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Europe sets 40% emissions reduction target

The European Commission set the target ahead of next year's Paris climate talks

The European Commission (EC) has agreed to cut greenhouse gas (GHG) emissions at least 40% of 1990 levels by 2030, setting a target which is expected to act as a precursor to the climate talks to be held in Paris next year. On 23 October, the Commission, which shapes policy for the European Union (EU), agreed the Climate and Energy Framework agreement, which for the first time commits all 28 members of the bloc to a legally binding climate deal. The Commission also agreed to commit EU members to ensuring that renewable energy comprises 27% of the bloc’s total energy consumption by 2030. It also set a non-mandatory target to cut energy consumption by 27%. This energy efficiency target will be reviewed in 2020, with a view to increasing it to 30%.

Outgoing EC president Herman Van Rompuy said the EU-wide deal was an important step in the fight to limit climate change. “All countries, including all major economies, should now follow suit and equally make ambitious and timely pledges,” Van Rompuy said. “We will continue to support your efforts … to reach a durable global climate agreement at the climate conference in Paris. For the sake of our planet, for the sake of future generations.” 

Ed Davey, the UK’s Energy and Climate Change Secretary, says the “historic” deal saw Europe send a clear message to the world that ambitious action on climate change is needed urgently. He says: “It lays down the gauntlet to the world to come forward with ambitious climate targets, reforms EU energy policy so it’s flexible and affordable and tackles energy security - reducing Europe’s energy import bill for fossil fuels by around €285 billion ($363bn) by 2030.”

However, environmentalists have warned that the EU targets are not tough enough. Greenpeace and Oxfam claim reductions of at least 55% would be needed by the end of the next decade, warning that without such a steep cut, food security and ultimately the planet would be at risk.

A recent United Nations study said GHG levels reached a record high last year as major emitters burnt more coal and the earth's ability to deal with climate changing gases appeared to wane. The World Meteorological Organisation found that radiative forcing – the warming effect on the earth’s climate – had risen 34% between 1990 and 2013 because of an accumulation of climate-changing gases.

Announcing the agreement, the Commission urged all EU member countries to develop ambitious GHG reduction policies ahead of next year’s Conference of the Parties 21 (COP21) talks in Paris. It has said the EU-wide targets will be achieved “while fully respecting the member states' freedom to determine their energy mix”. This ensures member states can chose a mix of renewable energy, nuclear power or carbon capture and storage technology to achieve this. The EC added that individual member states can set higher national targets if they wish. However, the Commission said increasing the amount of intermittent sources of renewable energy, such as wind power, in the EU’s energy mix will also require a more interconnected EU-wide energy market and appropriate bac- up power sources.

Increasing the use of gas in the EU’s energy mix is one crucial way it hopes to cut GHGs and increase domestic energy security. As part of this, the Commission is supporting a number of new EU-wide infrastructure projects, such as the North-South corridor, the Southern gas corridor, and the promotion of a new gas hub in southern Europe, as well as projects in Finland and the Baltic states. It has also called for more regasification facilities and storage capacity in the gas system. However, with Europe’s sluggish gas demand unlikely to recover any time soon, pushing coal out of the region’s energy mix in the hope of lowering carbon emissions will be a sizeable challenge.

Falling demand

Last year, EU gas demand fell for the third consecutive year, to 462 billion cubic metres (cm), according to Eurogas – a gas industry statistics bureau. This is the lowest level since 1999. European leaders have said the recent economic downturn, the resurgence of coal and changes in government energy policies have all contributed to depressed European natural gas demand over the past six years. 

Cedigaz figures show gas demand in Europe’s power sector has fallen by 51bn cm since 2010 - the equivalent of the entire French gas market. At the same time, Europe’s coal use increased by almost 5%, to 509m tonnes of oil equivalent (toe). This was prompted by a 40% fall in coal prices between 2010 and 2013.

Fatih Birol, the International Energy Agency’s (IEA) chief economist, told a recent gas conference in London that since the economic downturn around 15 years of gas demand growth had been lost and that this wouldn’t recover to pre-2010 levels for another 18 years. “I’m really very worried about the natural gas industry in Europe, especially since demand is so weak,” Birol told the conference. “I don’t see major prospects for gas unless policies change. We need diversification in Europe’s energy mix and gas is has very important, flexible part to play.”   

He added that the gas industry shouldn’t rely on European energy demand increasing to boost gas demand but rather on trying to claw market share back from the retirement of existing coal or nuclear power plants might. “The idea that Europe needs a lot of energy needs to be questioned. The only hope from a gas point of view is that nuclear energy is facing serious problems in Europe,” Birol said. “And I don’t think coal pushing gas into a corner in Europe is a long-term issue. I don’t see major new coal-fired power plants in Europe. A big chunk of existing nuclear power plants are going to retire in the next 20 years.” 

Dick Benschop, vice president of Shell's gas market development, said the EU’s lacklustre Emissions Trading System (ETS) was the biggest obstacle to Europe achieving its carbon reduction targets. “Without an ETS reform Europe will have great difficulty meeting its carbon dioxide reduction targets. Europe is not doing itself a favour at the moment with a lack of a carbon price,” Benschop said. “It doesn’t make any sense to chase the coal industry out of Europe and then import their products.”  

The EC said a well-functioning, reformed ETS will be “the main European instrument” to achieve its GHG reduction targets. 

The ETS has been regarded as a failure since its introduction in 2005 as Europe's carbon emissions have risen and low carbon prices provided little incentive to cut coal use. These low carbon prices and the economic crisis have helped to increase Europe's coal consumption. 

Coal made a comeback into Europe's energy mix after 2008 displacing some of natural gas' share. Europe consumed 509m toe of coal last year, up from 472m toe in 2009. Last year coal was the fastest growing fossil fuel with global consumption up 3%. Coal’s share of global primary energy consumption reached 30.1% in 2013, the highest level since 1970, according to Cedigaz. 

Wood Mackenzie consultancy has previously told Petroleum Economist that Europe would need a carbon price of around $40-50 per tonne (/t) to push coal out of Europe's energy mix and boost gas demand. EU carbon prices fell to under €3/t in April 2013, down from €30/t in 2008, as the economic crisis cut Europe's carbon emissions and demand for carbon permits fell.

The EU said it will reform the system by offering financial incentives to countries to take part. This is targeted at countries which were concerned the GHG reduction and renewables targets would be expensive and damage the competitiveness of member states’ industries. This was mainly targeted towards eastern Europe. 

EU leaders agreed to create a fund which will hold revenues from auctioning off 10% of the bloc’s ETS carbon allowances. This will then be distributed to EU countries with a GDP per capita which is below 90% of the EU average. Another fund will also be set aside, which will hold revenue from the auction of 2% of EU ETS allowances. This will be set aside to help countries with a GDP per capita below 60% of the EU average to achieve the targets.

Deal-maker

Marcus Ferdinand, head of Point Carbon’s EU Carbon Analysis at Thomson Reuters, said the value of this redistribution mechanism will be directly linked to the carbon price after 2020. Point Carbon estimates carbon prices will reach around €23/t between 2021 and 2030. This is compared to current prices of around €6/t.

Ferdinand said the funds will channel around €35bn towards eastern Europe over the next decade. He added they were “probably the deal-maker preventing Poland from acting on its threat to veto the entire deal”. “By being generous on the financial compensation, western European member states got the Market Stability Reserve accepted in return,” Ferdinand said. “Now it seems that the question is not anymore if the reserve gets implemented, it’s more about the when and how.” 

The Market Stability Reserve is a mechanism proposed by the European Commission to reform the EU ETS. In times of oversupply, a number of allowances would be transferred to the reserve, while the mechanism would release allowances when the market balance gets tighter. The European Parliament will debate the proposal later this year.

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