January 28, 2014
With the new Energy and Climate Framework, the European Commission strikes a fine balance between climate protection and competitiveness, with the latter taking precedence.
Last week, the European Commission came forward with the most wide-ranging set of energy and climate proposals since 2008. The proposals, encompassing binding and non-binding commitments in GHG reductions, energy efficiency and renewable energy, will provide a framework for EU energy and climate policy for the next 15 years. To find out about the details of the package, read the FH analysis here. The 2030 Communication and the other proposals issued last week are reflective of two broad trends that are currently driving EU Climate and Energy Policy, 1) How difficult it is becoming to find a ‘grand bargain’ on key Energy and Climate issues at the EU level and 2) How the policy focus has shifted towards competitiveness.
Sticking a difficult compromise
Designing a new Climate and Energy Framework was always going to be contentious but after five years of expensive carbon abatement policies, coupled with recession and deindustrialisation, the political environment makes agreements on energy and climate matters increasingly challenging. For the 2030 Framework, tricky compromises had to be built between Member States with dissimilar energy mixes, between Directorate-Generals with non-complementary portfolios and between different industries who feel that their concerns have been ignored for too long.
- Compromising amongst Member States: Within Europe Member States have very different energy mixes and thus interests. By proposing a 27% renewable energy target but non-binding individual national targets the Commission has sought to strike a compromise between Member States such as the UK who wants maximum competency to determine its energy mix and Germany, who has decided to phase out nuclear energy and produce 45% of its energy from renewables from 2030.
- Compromising within Commission Directorates: Within the European Commission, varying DGs have very different priorities. While DG Climate Action was set up to turn the EU into a leader in the protection of the planet against climate change, other DGs such as DG Enterprise and DG Energy have grown increasingly weary of DG CLIMA’s policies. Indeed, the presentation of the package only came after a last-minute agreement between Commissioner Hedegaard and Oettinger. The Energy Commissioner was initially in favour of a 35% GHG reduction target.
- Compromise in the industry: The Commission was also keen to demonstrate its commitment to boosting industry in Europe, and show that the EU could stay ambitious on climate without the industry being hit. While lacking substance, the Commission did release an industry Communication “For a European Renaissance”. Most telling however was the Commission’s decision to reform the ETS through a supply adjustment mechanism which would not intervene in phase 3 of the ETS and which in their own words would be designed in such a way so as to “mitigate impacts on industry and sectors exposed to carbon leakage”. The Commission also announced that it would maintain its existing framework for determining sectors exposed to carbon leakage and continue to base its assessment on a 30 euro carbon price. This was a key request from DG Enterprise in the grand bargaining process and goes against Ms Hedegaard’s ambitions expressed last year to significantly reduce the number of sectors exposed in order to reestablish balance in the system.
Has the balance tipped towards competitiveness?
Looking back at the last decade, the proposals seem to represent a new policy focus for President Barroso, if not a policy u-turn: after making jobs and growth a priority with the Lisbon Strategy in the beginning of his mandate and spearheading climate change policy in 2008, the end of his term will be marked by a shift towards competitiveness. At an event last week Dominique Ristori, who has recently succeeded to Philip Lowe as Head of DG Energy, said that in 30 years industry has never been listened to as much as now. He might be right. The 2030 Communication does indeed reveal a shift towards competitiveness to alleviate industry concerns. Even if the Commission noted in a new study that energy prices and the ETS had little impact so far on industrial competitiveness, it also anticipates an upward pressure on energy costs in the EU.
Next steps now
The documents issued last week by the Commission will form the basis of the institutions’ agenda for the coming year. It is unclear at this stage what could be the focus of the mandate received by the Commission from European leaders at the March Council, as the 2030 consultation revealed divergences on targets and the level of ambition. Whilst some Member States are against a new GHG reduction target before any global climate agreement (Poland, Czech Republic, Romania), a majority is likely to support the 40% target proposed (UK, France, Spain, Denmark). It will also remain to be seen if Member States can support the flexible approach proposed by the EU executive on renewables. Will it be considered robust enough by Austria, Belgium, Denmark, France, Germany, Ireland, Italy and Portugal, whose Environment ministers had called for a renewable energy target in a letter to the European Commission in December? On the other hand, the wait-and-see approach to energy efficiency should suit Member States.
Next week in Strasbourg MEPs are likely to confirm their call for 3 binding targets: 40% GHG reduction, 30% renewable energy and 40% energy efficiency. Based on initial MEP reactions and past experience, the Parliament will likely push for a much more ambitious package than proposed by the Commission. Will this be confirmed by the next Parliament, who will be asked to react to concrete proposals put forward by the Commission later this year? Let the bargaining begin!
Cillian O’Donoghue and Clara Lemaire