Climate Energy Package Agreed - Europe

Ecoal, January 2009, Volume 67

The European Council1 reached an agreement on the EU climate-energy package in December last year, at the heart of which was the 20-20-20 target of reducing emissions by 20% from 1990 levels by 2020 and generating 20% of energy from renewable sources, also by 2020.

The package had originally been proposed by the European Commission at the beginning of 2008. The European Parliament responded to this agreement by voting overwhelmingly to accept the package on 17 December. The decisions reached also confirmed the EU’s commitment to raise the emissions reduction target to 30% as part of any post-2012 global climate change agreement reached in Copenhagen at the end of 2009.

The Parliamentary vote saw the package enter into EU law before the end of 2008, which had been one of the key goals of the outgoing French Presidency. The package consists of key directives to make improvements to the European Emissions Trading Scheme (ETS), outlines effort sharing on emissions reductions between member states and introduces a legislative framework for geological storage of CO₂.

Emissions Trading

The ETS revision directive included a number of significant changes:

• Auctioning rate for industries not exposed to carbon leakage to reach 70% in 2020 and 100% in 2027 (with a starting rate of 20% in 2012).
• Sectors exposed to significant carbon leakage rates to receive 100% of allocations free of charge ‘at the level of the benchmark of the best technology available’.
• Auctioning rate for the electricity sector to be at least 30% in 2013, progressively rising to 100% by 2020.
• 300 million ETS allowances made available as funding to first of a kind CCS demonstration projects and other innovative renewable energy sources, with no single project able to receive more than 15% of these allowances.

The inclusion of other renewable energy sources under this funding mechanism is intended to render it non-technology specific legislation. The allocation of 300 million ETS allowances under the CCS and renewables funding mechanism is an improvement on the figures of 100-200 million that were being mentioned in the weeks leading up to the Council meeting and Parliamentary vote. However, the final figure is significantly less than the 500 million allowances agreed by the European Parliament’s Environment Committee in October 2008 under the proposed ‘Amendment 500’. With ETS allowance prices having fallen to a level of around €15 per tonne CO₂, the total funding available under current economic conditions equates to approximately €4.5 billion. This is a considerable drop from the potential funding level of €12.5 billion originally envisioned under Amendment 500, when allowance price levels were consistently around €25 per tonne CO₂.

Aside from the direct funding mechanism for CCS and innovative renewable energy sources, the ETS directive also includes a declaration from the Commission that member states may use revenue generated from the auctioning of allowances to support the construction of new high efficiency power plants, including those that are CCS-ready. This, along with the approved directive covering the geological sequestration of CO₂, is another potential boost for the development of CCS in the EU.

Credits Under Kyoto

The Council and Parliament have also stipulated that the maximum quantity of acceptable emissions reduction credits generated by each member state via the Kyoto Protocol’s Clean Development Mechanism (CDM) or Joint Implementation (JI) mechanisms is 3% of the relevant country’s verified 2005 emissions. The CDM and JI allow countries to meet part of their Kyoto emissions reduction targets by investing in projects in developing countries (CDM) or other countries with Kyoto commitments (JI). A number of member states with relatively small emissions reduction targets of 5% or less will be permitted to use additional CDM credits, amounting to 1% of their verified 2005 emissions, for projects in the world’s least developed countries and small island states. These measures restrict the level to which member states can meet their reductions targets through non-domestic projects and ensure that the overwhelming majority of emissions reductions occur within the EU’s borders.

Further information on the package can be found at http://ec.europa.eu/climateaction/index_en.htm

1 The European Council is the highest political body of the European Union. It comprises the heads of state or government of the Union's member states along with the President of the European Commission.