The Green paper shows a great degree of openness in the upcoming discussions – the Commission takes an honest look at the deficiencies of current framework and seeks stakeholders’ input on most of relevant possible solutions.

“This document is a great point of departure for us,” says Paal Frisvold, Chairman of the Board, Bellona Europa.  “Sectoral targets, incentives parallel to ETS, additional support measures for demonstrating CCS, continuation of NER300 programme, measures to prevent carbon leakage – all these options are highlighted and consulted upon in the questions’ section of the draft. We are looking forward to participate in public consultations and contribute to finding new and effective solutions.”

Breakthrough: acknowledgement of need for parallel incentives to ETS

Bellona welcomes the fact that the Commission acknowledges that the ETS has not succeeded in being a sufficient driver for low carbon investments. The large surplus of allowances caused by the economic crisis are reflected in low carbon prices, which are not providing emitters with sufficient incentive to invest and increase the risk of carbon lock-in.

The interaction between the energy savings and renewable energy targets which weakens the signal price of the ETS is duly accounted for in the draft. Indeed, the failure of the ETS to provide as robust a CO₂ price as originally planned has eroded the business case for investment in decarbonisation technologies such as CCS.

First, the lower price of Emissions Unit Allowances (EUAs) greatly reduced the NER300 pot available to fund CCS demonstration projects. Most importantly, the uncertainty caused by the collapse in the EUA market has damaged confidence in the ETS’s ability to drive the deployment of low-carbon technologies. The future framework for 2030 should directly take into account such interactions, the Commission rightly points out.

Another good point is that the Commission introduces the concept of legally binding targets for emission reductions in specific sectors – i.e. industry and transportation – and is aware of the need to ensure coherence between such measures in the new framework. Binding sectoral targets in energy intensive industries, such as steel or cement, would make the case for CCS deployment, as it is the only available decarbonisation technology for these fossil fuel dependent sectors.

“The Green paper makes a good case for including the aviation and maritime sectors into the ETS. It opens the discussion on other measures and mentions emission performance standards” – says Jonas Helseth, Director at Bellona Europa. “The latter are set in the current EU framework for vehicles’ CO₂ emissions. However, a discussion should start on the perspective of application of an EPS in power sector. The UK Energy Bill proposal is setting an example of how such measures could be constructed.”

Promising perspectives on a CO₂ capture and storage framework

The Green paper announces the launch of a consultation on a policy to enable the demonstration of the CO₂ capture and storage technology. “Globally CCS is likely to be a necessity in order to keep the average global temperature rise below 2 degrees,” the EU executive said in a CCS communication, published together with the Green paper. “CCS is also vital for meeting the Union’s greenhouse gas reduction targets and it offers potential for a low-carbon re-industrialisation of Europe’s declining industries.”

Moreover, the Commission opens the discussion on specific additional measures “policy to enable the demonstration of the carbon capture and storage technology.”

Last but not least the Commission opens the possibility of continuation of the NER300 programme beyond 2020. ‘’Finally in designing a framework for 2030 consideration should be given to whether ETS auction revenue could be used to further assist sectors to innovate,’’ – the Commission’s draft says. At present, with the exception of €300 mln allowances of the NER300 pot at the EU level, the use of auctioning revenues for low carbon investment is possible on Member states level albeit within the allowed boundaries of state aid provision.

“The EU level scheme for low carbon investment scheme beyond 2020 is necessary, given that the EU cannot legally mandate how the auctioning revenues are spent on national level,’’– says Paal Frisvold. ‘’Such a scheme should function in addition to concrete CCS measures, CCS certificates or emission performance standards, as outlined in draft CCS communication.”

Timely call to address carbon leakage

The Commission consults on measures to limit impacts on the competitiveness of energy intensive sectors which are exposed to the risk of carbon leakage. Energy intensive sectors will continue to receive free allowances until 2020. Given the accumulation of free allowances in industrial sectors and cheap access to international credits, the impact on these sectors is likely to be modest at least up to 2020, the Commission assesses.

This analysis is valid. However, it does not take into account that the EU has committed itself to reversing the decline of industry in Europe, aiming to boost its weight from around 16 % of GDP today to 20 % by 2020. Commission analysis in Low Carbon Economy Roadmap shows that, using a 1990 baseline, CO₂ emissions from Industry must be reduced by at least 34% by 2030 and 83% by 2050.

“The Commission highlights that the 2030 framework will need to consider whether and how the current approach to carbon leakage should be continued,” – Jonas Helseth notes. “This opens the discussion on whether border carbon adjustment could help the EU to reconcile its reindustrialization targets with the steep emissions reductions necessary to tackle climate change. Jobs and prosperity will be lost unless the EU manages to solve this problem.”

Explanatory information

Green Paper: -is a communication from the European Commission to all European stakeholders laying out the current status of affairs, what works, what does not work, and lays out some of the possible solutions. The Green Paper calls for comments and input from all interested party within or outside the EU.

White Paper: – is an official Communication from the European Commission to the EU decision making bodies, the Council of Ministers and the European Parliament. It usually contains specific legislative proposals.

EU Directive: – is a legislative act that EU member states, as well as Norway, Iceland and Liechtenstein, shall transpose into national law. Each government is responsible for ensuring that the contents of the directive is properly reflected in national law. Contents of a directive can be challenged at EU level, i.e. by a complaint to the Commission (or ESA) or to the European Court of Justice (or EFTA Court)

EU Regulation: – is a legal text that shall be directly integrated into national law. Word for word. Its contents can be challenged in national courts.