Something must be in the water these days in Brussels. The European Commission seems determined to press ahead with its plans to reshape the European Union’s (EU) energy market, no matter how vociferous or powerful the opposition. In December, the Commission was bullish about unbundling, now it is being equally aggressive over renewable energy. A slight slippage in the implementation timetable is of minor importance where such a comprehensive and far-reaching package is concerned. More important is that the package has not been noticeably watered down in recent months in spite of some well trumpeted complaints from France, Germany and Spain, and others. It may be that those who want weaker content or more lenient deadlines will try to arrange this as the package moves through the EU legislative channels, but this is certainly not a foregone conclusion.
Essentially the commitments made at the EU summit last March have been preserved in the formal proposals from the Commission that the EU will increase from 8.5% at present to 20% by 2020 (10% for biofuels) the share of renewables in aggregate energy consumption - an average annual increase of 11.5% - considering all the sub-sectors - wind, tidal, solar, geothermal, hydropower and biomass.
Brussels has concluded that while such growth is technologically and economically possible, and indeed should create thousands of new business opportunities, such a boom won’t happen through market forces alone. It will have to be legally enforced, and the Commission has set specific targets for each of the 27 EU member countries, depending on their ability to adopt renewable energy production.
Top of the table here is Sweden, where the renewable share required is 49%, followed by Latvia and Finland. At the other end, where a renewables share of only 10/11% is set, are Malta and Luxembourg. The UK (15%) and Germany (18%) come in at just under the EU’s average target and France, at 23%, a little above it.
Some EU member countries clearly find it more congenial to step up renewable energy production than others and Brussels recognises this: "as long as the EU's overall target is met, member states will be allowed to make their contribution by supporting Europe's overall renewables effort, and not necessarily inside their own borders."
The options for developing renewable energy vary from one country to another, in short, though in all cases the lead times for bringing renewable energy on stream are "long." National action plans are to be prepared by each member state setting out how they intend to meet their targets and how progress can be monitored effectively.
By shifting investment to locations where renewables can be produced most efficiently, some Euros 1.8 billion could be cut from the overall price tag, suggested the Commission. It claims this cost can be limited "to around 0.5% of GDP." But the cost of inaction "is at least ten times that, and could even approach 20% of GDP," said the Commission president José Manuel Barroso. "The longer we delay, the higher the costs of adaptation and mitigation," he said.
The second main element of the package is a sweeping revision of the EU Emissions Trading System (ETS) in order to provide incentives for major CO2 emitters to develop clean production technologies. The target is a 20% reduction in CO2 emissions by 2020, rising to 30% if an international climate change agreement is reached.
In practice the single, EU-wide carbon market will be extended to include more greenhouse gases (currently only CO2 is in) and involve all major industrial emitters. The emission allowances will be reduced year-on-year to allow for emissions covered by the ETS to be reduced by 21% from 2005 levels in 2020, said the Commission.
Given the amount of emissions produced by the power sector, the proposed scheme involves their facing full auctioning from the start of the new regime in 2013, a controversial move. Other industrial sectors, as well as aviation, will step up to full auctioning gradually, said Brussels, "although an exception may be made for sectors particularly vulnerable to competition from producers in countries without comparable carbon constraints." The auctions will be open, and any EU operator will be able to buy allowances in any member state. The Commission estimates that the revenues from the auctioning could amount to Euros 50 billion annually by 2020, largely to be ploughed back into renewables development.
Brussels is clearly pleased by the way the ETS has worked so far and believes that after more than three years it has proved "an effective instrument to find a market-based solution to provide incentives for cuts in greenhouse gas emissions," despite last year’s wobbles over emissions pricing. At present it covers some 10,000 industrial plants across the EU – including power plants, oil refineries, and steel mills – accounting for almost half the EU's CO2 emissions. Under the new system over 40% of total emissions will be covered. Specific emission targets will be set for those industries outside the ETS.
These changes mean that EU businesses with heavy emissions will have to buy permits to cover the excess. A consequence of this, as the Commission president José Manuel Barroso has pointed out, is that unless an international deal on cutting greenhouse gas emissions is reached by 2013, importers into the EU will also have to buy the permits. This idea is strongly favoured by France and others but has sparked major indignation in the UK and the US.
Within the proposals for renewable energies is the already announced target of 10% for using biofuels in transport within the EU, to be reached by 2020 - the same for each member state. Unfortunately for the Commission however its document proclaiming the merits of renewable energies in general landed almost at the same time as a report by the British House of Commons calling for a moratorium on biomass and saying that the overall effect of existing biofuel policy was "negative." The EU energy commissioner Andris Piebalgs said the Commission "strongly disagrees."
So too, predictably, does the European Renewable Energy Council (EREC) which issued a warm statement of welcome for the package. "The directive will be - with further improvements - a major tool for a sustainable market development of the renewable energy sector and for reaching the 20% target," said the EREC. It specifically welcome the renewed commitment to set a minimum binding target of 10% for the share of biofuels in the EU transport fuel by 2020, adding that "biofuels reduce to a huge extent Europe’s dependency on oil imports and therefore there is a need to have also "home-grown" biofuels."
For the EU electricity industry EURELECTRIC, the association of electricity producers, called for development of "a working market and a robust emissions trading mechanism."
While some aspects of the EU package were a step in the right direction, "EURELECTRIC calls on the legislators to ensure the texts finally adopted ensure the maximum use of market-compatible mechanisms, especially for incentivising renewable energy sources," it said. On the ETS, the association said its members "welcome the clear visibility to the 2020 horizon and recognise auctioning as the main allocation method." It warned though that "the scarcity of allowances created by stricter caps will impact on electricity prices, irrespective of the switch to auctioning."
What next? The Commission package will go straight to the EU council of ministers and the European Parliament where it will be considered simultaneously. As it falls under the so-called co-decision procedure, the European Parliament is a co-legislator and must agree on the final text. But this is not a package that the EU wants to linger over. The programme should be dealt with during the current term of Parliament and full agreement with the Council is slated by the end of 2008.
That won’t be so easy, and not just because of the speeding up of the process. Formal letters of complaint have already reached the Commission from Germany, France and Spain objecting to aspects of the ETS plan which they say would encourage private firms to trade in renewable energy thereby potentially undermining their current domestic 'feed-in' programmes. These schemes provide incentives for electricity utilities to purchase renewable energy from such sources as solar, wind, biomass and geothermal power at above-market rates.
Beyond this, French President Nicolas Sarkozy has objected in writing to the 20% renewable target proposal which he calls "neither effective, nor equitable, nor economically sustainable." France, of course, has a big book to talk in respect of nuclear power. Sweden, Latvia and Denmark believe they should get better treatment in recognition of their existing high use of renewables. But even though few member states unreservedly like the package as it stands, Commission officials remain stubbornly upbeat that it will become law within a year or so.
Alan Osborn
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