Today the European Commission has brought forward proposals designed to drive the necessary decarbonisation of the European economy in a cost-effective way. These include:
· Proposals for a Climate and Energy Package for 2030 as a successor to the 2020 Climate and Energy Package
· Proposals for structural reform of the EU Emissions Trading Scheme (EU ETS)
The 2030 Climate and Energy Package proposals from the European Commission set out potential targets for 2030 with the aim of decarbonising the European economy, building competitive low carbon industries and protecting consumers from the volatility of international energy prices. To build on the 2020 package, the proposals include:
· a binding target of a 40% reduction in greenhouse gas emissions on 1990 levels
· an EU-wide binding renewable energy target of at least 27% of energy generated; and
· a commitment to look at further energy efficiency proposals after an already planned review of energy efficiency legislation later this year.
The proposals will now be discussed by the 28 Member States in March so that a Europe-wide agreement can be reached ahead of the international climate negotiations later this year.
Keith MacLean, Policy & Research Director at SSE, comments on the initial proposals for 2030:
“Countries across Europe, including the UK and Ireland, are facing up to the very real challenge of delivering the necessary investment to meet their long term carbon commitments and maintain secure supplies. Once agreed, the 2030 climate and energy package will help to provide long term clarity for investors to deliver capital intensive energy infrastructure across Europe at the lowest cost.
"To keep energy costs down in the shorter term, the EU should encourage Member States to fund additional policies over and above the carbon price through the revenues Member States will be receiving from the auctioning of EU ETS allowances, which are ultimately paid for by consumers.”
The Commission has also brought forward proposed reforms of the EU ETS with the aim of providing investors with a robust and stable carbon price that drives cost-efficient carbon abatement. Firstly, it has proposed a market stability reserve to be introduced by 2021. This will ensure that the supply of EU ETS allowances is able to respond to demand, preventing a collapse or spike in the carbon price. Secondly, it has proposed an increase in the annual linear reduction factor from 1.74% to 2.2% from 2020, so that the amount of EU ETS allowances that come on to the market each year align with the proposed 2030 targets.
Martin Pibworth, Managing Director of Energy Portfolio Management at SSE, said:
"Today, very important steps have been taken towards reviving the EU ETS in the interests of the cost-effective decarbonisation of Europe. Following on from backloading, the proposed EU ETS reforms are positive measures which will help the EU ETS provide a stable and robust investment signal for low carbon investors.
"However, the detail of how the market stability reserve will work is crucial in determining how long it will take for the EU ETS to become the central driver in carbon abatement decisions across Europe, as well as whether further measures will be required to deal with surplus allowances expected to be on the market when the mechanism is introduced."