and wave power. Countries have been alloted national targets, ranging from 10 percent for tiny Malta to 49 percent for resource-rich Sweden. These are binding, meaning non-compliant member states could face fines. The deal has been widely welcomed. Green MEP Caroline Lucas called it “the only good news” among a series of compromises on climate policy. Arthouros Zervos, president of the European Renewable Energy Council, said it would “provide for much-needed investor confidence in the renewable energy sector,” by establishing mandatory goals. Governments will have to incentivise the power sector to make the necessary investments. One method involves “feed-in tariffs,” or guaranteed high prices for renewable energy. This has proved extremely successful in Germany, one of Europe's renewable energy leaders, where feed-in tariffs have led to both large and small-scale investments. For example, construction companies have an incentive to place solar panels on the roofs of new buildings. Renewables can also potentially renew the economy. Wind turbines, solar panels, heat pumps – all need to be manufactured and maintained. Gordon Brown has talked of tens of thousands of jobs being created in the UK by the greening of power. The UK's target under the EU's renewables legislation is 15 percent by 2020, up from 1.3 percent in 2005 – one of the lowest rates in Europe. Carbon trading The renewables deal was part of a package designed to cut EU greenhouse gas emissions by at least 20 percent by 2020. The EU emissions trading scheme (ETS) is another major plank of this, and the December deals included finalisation of the ETS rules for 2013-2020. The main element is a progressively reducing emissions cap. Around 11,000 industrial plants and power generators are obliged to participate in the ETS. Under the agreement they must reduce their collective emissions by nearly two percent annually – from 1.97 billion tonnes of CO2 in 2013 to 1.72 billion in 2020. Compared to 2005, this will represent a 21 percent emissions cut. The legislation will effect business in a number of ways. ETS participants must cut emissions or incur the cost of buying extra carbon allowances. Many companies, such as steel and cement firms, have been doing this since 2005 when the ETS began, but there will be a general tightening up in the post-2012 period. The ETS revision will also extend carbon trading to aluminium smelters and ammonia producers. Airlines flying into and out of EU airports must also take part from 2012, and lawmakers have reserved the right to include shipping, depending on the outcome of talks currently underway within the International Maritime Organisation. Overall however, a range of derogations in the final ETS agreement mean participants were left feeling it could have been worse. Proposals to oblige heavy manufacturers to buy emissions allowances up-front in auctions, for example, were weakened in the final reckoning. Folker Franz of EU industry federation BusinessEurope said this had been a “step in the right direction.” Power companies, however, will nonetheless have to buy a significant proportion of their allowances at auction, meaning higher electricity prices for consumers and all business sectors as the cost of allowances is passed through. But, the thinking goes, this will help the EU meet another major policy aim: energy efficiency. Energy standards The EU's stated efficiency goal is to cut primary energy consumption by 20 percent by 2020. This has led to a range of legislation affecting many business sectors. The Eco-Design Directive, for example, established technical committees to tighten up efficiency standards for a variety of products. One result was the recent agreement to phase out incandescent lightbulbs in favour of their energy-saving cousins. This, the European Commission said, would lead to annual savings equivalent to the energy consumption of Romania, cutting carbon emissions by a yearly 15 million tonnes. Other eco-design decisions will, according to the Commission, save the annual energy consumption of Denmark (tighter standards on electrical goods with a standby function) and Lithuania (mains adaptors). More countries can expect to be added to the list, with boilers and water heaters, consumer electronics and refrigerators among other products under consideration. Energy efficiency measures are also targeted at buildings. A system of energy performance certificates for property transactions has already been introduced, and this will be extended more widely under EU plans published in mid-November – leading to savings equal to the energy consumption of Belgium and Romania combined, the Commission said. Vehicle standards The EU climate strategy does not neglect transport emissions. As noted above, aviation, and in due course shipping, will be covered by emissions trading. Carmakers, meanwhile, must improve engine efficiency and cut the CO2 emissions of their products to an average of 130 grammes per kilometre by 2015. Current average emissions stand at around 160g/km. During the negotiations on this, the European Parliament added an extra element – a further target of 95g/km to be achieved by 2020. Although the details have been left until a later stage, Italian MEP Guido Sacconi, who led negotiations for the Parliament, said the long-term target was “rather ambitious” and represented a “change in philosophy” for the auto industry. A number of other measures are also designed to encourage the shift to more environmentally-friendly vehicles. For example, the EU agreed in October 2008 that public authorities buying buses and other vehicles should include the lifetime environmental impact of the vehicles they buy as part of the contract award criteria. Fuel has also come under the spotlight. Somewhat in the shadow of the more prominent legislation agreed just before Christmas was a deal targeting CO2 emissions from the vehicle fuels production and use cycle. Fuel suppliers are required to reduce emissions by 10 percent by 2020. National targets In case anything was missed in the flurry of legislation, EU countries also agreed national emission reduction targets for economic sectors not covered by the ETS. Specific measures will be decided on individually by member states, but are likely to be focused mainly on agriculture, construction, transport and waste. Countries might, for example, decide to offer incentives to shift freight from road to more environmentally-friendly modes such as rail and water transport, or to introduce policies to reduce landfilling. Agricultural emissions, meanwhile can in principle be cut by changing livestock diets. The emission caps set by this so-called “effort-sharing” legislation range from a 20 percent cut by 2020 for Denmark and Ireland, while poorer and newer EU member states such as Bulgaria are allowed to increase emissions by up to 20 percent to accommodate expected economic growth. National caps will contribute to an overall EU target for non-ETS sectors of a 10 percent emissions cut by 2020 compared to 2005. The UK's effort-sharing target is a cut of 16 percent. By Stephen Gardner A version of this article was published by Climate Change Corporation.

 

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