Adoption of the EU climate package – preventing the best from becoming the enemy of the good

The vote today effectively rubberstamps the agreement reached last Friday amongst all EU heads of state and government. The legislative process has been completed at record speed, notably in order to give EU negotiators backing for ambitious offers in the UN climate change negotiations due to be completed in December 2009. The four pieces of legislation are:

  1. Revision of the directive on the EU emission trading system (ETS)
  2. A new decision on reduction of greenhouse gas emissions not covered by the ETS
  3. A new directive on geological storage of CO2
  4. A new directive on promotion of renewable energy sources

Below are some positive and negative highlights of these legislative acts.

1) Revision of the directive on the EU emission trading system (ETS)

This is the most important and most controversial of all the four. It brings crucial improvements to the ETS, and will take effect in 2013:

  • An EU-wide cap for emission allowances for the sectors covered by the ETS is set, and this cap will be reduced in a linear manner (a 1.74% reduction every year compared to the average annual number of emission allowances in the period 2008-2012), so that the number of allowances in 2020 is 21% lower than in 2005.
  • The EU negotiators are given a mandate to negotiate an overall 30% reduction commitment under the UN Framework Convention on Climate Change (UNFCCC) – when a new international agreement is signed, the ETS will be further tightened if need be.
  • Auctioning of emission allowances becomes the default option – not free allowances. However, a gradual transition from free to auctioned allowances is introduced for manufacturing industries and the power sector in poor countries heavily dependent on coal. In addition, sectors for which the price of emission allowances would entail a risk of production moving to countries without a price on CO2 emissions will be given free allowances on a permanent basis. However, companies will only be given free allowances based on benchmarks – they will get free allowances equivalent to what is needed for the most efficient plants in that sector. Less efficient plants will need to buy the rest.
  • 300 million emission allowances are set aside to co-finance up to 12 selected CO2 capture and storage projects. This will equal about €6-9 billion. It has been one of the top priorities of Bellona’s advocacy in Brussels, first getting EP rapporteur Chris Davies to table the proposal and then to get acceptance for it from the Commission and the EU Council of Ministers. “It has felt like an uphill struggle. People were dubious about the proposal to use the ETS New Entrants Reserve to reward CCS projects,” Davies said.

The main weakness of the revised ETS directive is that it opens up for up to half of emission reductions to be reached abroad – through purchasing of external credits (in particular Clean Development Mechanism INSERT HYPERLINK credits). This will reduce the demand for EU emission allowances and thus their price and the incentive to cut emissions.

2) New decision on reduction of greenhouse gas emissions not covered by the ETS

This “effort-sharing” decision splits between the Member States the target to reduce greenhouse gas emissions in order to ensure that EU emissions in 2020 are 10% lower than in 2005 for those sectors not covered by the ETS. These are all the smaller emission points such as transport, housing, agriculture etc. Altogether, these sectors cover 55-60% of EU emissions.

This is the legislative act of the package with the least “bite”: More than 70% of emission reductions between now and 2020 may be achieved abroad through external credits. Anders Wijkman, Swedish Member of the EP, summed up the feeling of green minds: “I wonder what the effect will be of such a high share of flexibility mechanisms. Science says we need to reduce emissions by 80-95% by 2050 – how can we do that if we delay domestic reductions until after 2020? This is not going to do the job,” he said.

The EP nevertheless strengthened the weak decision somewhat through clauses that:

  • Each year, Member States will need to reduce emissions in a linear manner towards the national limit for 2020. If they exceed this limit, they will in the following year need to compensate that excess amount plus an 8% penalty.
  • In the event of an international climate change agreement under which the EU commits to an emission reduction of 30% between 1990 and 2020, the Commission will make proposals for further tightening of the decision (as for the ETS directive).

3) New directive on geological storage of CO2

The directive in itself was rather uncontroversial, as it mainly sets out minimum requirements to ensure environmental and human health safety of CO2 storage and respect for the polluter-pays principle.

The more controversial issues in the directive are resolved as follows:

  • the stored gas is to consist “overwhelmingly” of CO2.
  • storage for enhanced oil and gas recovery is included.
  • transfer of responsibility from operator of storage site to the authorities may be done after a minimum of 20 years – but can be done earlier if “all available evidence indicates that the stored CO2 will be completely and permanently contained.”
  • the operator is to provide a financial security to cover monitoring costs for a minimum of 30 years after transfer of responsibility to authorities.

The main political controversy around the directive, however, related not to storage safety:

  • Financing CCS: This was achieved, as described above, under the ETS directive.
  • Making CCS de facto mandatory through a so-called CO2 emission performance standard: This was proposed by the EP, but not accepted by the Council. Green members of the EP criticised this “sacrifice”, to which Chris Davies retorted: “Just get real. China is opening a new coal plant week in and week out. The first step to deal with this was to get CCS financing to demonstrate the technology. I still believe we need an emission performance standard.”

4) New directive on renewable energy sources

This directive is perhaps the most ambitious of the lot, setting out a binding target for the EU Member States to increase the share of renewable energy from 8.5% in 2005 to 20% in 2020. Still, it was amongst the least controversial, as economic growth, employment and environmental arguments converged. Only Italian prime minister Silvio Berlusconi had help up an agreement. The EP rapporteur, Claude Turmes, thanked in particular the French presidency of the EU – without it “we may not have managed to hold Berlusconi down last week”, he said, referring to the EU summit on December 11th-12th.

While the main achievement is the overall target for renewable energy production, the final deal improved in some respects to the original Commission proposal:

  • National targets can be reached through mechanisms whereby one Member State pays another for reaching a higher target, while leaving it up to Member States to decide on the details of such transfers, “so that we have cooperation not speculation,” as Mr Turmes put it.
  • Under a separate requirement for renewable energy to cover 10% of energy consumption of transport in 2020, the minimum greenhouse gas savings of biofuels to qualify as renewables was strengthened and a multiplication factor of 2.5 was introduced for electrical vehicles to take account of the fact that they are far more efficient than combustion engine vehicles.

French minister for sustainable development, Jean-Louis Borloo, told the Parliament:
“This is an exceptional achievement. The difference of national renewables targets was not the topic of discussion! It shows that European solidarity works.”