28/01/2014 07:30 GMT | Updated 29/03/2014 05:59 GMT

The EU's 2030 Climate Package Attempts Tricky Balancing Act

In a long-awaited publication of its suggested framework for the EU's climate and energy policy for 2030, the European Commission has placed a stronger emphasis on boosting economic growth, job creation and industrial competitiveness compared with its previous climate package (for 2020) released seven years ago. This is highlighted by less ambitious targets for renewable energy and reductions in greenhouse gas (GHG) emissions as the renewables sector is maturing and industry remains concerned about high energy prices in Europe. Nonetheless, the EU is set to remain a global leader in the fight against human-induced climate change in upcoming international climate talks. The EU will continue to try to balance the need for climate action with maintaining industry competitiveness.

The Commission suggests a binding target for reductions in harmful GHG emissions of 40% from their 1990 levels by 2030 (up from just above 18% currently). The 2020 target was 20% and looks set to be more than achieved, but primarily because of the recent economic downturn in the EU that has slashed energy demand. In terms of renewable energy, the Commission aims to raise the share of renewables in total energy consumption to at least 27% by 2030, up from around 13% currently and compared with a 20% target for 2020.

The end justifies the means

Unlike the 2020 goals, the 2030 renewable energy target of 27% does not include individual country targets, instead focusing on the EU aggregate. This was a major concession to countries such as the UK, which is prioritising nuclear power and shale gas. Likewise, Poland, which has large shale gas exploration potential, is only likely to support the GHG target if the Commission does not propose new legislation on shale gas exploration. The 2030 policy document barely mentions shale gas; that said, the Commission has recently published a set of recommendations to member states, addressing concerns about public health and the environmental effects of shale gas exploration. The 27% renewables target in the Commission's policy framework was made binding--rather than indicative--on the insistence of countries such as Germany that are undergoing a major energy transformation, putting greater emphasis on renewables and phasing out nuclear energy.

The president of the European Commission, José Manuel Barroso, emphasised that the GHG target was the priority, with the renewables target a function of the GHG target, in addition to other means such as emissions trading and raising energy efficiency. With regard to energy efficiency, the 2030 policy framework does not include a binding target. Instead, it says that a GHG emissions reduction target of 40% would require raising energy efficiency by around 25% by 2030; the 2020 framework had included a non-binding target of 20%. The latest policy framework is short on details on how energy efficiency can be raised, instead pointing to the Energy Efficiency Directive due to be concluded later in 2014. The lack of focus on energy efficiency is unfortunate given that buildings account for 40-45% of energy consumption in Europe, according to the United Nations Environment Programme.

However, the policy framework puts a greater emphasis on reviving the EU's dysfunctional emissions trading scheme (ETS); it was launched in 2005 with high hopes of reducing GHG emissions and setting a standard for the rest of the world, but the European economic crisis and an oversupply of carbon allowance have led to a sharp fall in the carbon price since 2008, failing to discourage the use of fossil fuels in the power sector (especially coal). In order to ensure more stable carbon prices and boost low-carbon investment, the Commission proposes in its 2030 policy framework the establishment of a market stability reserve in 2021. Hence, the carbon price could become an increasingly important signal for investment opportunities, rather than subsidy schemes in EU member states, especially as binding national targets for renewables have been replaced by an EU-wide one.

Industrial competitiveness

One of the main rationales behind the less ambitious targets for 2030 is the fact that energy prices in Europe are comparatively high. For example, according to the Commission, household electricity prices rose by an annual average of 4% between 2008 and 2012 across the EU, and industry retail electricity prices increased by around 3.5% per year during this period. In a global competitive context, industrial retail electricity prices are now more than twice those in the US (where a shale gas boom has lowered gas prices) and 20% higher than in China. Renewables subsidies, in addition to existing support for fossil fuel producers, have pushed up energy costs in Europe over the short term. The price differentials with its key trade partners and competitors threaten Europe's industrial competitiveness, production and investment.

At the same time, setting ambitious long-term targets remains a crucial element of EU climate and energy policy. Despite the overall easing of targets, the EU is likely to remain a leader in driving global efforts to reduce harmful GHG emissions. This long-term approach is set to yield benefits, as it manifests the EU's position as a force for innovation, investment and job creation in green industries. The long-term targets also mean a greater sense of predictability for investors and are part of the EU's strategy to reduce its energy import dependency and boost its security of supply.

The Commission's proposal puts early pressure on the European Council (representing the member states) and the European Parliament to agree on GHG emissions reduction targets by end-2014, so that the EU can pledge the 40% reduction in early 2015 as part of international negotiations on a new global climate agreement, which is due to be concluded in Paris at end-2015.