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The Energy Bill Must Live Up to a Strong EU Ambition

31/05/2013 09:24 BST | Updated 30/07/2013 10:12 BST

The announcement on the UK's position on a future climate and energy package in the EU does not remove the need for strong domestic legislation to reduce emissions in the power sector. Members of Parliament have an important opportunity at Report Stage of the Energy Bill to ensure the Bill provides investors with the long-term volume and financial certainty they need if the UK is going to reduce its emissions quickly and cost-effectively.

After months of tense internal discussions, the UK Government has announced its position on a future European climate and energy package. It will support a 40% unilateral cut in emissions by the EU by 2030, rising to 50% in the case of a "global deal" on emissions. This announcement was also accompanied by a welcome call for an in-depth reform of the EU Emissions Trading Scheme (EU ETS) to help put a more meaningful price on carbon emissions (currently worth less than the price of a hamburger at under €3/tonne of carbon) and deter investment in carbon intensive technologies.

Putting aside the fact that it is not exactly clear what the emission cut figures mean in terms of emission reductions for each Member State in the EU and what level of ambition would have to be delivered in a global deal for the conditional 50% figure to be adopted, this announcement is nonetheless a welcome step forward in the development of an EU-wide climate and energy package. Only a few months ago, it seemed that the UK Government may never be able to come up with a clear position on the issue.

However, this announcement should be put in context. First, the Government has be to be clear that only its higher figure - a 50% cut in EU emissions by 2030 compared to 1990 levels - could start to be described as a credible EU contribution to preventing dangerous levels of climate change. A recent study by WWF's European Policy Office found that in order for the EU to reduce its emissions by 95% by 2050 and thereby maximise the chances of preventing global average temperature rises of more than 2C, the EU should be aiming for a 55% cut in emissions by 2030 compared to 1990 levels.

Second and as predicted, the UK Government stated that it would oppose a new European renewable energy target for 2030. This is an important point, as the existing renewable energy target for 2020 has played a key role in providing a strong market signal to investors in the sector as well as prompting the development of financial support policies for renewable energy across the EU. This in turn was instrumental in delivering a strong deployment of renewable energy technologies, which accounted for 51.2% of new power capacity in the EU between 2000 and 2012, and in helping reduce the costs of technologies like onshore wind and solar PV. This would not have happened had the EU only been relying on its very weak EU ETS to drive investment in low-carbon technologies.

If the UK is serious about delivering its share of a 50% cut in EU emissions by 2030, it will need to substantially reduce its power sector emissions by then. But if the UK is to deliver this ambition whilst opposing a renewable energy target at EU level, its Energy Bill will have to provide investors, manufacturers and project developers with alternative tools both in term of long-term volume certainty and stable financial support policies. These policies are needed to reduce political risk for investment in new low-carbon technologies, thereby attracting a greater range of financing sources to the sector, and - importantly - reducing the costs of borrowing for these projects. Financing costs, which are heavily dependent on investors' perception of political risk, are currently a major component of the costs of new technologies like offshore wind.

This is where, as recommended again last week by the Committee on Climate Change, inserting a power sector decarbonisation target for 2030 in the Energy Bill and providing greater clarity over the level of funding available to support low-carbon projects out to 2030 will be critical. Members of Parliament, who will be voting on the issue of a decarbonisation target on 4 June, should remember that whilst 2030 may seem to be a date far out in the future, it corresponds to the next cycle in investment terms.

The UK Government's announcement last week was a positive step forward. But it does not remove the need to develop strong domestic legislation through the Energy Bill to support ambitious and cost-effective emission cuts at home and the development of a thriving low-carbon economy in the UK. Members of Parliament, who will be debating the Bill on 3rd and 4th June, have a unique opportunity to add a clear sense of purpose to the Bill and show to investors and EU partners that the UK is serious about meeting the upper-end of its emissions reduction proposals.