boilingspot: Q+A: When will the EU raise its green ambitions?

The European Commission's latest analysis on moving beyond its existing set of 2020 green goals, to be published on Monday, finds raising its environmental ambitions would be cheaper than originally thought

By Barbara Lewis | Reuters | Jan 30, 2012

Details have already emerged in a draft of the working paper seen by Reuters earlier this month.

It found, however, the cost of raising the current target of a 20 percent cut in carbon emissions to 30 percent would be more expensive for newer EU member states such as Poland, which relies heavily on coal and would need to invest in green infrastructure.

Such nations also have greater potential to benefit, however, from improvements in efficiency and the extra jobs that would be created, the working paper said. They could also receive higher revenue from auctioning carbon allowances under the EU's Emissions Trading Scheme (ETS).

The Commission's working paper is meant only to feed into ongoing debate and is far from becoming policy.

The European Union has said it will move up to a 30 percent carbon reduction goal on condition that other major economies carry out their fair share of emissions reduction. At the same time, EU roadmaps looking beyond existing legislative goals envisage virtually carbon-free power generation by 2050.

Following are some questions and answers about moving on from the three 2020 goals agreed in 2007 of a 20 percent cut in carbon emissions, a 20 percent increase in energy efficiency and a shift to drawing 20 percent of energy from renewable sources.

WHAT ARE THE IMPLICATIONS FOR THE CARBON MARKET?

The price of carbon allowances on the European Union's ETS has sunk to record lows under the pressure of surplus allowances as the region's economic crisis has eroded demand.

The market has recovered slightly from December's lows of below 7 euros ($9.19), but at about 8 euros is still nowhere near the 20-to-50 euro level analysts say is needed to encourage investment in low-carbon technology.

In the European Parliament, there has been support from across the political divide for intervention to shore up the carbon market by removing allowances.

But at the level of the Commission and the EU Council of governments, there is no obvious movement yet to agree on that. Draft conclusions ahead of a meeting of European environment ministers in March only noted the need for "a robust allowance price."

Raising the carbon emissions cut target to 30 percent from 20 percent, just like intervention, would have the effect of boosting the carbon market.

The surplus availability of allowances would shrink and the carbon price in 2020 would climb to 30 euros from 16.5 euros per tonne assumed under the 20 percent scenario, according to the working paper.

HOW CONTROVERSIAL ARE THE TARGETS?

Economic crisis has left many businesses arguing that this is no time for raising environmental ambitions that can increase costs in terms of implementation and in reduced revenues for energy companies.

Green campaigners and Climate Commissioner Connie Hedegaard, with the support of Denmark, current holder of the EU presidency, say now is precisely the time to seize the opportunity for green jobs.

They are pushing for progress on Europe's Energy Efficiency Directive, which Hedegaard has said could lead to the creation of about half a million jobs up to 2020 in making improvements to buildings to make them more energy efficient.

But even the pro-environmental Danish presidency has said it could be politically difficult to persuade all 27 EU member states to agree swiftly to raise their green targets.

The Danes hope to make good progress during their six months at the EU helm but are unlikely to get as far as legislative change.

Poland, while it was holding the rotating presidency last year, blocked a move to set a 25 percent carbon reduction goal.

The target to improve efficiency by 20 percent is the only one of the 2020 targets that is not binding and is the only one the EU is unlikely to meet, unless it changes its ways.

If the efficiency target is met, one effect could be to depress the carbon market further as demand for carbon allowances to offset the use of dirty fuel would fall.

That prospect has increased pressure from both industry and green campaigners for intervention to support the carbon market, while the green lobby also wants a more aggressive carbon cutting target.

HOW MUCH LESS EXPENSIVE NOW?

Compared with assumptions made in 2008, a 20 percent emissions reduction target is now less costly, which also means that the additional cost of climbing from a 20 to a 30 percent reduction would also be lower.

In 2008, the additional costs in 2020 of getting to 30 percent were estimated to be at least 70 billion euros a year. Now they are estimated at 48 billion euros.

At the same time, however, the short-term capacity of operators to invest in low-carbon technology has been constrained by the economic crisis, although this can be offset for poorer nations through the allocation of carbon allowances and revenues from a strengthened carbon price.

The Commission's analysis also details cost savings in terms of reduced fuel imports, reduced pollution and improved health.

For the EU as a whole, moving to a 25 percent domestic reduction in 2020 would save an average of about 20 billion euros each year over the period 2016-2020.

Of this, 9 billion euros would result from reduced oil and gas imports, air pollution control costs would be 2.7 billion euros lower and there would be additional EU-wide health benefits of 3.4 billion to 7.9 billion euros a year because of reduced mortality.

The health benefits and air pollution control savings would be greatest in lower income member states, the working paper says. ($1 = 0.7615 euros)