European Commission 2030 Proposal – Target Stringency for EU ETS and ESD

On 22 January 2014 the European Commission proposed a new binding reduction target for greenhouse gas (GHG) emissions, calling for a 40% reduction from 1990 levels to be met through domestic measures aloneThe annual reduction in the cap would be increased from 1.74% now to 2.2% after 2020, and there is also a call for emissions outside of the EU Emissions Trading Scheme (ETS) to be cut by 30% below the 2005 level, which is to be shared across the Member States.

There are some critics to the European Commission’s proposals, though many do want to implement some of the proposals and believe that they are a step in the right direction in order to achieve long-term emissions reductions. Specifically, Carbon Market Watch claims that the 40% target proposed is not ambitious enough in order to meet targets of 80-95% reductions by 2050. They also point out that the use of international offsets needs to be reevaluated and EU-wide quality restrictions must be applied in order to protect European competitiveness.[iv] In their report they explain, “Despite the domestic nature of the EU’s 2030 GHG target, international offsets may be used by Member States that want to increase their own GHG targets beyond the EU-wide GHG targets. Between 2013 and 2020 more than two thirds of all issued offsets will come from large-scale business- as-usual energy projects that do not represent real emissions reductions because the projects would have gone ahead anyway. Instead of investing in clean energy projects in Europe, businesses are spending money on purchasing offsets from projects in developing countries that would have been built anyway. This is hardly a way to protect European competitiveness.”

On 21 March 2014, the European Council convened for their Spring Meeting and reviewed the Commission’s proposal to conclude that the new framework should be based on the following principles:

  • further improve coherence between greenhouse gas emissions reduction, energy efficiency and the use of renewables and deliver the objectives for 2030 in a cost-effective manner, with a reformed Emissions Trading System playing a central role in this regard;
  • develop a supportive EU framework for advancing renewable energies and ensure international competitiveness;
  • ensure security of energy supply for households and businesses at affordable and competitive prices;
  • provide flexibility for the Member States as to how they deliver their commitments in order to reflect national circumstances and respect their freedom to determine their energy mix.

As can be seen from the proposal in January, 20% reduction targets in 2020 would increase to 40% by 2030, and this is supposed to place the EU on track to meet the 80% reduction by 2050

The Council doesn’t specifically mention anything in regard to applying stringent targets for the EU ETS and ESD, but they do seem to comply with the ideas and proposals set forward by the Commission in stating that there should be further coherence between targets and ETS reform should play a central role in achieving their objectives. An agreement was made to make a final decision regarding the framework by October 2014 at the latest.

One of the major concerns for many is the ineffectiveness of carbon markets and the EU ETS due to the extreme surplus of emission allowances and international credits that has grown since 2009. At the start of Phase III of the EU ETS in 2013, the surplus stood at almost two billion allowances, and the European Commission’s anticipation is that although the surplus will discontinue to grow, there will not be much of a decline in allowances. Having so many allowances in the market risks damaging the orderly function of the carbon market, and furthermore presents ample risks for the ETS in it’s capability to meet demanding emission reduction targets in future phases..

Because of the over supply, current carbon prices are far from the prices ETS projections are based on. Therefore, the situation might be a call to transition focus on the Effort Sharing Decision (EDS) as well as the ETS. In the Energy Roadmap 2050 that was composed in 2011, it can be seen that they project the “contribution to the emission reductions [to be] driven by the ETS sectors which decrease emissions by 48% between 2005 and 2050; on the contrary the non-ETS sectors reduce by 21% compared to 2005.” Today we can see that the non-ETS sector target has been adjusted in January’s proposal, but clearly prevailing policy is not adequate and the proposals of late have been a testament to that.

Making a new legally binding reduction target that is to be met solely through domestic measures is telling, because there’s potential that the European Commission has learned from the past and understands the importance of making a compulsory, more aspiring objective outside of the ETS in order to hedge risk of it’s failure.** 

**The door is still open for international credits but subject to an international agreement and further tightening the caps.

Image source: Flickr with modification