Rhein on Energy and Climate

Investments in the energy sector require long planning horizons. Companies need to plan investments decades ahead. To minimise inherent uncertainties they should be able to rely on a regulatory framework stretching far into the future.

The EU energy policy framework with its three key targets – 20 per cent reduction of green house gas emissions, 20 per cent increase of energy efficiency and 20 per cent share of renewable sources – reaches until 2020. For European industrial, energy, construction, engineering, car making or transport companies that is too short. For taking the right decisions in the next few years they need to look beyond 2020. The 2050 horizon for which the EU has fixed a long-term target for reducing its green house gas emissions by 80-95 per cent compared with 1990 is, however, too far away.

It is therefore only logical that the EU has set out to define intermediate targets for 2030. On March 26th 2013 the Commission has launched a green paper by which it invites stake holders to give their views on 2030 targets and legislation.

The Commission aims to complete a new energy package in time before crucial meetings on a comprehensive international climate compact in 2015.

EU policies must reflect its socio-economic interests. These plead for enhanced self-sufficiency,high energy efficiency and a rising share of cost-effective renewable resources. By taking a lead in most advanced energy technologies EU industries will benefit from rising global demand for non-fossil energies, as Humanity will have to move towards “de-carbonised” energy systems.

For 2030, the EU should fix an ambitious green house emission reduction target. To obtain 90 per cent reduction of by 2050 compared to 1990, emissions should fall by 40 per cent until 2030. That is ambitious and bound to encounter resistance from energy-intensive business.

But it can be achieved provided the EU engage in massive research and investment programmes involving a comprehensive overhaul of buildings, transport infrastructure, power plants, electricity& gas grids and the stock of motor vehicles. It will also require a substantial shift of EU budget spending priorities.

Unlike for 2007-20, the EU should abstain from defining objectives for the re of renewable energy or energy saving/efficiency. Business should feel free to decide on the most cost-effective ways for reducing their emissions.

The 12 000-odd companies subject to emission caps and trading (ETS) should be governed by a revised regime providing for deeper reductions, say 2.5 per cent per year, and flexibility for potential gluts of allowances. A 2.5 per cent annual reduction of emissions will boost the extremely low allowance price of € 4-8 per ton of C02 and encourage investments in alternative energies and energy technologies. This should take care of roughly half of EU emissions.

To tackle the other half of emissions resulting from motor vehicles, buildings, industry and agriculture the EU should rely on a combination of strict energy efficiency standards, taxation and incentives.

For motor vehicles the EU will have to toughen present C02 emission standards.

By 2030 the average new car should consume no more than three litre gasoline per 100 km or emit no more than 75g C02 per km, compared to 130 g presently and 95 g by 2020.

This is ambitious but doable.

Technically, manufacturers have demonstrated their capacity to produce very low-emission vehicles. The one litre vehicle has become a reality, though its exorbitant price does not yet make it suitable as a mass vehicle. Strict EU standards will produce a fast learning curve.

Industry will realise that very low fuel consumption vehicles, including hybrid and fully electric ones, are essential to survive in the future global competition and ecological environment.

Premium manufacturers might continue selling luxury vehicles and SUVs; but would have to pay penalties for extra emissions.

Light utility vehicles should be subject to slightly softer standards.

For the first time, the EU should also apply emission standards theavy duty vehicles and agricultural machinery.

Heating and cooling of buildings constitute the third most important source of EU green house emissions. The EU will need to progress towards zero emission buildings until the middle of the century. It should therefore define ambitious standards of thermal insulation and heating/cooling systems for all newconstructions after 2020 to encourage the use of advanced building, heating and cooling technologies, among them heat pumps, district heating/cooling and co-generation of electricity.

By the same token, member states should offer incentives for thermal overhaul ofexisting buildings, e.g. by way of 20-year modernisation programme to be financed by low interest loans.

Manufacturing industries not covered by ETS will have to make additional efforts to use energy more effectively. In this sector, there is little scope for binding EU standards. Rising energy prices or consumer taxes will be the most powerful driving force.

The EU should let the market play its role, while insisting that competing countries stop subsidising fossil fuel prices.

Agriculture tends to be overlooked as a major emitter of green house gases. In the 2030 energy strategy it needs more focus:

  • It should no longer qualify for subsidised fuel.
  • It needs more incentives for energy-efficient methods of cultivation and low methane cattle raising. With proper techniques it should be able to achieve substantial reductions of its C02 emissions from cultivation and methane from sheep/cattle raising.
  • The production of biofuels from rapeseed or maize needs a critical scrutiny to check net C02 savings after cultivation, transport and distillation. Depending on its outcome the EU should drop biofuel consumption targets and subsidies.

Higher energy efficiency, obtained through a panoply of measures taken by business and households and supported by public incentives and standards, must be the principal vehicle for reducing emissions during the coming decades. It should rise faster than during the last 20 years, optimally by two per cent annually.

That will only succeed with much higher carbon prices, which will also accelerate the drive towards more renewable energy, the second engine for a low-carbon economy by the middle of the century.

The EU should, however, refrain from fixing renewable quotas to utility companies and leave at their discretion how to best reduce their emissions. Nor should it impose shares of renewable energy generation on member states, which are not equally well endowed for it.

Its most useful role is to promote the rapid completion of an EU-wide power grid that will enable solar and wind electricity to freely move the long distances from producing to consuming regions. The decision by Council and EP on March 21stto cut approval delays to no more than four years is a positive step towards acceleration.

Member states and power companies should also remain free to operate nuclear reactors, provided they abstain from granting/obtaining direct or indirect subsidies.

As the competitiveness of nuclear power tends to shrink compared with efficient wind or solar power the temptation for subsidies is likely to rise. The EU Commission must therefore be stricter than ever in banning them.

The EU should reconfirm the two basic rules by which nuclear power plants may operate: high safety standards and no subsidies whatever, including for waste disposal.

By establishing a level playing field among competing energies- hydro, wind, solar, geothermal, biomass, waves, carbon storage, co-generation – utilities may want to abandon the nuclear strand by the middle of the century.

Whatever guidelines and standards the EU may fix at the European level, their implementation will depend on member countries.

To enhance compliance, the EU should introduce an “ energy semester”,comparable to the successful “economic semester”.

Member countries would prepare national “carbon plans 2030”containing the measures to be taken in view of implementing EU targets.

Broken down in annual programmes, they would be submitted to the Commission and member countries for reviews.

This would allow officials and ministers concerned to study how their neighbours tackle common issues. If handled with due flexibility they might become part of an effective EU-wide learning process.

Last not least, the EU should not lose out sight higher excise taxes on fossil fuels.

Of course, EU legislation requires unanimity.

But nothing prevents the European Commission from making recommendations and reporting on the disparate levels of taxation by member states and fossil resources.

The EU must prepare contingency planning for the eventuality that oil prices undergo a steep fall, as has been the case for gas in the USA due to the development of non-conventional gas. Sharply declining carbon prices would follow, and European climate policy would lose even more of its leverage. To prevent this from happening the EU should agree to introduce compensatory tax hikes if oil prices were to fall dramatically, say below $ 80/b.

Add to this that ETS reaches only half of EU green house gas emissions. Car drivers,users of agricultural machinery or manufacturers of light machinery etc. do not pay for the entire external costs of their activities and are not even aware of this oversight.

How long can Europe continue with a tax system that is not more focused on the harmfulness of fossil resources?

Eberhard Rhein, Brussels

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  1. Dear Sir,

    I agree with many points that you put forward in your lengthy argumentation above.

    However, I disagree strongly that “[u]nlike for 2007-20, the EU should abstain from defining objectives for the re of renewable energy or energy saving/efficiency. Business should feel free to decide on the most cost-effective ways for reducing their emissions.”

    EREC (European Renewable Energy Council) will be releasing a new publication next week, ‘Hat-trick 2030 – An integrated climate and energy framework’ which presents the main reasons why an integrated renewables – greenhouse gas – energy efficiency 2030 policy approach with an ambitious and binding renewable energy target yields more benefits for European citizens and industries than a one-legged policy based on a supposedly “technology-neutral” GHG-only approach.

    The 2009 Climate and Energy Package and its binding renewable energy targets have provided the energy sector with the necessary stability and predictability. What’s more, there is a clear international consensus of the importance of such targets: the number of countries worldwide with renewable targets more than doubled between 2005 and 2012. Targets for renewable energy now exist in 118 countries; this is up from 109 countries in 2010.

    Due to the early adoption of legally binding EU and national targets, including national action plans and administrative reforms, Europe has achieved a share of 12.5% renewable energy in its energy mix with year-on-year growth in 2010 at its highest level since 1990.

    I will say no more for now, but invite you to take a look at our upcoming publication next week.

    Best regards,
    Communication and Policy Officer at EREC

  2. Eleanor
    Thanks for your speedy reaction. It is normal for EREC to plead for RE targets, even for mandatory ones. But after a lot of thought I have come to a different conclusion. I shall carefully look at your forthcoming publication. Perhaps you manage to convince of your position which I had shared for many years.
    Eberhard Rhein

  3. Dear Ebhard,

    Thanks for your agreeable response 🙂

    Sorry for the delay, since our publication came out on 18th April, but things have been rather busy here..

    Here it is:
    Hat-trick 2030- An integrated climate and energy framework

    Looking forward to hearing what you think!

    I would also be interested in your insight into what you think will come out of the energy/taxation summit on 22nd May..

    Kind regards & a pleasant weekend,


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