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Hedge your bets

The European Commission explained how it proposes to achieve EU targets for cutting greenhouse-gas (GHG) emissions and increasing the share of renewables in the energy mix last month. The targets, approved in March 2007 by member states, are for a 20% cut in GHG emissions from the 1990 baseline – rising to 30% if countries outside the EU agree to emissions caps – and for renewables to be supplying 20% of the EU's energy by the same deadline.

Notwithstanding complaints from environmental lobbyists such as Friends of the Earth that the Commission's 20% emissions target is inadequate, the EU, for now, deserves its self-styled status as the world leader on climate change. Assuming they can be achieved, its goals will serve as an essential building block for the much larger cuts needed by 2050 and as useful precedent for countries outside the EU adopting targets later. However, Europe must now turn theory into action – and fast: by 2005, the EU's GHG cuts amounted to just 6% below the 1990 level. There is a long way to go.

Inevitably, the transition to a low-carbon economy comes at a price. Commission president José Manuel Barroso said the measures required would cost Europeans 0.45% of GDP by 2020 – €60bn ($87bn) a year or €3 a week for each European. "A real commitment, but not a bad deal" – especially in light of the Stern review's (a 2006 UK government report) claim that the price of doing nothing would be more than 10 times higher (PE 12/06 p8). But there are rewards too: job creation, greater energy security and the economic benefits that should come with technology leadership.

The Commission's measures – which will now be put to member states for approval – add real momentum to December's UN Framework Convention on Climate Change (UNFCCC) meeting in Bali, which established a roadmap for negotiations on a post-2012 global climate-change agreement involving – crucially – the previously absent US. The next big step is to transform the agreement to negotiate into a binding, comprehensive global agreement. This will probably occur at the 15th session of the UNFCCC, to be held in late 2009 in Denmark. The landscape of the political debate on climate change is rapidly changing for the better.

Yet while things are going in the right general direction, are the specifics in place to achieve cuts of the magnitude proposed? The Commission is making the Emissions Trading Scheme (ETS) the cornerstone of its efforts to cap emissions. Its scope has been expanded to include all large industrial GHG emitters and 40% of total EU emissions will, from 2013, when the new regime starts, now fall under the ETS. Over time, emissions allowances will be reduced.

The power sector, where the best mitigation potential lies, will bear the greatest responsibility. Allowances will be auctioned to utilities, encouraging a shift to lower-carbon generation. Other industrial sectors, including aviation, will gradually step up to full auctioning. Industries whose competitiveness – with rivals in countries with no constraints – may be damaged by the cost of cutting emissions are likely to receive allowances free until there is a global agreement. But binding targets will be set for sectors outside the ETS, such as transport, buildings, agriculture and waste. Funds generated by the auctions – an estimated €50bn by 2020 – will be reinvested in green schemes.

Allowing market forces to define the low-carbon economy by widening and strengthening the ETS is likely to prove the most effective approach to reducing GHG emissions, as long as the EU avoids the pitfalls – the market being swamped with allowances – that sent the price of carbon and the very credibility of the ETS into freefall when it was launched in 2005.

However, no single energy technology will be capable of achieving the very large cuts required – the Intergovernmental Panel on Climate Change (IPCC) says GHG emissions will have to be reduced by 50-80% by 2050. A range of solutions will be needed, including efficiency improvements in transportation and energy production, wider deployment of renewables, the application of carbon capture and storage (CCS) technology to coal-fired power generation, and growth in the biofuels and nuclear sectors.

It is, therefore, potentially an unhelpful distraction, having identified the marketplace as the best tool for defining the low-carbon technologies of the future, to be interfering in that process by legislating firmly in favour of renewables. At present, according to Commission estimates, renewables account for 8.5% of the EU's energy consumption; reaching 20% by 2020 will be a tall order, particularly because the application of renewables is restricted to the power sector. Some countries have started to grumble about the renewables target; will France, which depends on nuclear for over 80% of its power needs, have to decommission nuclear plants to make way for renewables?

A level playing field for green technology

The Commission ought to be establishing a level playing field for all green technologies. Energy efficiency, the cheapest and simplest way of cutting emissions, should be accorded the same level of support and encouragement as anything else. CCS, according to the IPCC, could contribute up to 55% to the cumulative mitigation effort worldwide until 2100. The Commission's latest batch of proposals does set out plans for a much-needed legal framework on CCS. This is an important step on from the EU's existing plan to develop 10-12 industrial-scale demonstration projects and its aspiration, by 2020, for all new power plants to be emissions-free. But whether these measures are exacting enough to establish a new industry on the scale required remains to be seen.

Nuclear, an issue on which the Commission, bizarrely, describes itself as "agnostic", suffers an even greater degree of neglect, despite being the only method of providing low-emissions baseload electricity on the scale needed in a developed economy.

Last month, the UK said it would encourage development of new nuclear plants. The decision is controversial and the process by which the government reached it was flawed, but it should be welcomed by anyone who wishes to see Western governments take bold decisions to combat climate change and enhance energy security. Of course, nuclear must only be part of the mix. The UK's new energy bill acknowledges this and deserves recognition for its efforts to promote offshore wind farms – a form of energy that has great potential in the UK – and other technologies such as CCS.

The Commission should take a similarly eclectic approach. Throwing its lot in with one branch of low-carbon energy is inherently risky, as recent experience with biofuels shows. A report published last month by the UK's Royal Society says "biofuels are not the silver bullet for meeting the rising demand for transport while tackling emissions". The EU seems to agree. It will maintain its 10% target for biofuels in the transport fuel mix by 2020, but says it will certify biofuels to make sure that they meet its sustainability criteria.

For the sake of the environment and its own energy security, the EU must keep a watching brief on all areas of development. In pursuit of the large cuts in GHG emissions required, hedge your bets.


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