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An agreement has been reached last December on the Climate and
Energy Package proposed by the European Commission to achieve two of the
objectives set up by the European Council in March 2007: a 20% reduction of
EU greenhouse gas (GHG) emissions by 2020 compared to 1990 levels (a 30%
reduction in case an international agreement on climate change is
concluded); and a 20% share of renewable energy sources in EU energy
consumption by 2020, with a 10% target for biofuels (see Graph 1).
Graph 1: Splitting of the renewable energy and GHG emissions
reduction objectives in the Package
Source: Graph from the author
The package is composed of four legislative acts
(plus some communications and other non binding documents):
- A Directive amending the current EU-Emission Trading Scheme (EU-ETS)
- A Decision on GHG Reduction Effort Sharing (that deals with the share of
emissions reductions from sectors not covered by the EU-ETS)
- A Directive on Renewable Energies (that set specific national targets for
member states to achieve the EU-wide target for a 20% energy share from
renewable sources by 2020)
- A Directive on the Geological Storage of Carbon dioxide (that set out the
legal framework for the geological storage, detailing administrative
processes for dealing with requests for exploration and storage and the
procedures to follow after the closure of storage sites).
1. An original negotiation process
1.1. A tight
timing
The package has been adopted only after eleven months of legislative
work. This was particularly quick, considering that the four
legislative acts fall under the co-decision procedure and therefore have to
be jointly adopted both by the European Parliament (EP) and by the Council
of the European Union (Council of Ministers):
- The European Commission has proposed the package on the 23rd of January
2008;
- The EP’s committees ITRE (Industry) and ENVI (Environment) in charge of
preparing the Parliament’s position on the package have voted the different
parliamentary reports on the four legislative proposals in September and
October;
- The tripartite negotiation (between the Council, the European Parliament,
and the European Commission) has started in November to try to find a
common compromise: a compromise has been found in December, first for the
directive on renewable energies (on the 9th of December) and then for the
other three acts (on the 13rd of December);
- The member states have reached a final compromise only at the European
Council of 12th of December (at the heads of government’s level);
- The EP has given its backing to the European Council’s compromise with a
series of votes in plenary session on the 17th of December;
- The European Commission has immediately (on the 17th of December) given
its agreement to the texts adopted by the EP;
- The four final acts remain to be formally adopted by the Council of
Ministers. This first reading by the Council of Ministers is pending and
should only be a formality.
This accelerated first reading procedure has been chosen to push the
European Union to decide on its climate legislation before the decisive
Copenhagen Conference in December 2009, which will decide on the future
international climate regime after the expiry of the Kyoto Protocol from
2012. A political agreement on the Climate and Energy Package would have
been more difficult to reach in Europe in 2009, a year most likely to be
lost to the incoming European elections and the difficult choice of the
next Commission. Even though the adoption procedure was accelerated, the
final agreement was too last-minute to allow the EU to have a strong voice
at the Poznan Climate Change Conference (December 1-12), which represented
an important milestone in the negotiation of a new post-Kyoto international
climate regime. Indeed, the European heads of State only found a compromise
on the last day of the Poznan Conference.
1.2. Main players
of the negotiation
The
negotiation was very tough, given the high interests at stake. Industries,
non governmental organizations and governments strongly lobbied
(particularly early in the legislative process) to shape the legislative
proposals according to their views.
Some member states tried to use the financial crisis and the economic
downturn as an excuse to postpone the climate package. Italy threatened to
veto the package, saying that it would cost it €18bn a year to comply and
that less burden should be put on Italian industry. It asked for any
European agreement to be revisited in early 2010 after the international
conference in Copenhagen. The Italian government also required a review
clause to be carried out next year to assess the costs of the package. Poland
also threatened to veto the agreement, unless major concessions were worked
into the legislation in particular to shield its coal-based power sector
from the proposed auctioning system. Poland and six other Eastern countries
(Hungary, Bulgaria, Latvia, Lithuania, Romania and Slovakia) issued a joint
statement asking for ways to reconcile the package with economic growth at
a time of “serious economic and financial uncertainties”. They asked that
more of the burden be taken on by the richer member states. The “20-20-20”
objectives were seriously questioned by the “rebellious” states.
The hard work of the French Presidency of the EU was instrumental to the
adoption of a final compromise acceptable for each member state. The MEPs
in charge of preparing the parliamentary reports also played a
tremendous role in convincing their counterparts to vote for the
legislative proposals (namely Avril Doyle for the ETS directive, Satu Hassi
for the effort sharing decision, Claude Turmes for the directive on
renewable energies and Chris Davies for the directive on the CO2 geological
storage).
The informal bargaining between these main players (in particular
during the tripartite negotiation and during the preparation of the
Councils of Ministers) was decisive for the final adoption of the climate
and energy package.
1.3. A peculiar
method
The
procedure followed to adopt the climate and energy package differed from
the usual co-decision procedure in two ways.
A first institutional innovation was that European leaders decided to take
all crucial decisions on the package at the European Council level,
that is to say at the heads of states and governments level (an upgraded
level compared to the usual co-decision procedure which rely on the
Councils of Ministers). The ministers proved unable to reach a common
position, given their diverging interests.
The second particularity is that the Council gave its opinion before the
European Parliament. In the normal co-decision procedure, the
Parliament has the opportunity to give its opinion first to try to clout
the position taken by the Council (see Graph 2).
Graph 2: Usual co-decision procedure
Source: Graph from the author
At first, the European Parliament had decided to bring its vote
forward to December 4th, just ahead of the European Council (December 11
and 12). The Parliament had taken a strong line on the package and the new
schedule was intended to allow it to gain influence over the final
agreement. MEPs feared that the common position of the Council would water
down the Commission’s proposals. A formal European Parliament position
before the EU leaders meet was seen as a way to block a soft compromise.
Eventually the Parliament Conference of Presidents decided to postpone the
plenary vote until December 17. The Parliament was said to need more time
to examine extremely complex legislative proposals. Some analysts say that
the initial schedule would have hindered a first-reading vote since the
Parliament and the Council defended opposite positions on the package, and
led to a second reading. This overturn of normal procedure left MEPs with
no choice but to sign off on the European Council’s deal. The Greens group
accused the president of the Parliament, Hans-Gert Pöttering, of
“steamrolling” the package through the Parliament with block votes on the
legislative texts, thus preventing separate votes on the Council’s
amendments or amendments tabled by political groups.
2. Main elements
of the final compromise
2.1. Directive amending the EU-Emission Trading Scheme (EU-ETS)
Adjustments in case a future international agreement on climate
change is approved
The automaticity of an increase of the EU’s GHG emissions reduction target
from 20% to 30% following the conclusion of an international climate
agreement was included in the proposal of the European Commission and
endorsed by the Parliament’s ENVI committee. In the final compromise this
shift is not automatic anymore and is submitted to a new legislative
co-decision process.
Auctioning of emissions permits
Power sector: The Commission proposal provided for the complete
auctioning of all emissions permits for the power sector starting in 2013. The
final compromise foresees exemptions to that principle for 1) countries in
which more than 30% of electricity is produced from a single fossil fuel
and where the GDP per capita does not exceed 50% of the average GDP per
capita in the EU (exemptions aimed at the Eastern European countries); 2)
countries where the national electricity network is not connected or only
through a single line to the network operated by the Union for the
Coordination of the Transmission of Electricity UCTE (exemption for the
Baltic countries, Malta and Cyprus). In both cases the auctioning will be
gradually phased-in, rising from an initial 30% in 2013 to full auctioning
in 2020.
Other industry sectors: For the other sectors covered by the ETS
(non power sector heavy industry), there will be an initial auctioning of
20% in 2013 (as proposed by the Commission) but only of 70% in 2020 (and
not 100% as foreseen by the Commission). The full auctioning is only
foreseen in 2027, thus with 7 years delay.
Carbon leakage: A large derogation has been introduced for sectors
at significant risk of carbon leakage (the relocation of production to
third countries with a less strict climate policy leading to increased GHG
emissions in these countries). These sectors may receive up to 100% of free
permits until 2020. A sector is deemed to be exposed to a significant risk
of carbon leakage if 1) the implementation of the Directive leads to an
increase in production costs exceeding 5% of its Gross Value Added and 2)
the value of its exports and imports exceeds 10% of its total value (i.e.
the intensity of its trade with third countries). According to the Greens
group in Parliament, the vast majority of emissions from non power sector
firms covered by the ETS (96% of emissions) would enter into that category.
The Commission will set up the list of the sectors complying with these
criteria by the 31st December 2009 (then every 5 years). The list will thus
be established one year sooner than foreseen by the Commission.
Solidarity for the allocation of permits
The Commission proposed to allocate the emissions permits among
member states according both to their historical emissions (90% of the
permits based on their GHG emissions in 2005) and to a solidarity mechanism
(10% of the permits shifted from the richer states - whose average revenue
per inhabitant is at least 20% superior to the European average – towards
the poorer states).
Eastern countries were worried that this method did not sufficiently take
into account their emissions reduction efforts previous to 2005 when they
experienced a major deindustrialization in the 1990s. They criticized the
choice of 2005 as the reference year (the choice of 2005 is purely
technical and is a result of the lack of data for the previous years). The
final compromise maintains the solidarity mechanism foreseen by the
Commission (for 10% of the permits). Additional 2% will be allocated to the
states that reduced their emissions by more than 20% between 1990 and 2005.
The reference year is 2005 or the average of the period 2005-2007,
whichever one is the highest for each member state.
Earmarking of auction revenues
The Commission proposal allowed revenue from the auctioning of permits to
finance climate protection. The Parliament’s ENVI committee went further
and voted for the allocation of all revenue generated by auctioning for
climate protection, with 50% of this being set aside for climate mitigation
and adaptation in developing countries. However the final compromise does
not foresee a binding earmarking of auction revenues, only a voluntary one.
There is a call for member states to make a voluntary commitment to make
50% of the revenue available for climate purposes.
Outsourcing reductions through external offsetting
The Commission proposal envisaged the use of external offsetting (such as
the Kyoto protocol CDM/JI) under the ETS, including “banked” allowances
from the second phase of the ETS. The ENVI committee tried to limit this
outsourcing (i.e. buying credits in emissions reduction projects in third
countries to offset committed emissions reductions in the EU). But the
final compromise further extends the level of external offsetting
authorized, which may account for up to 50% of the reductions for the
period 2008-2020.
Price band for CO2
Poland, backed by the Visegrad Group (Poland, Czech Republic, Slovakia,
Hungary) and the Baltic states proposed the setting up of upper and lower
limits for CO2 permits within the ETS. They called for a safety mechanism
against carbon price volatility. The final compromise contains a clause
stating that if permits were to more than triple compared with the average
price of permits during the two preceding years, the Commission may allow
member states to bring forward future auctioning in order to bring down the
price of carbon. If the Commission has evidence that the carbon market is
not functioning properly, it shall submit to the Council and the Parliament
a report with proposals to improve its functioning. Thus the new
legislation introduces a monitoring of the ceiling price of carbon but not
of its price floor.
Financing CCS
Up to 300 million permits in the new entrants reserve shall be available
until 31st December 2015 to help stimulate the construction and operation
of up to 12 commercial demonstration projects that are aiming at the
capture and geological storage of carbon dioxide as well as at innovative
renewable energy technologies in the EU. This figure is a compromise
between the offer made by the French presidency (100-200 million permits)
and the amount required by the MEP in charge of reporting on the CCS
directive, Chris Davies (500 million permits).
Integration of maritime shipping into the EU ETS
The ENVI committee expressed its concern that maritime shipping was not
worked into the ETS directive (the ETS directive does not deal with aviation
either but it refers to the directive integrating aviation in the EU-ETS
upon which the Council and the Parliament have recently found an
agreement). The final compromise foresees that in the event that no
international agreement including international maritime emissions in its
reduction targets has been approved by the member states, the Commission
should make a proposal to include international maritime emissions in the
EU reduction commitment with the aim of its entry into force by 2013.
2.2. Decision on
GHG Reduction Effort Sharing
Flexibility and compliance mechanisms
Two
central elements of the Commission proposal have been endorsed in the final
compromise aiming at achieving the 10% GHG emissions reduction in the
sectors not covered by the EU ETS (compared to 2005 levels): 1) the
national emissions reduction targets by 2020 are based on national GDP and
2) member states limit annually their non ETS emissions in a linear manner
progressing towards the overall 2020 reduction target.
Flexibility mechanisms: Some flexibility has been added to the
system foreseen by the Commission. Member states can borrow a limited
amount from the following year’s quota or bank any over-achieving of their
targets. During the years 2013 to 2019, a member state may carry forward
from the following year a quantity of up to 5% of its annual emission
quota. Conversely, if its annual emissions are below its quota, it may
carry over the difference to any subsequent year up to 2020. A member state
may also transfer (or sell) up to 5% of its annual emission quota to other
member states.
Compliance: The ENVI committee voted for strong compliance
mechanisms (fines equivalent to ETS penalties, i.e. 100 euros per ton of
CO2 equivalent emitted; withholding of ETS permits; a multiplier for
reductions the following year). The final compromise sets up a “multiplier”
as a compliance mechanism: Any emissions reduction not achieved would have
to be replaced the following year, with an abatement factor (multiplier) of
1.08.
Outsourcing reductions through external offsetting
The Commission proposal envisaged a significant use of external offsetting
(equivalent to two thirds of the overall emissions reduction effort). The
ENVI committee voted to limit the proportion to be accounted for by
external offsetting to around 20%. However, the final compromise allows
member states to use external offsetting to account for over 80% of their
overall emissions reduction target.
Inclusion of afforestation and reforestation projects
Under the new legislation, the use of international credits generated by
afforestation and reforestation projects in developing countries is allowed
under certain conditions. In the event that no international agreement has
been approved by the EU by the end of 2010, member states may specify their
intentions for the inclusion of land use, land use change and forestry in
the EU reduction commitment.
2.3. Directive on
Renewable Energies
Flexibility mechanisms
The new legislation assigns to each member state a national target of
renewable energy in gross final consumption of energy by 2020 (alongside
with interim targets), depending on their national GDP and on their
previous efforts.
The Commission proposed a flexibility mechanism allowing member states to
voluntary trade “guarantees of origin” among themselves. Fearing that this
trading system might become a completely virtual market and that it could
undermine national support schemes, the Parliament and the Council agreed
upon a series of alternative “cooperation mechanisms”: 1) statistical
transfers between member states; 2) joint projects between member states
relating to the production of energy from renewable electricity, heating or
cooling; 3) joint projects between member states and third countries
regarding the generation of electricity from renewable sources; 4) joint
support schemes in which two or more member states join or partly
coordinate their national support schemes; 5) guarantees of origin of
electricity, heating and cooling from renewable energy sources (but limited
to a transparency purpose to increase the visibility of the renewable
energy production).
Compliance and reporting
Parliament’s ITRE committee voted for a strengthening of the compliance
mechanism for the member states to meet their 2020 targets, as well as
their intermediary targets (indicative targets set by the Commission). It
asked for a system of financial penalties for states that do not comply
with their obligations. In the final agreement, only a reporting system is
established. The provisions, obliging member states to report on the
measures they will take, have been strengthened. In June 2010, member
states will have to submit a standardized Renewable Action Plan. If they
miss their interim or 2020 targets, they will have to revise their action
plans. The Commission may also issue recommendations on unsatisfactory
action plans.
Priority access for renewables
The ITRE committee introduced a proposal under which renewables should get
easier access to electricity grids and gas pipelines (biogas and
bio-methane were not included in the original Commission proposal). The
final compromise is less specific but includes a provision on “priority
connection”: Member states shall give priority connection to new renewable
projects.
Interim review clause
The Council was urged by certain member sates, notably Italy, to introduce
a clause to review the overall directive in 2014. The final compromise does
indeed foresee a review but this will not be tasked with revising either
the target or the cooperation mechanisms.
Renewables in transport
Biofuels target: The most controversial element of the Commission
proposal was a specific 10% target for biofuels in the transport sector by
2020. Under the final compromise, it has been rephrased as a 10% target for
renewables in transport (i.e. including electric vehicles). Electricity
vehicles (powered by renewables) together with waste residues and
non-feed/food second generation biofuels will count towards the overall
target. This provision will reduce the proportion of first generation
biofuels in the overall target. A review of the renewables in transport
rules in 2014 was agreed.
Sustainability criteria: The criteria proposed by the Commission to
limit the environmental damage caused by biofuels were strengthened based
on the Parliament’s and some member states’ proposals. Indirect land use
changes are now taken into account (i.e. the indirect impact caused by the
diversion of the use of land to produce biofuels). Under the final
compromise, the level of GHG saving compared with conventional fuels
required for biofuels to be used in the EU would be 35% initially (the ITRE
committee had asked for 45%), rising to 50% in 2017 and 60% for new
installations.
2.4. Directive on the Geological Storage of Carbon Dioxide
Authorizing
procedures and obligation for power plants to be “capture ready”
Competent authority: Under the final compromise, the authorization
of the storage sites is decided by national authorities in parallel to the
examination by the European Commission. The Commission issues a non binding
opinion. The national authorities have to consult the Commission before
taking their final decision.
Emissions performance standards: The Parliament’s ENVI committee
voted for the introduction of a so-called “Schwarzenegger clause” (similar
to a measure introduced by the governor of California): After 2015, power
plants would no longer be allowed to emit more than 500g of CO2/KWh (so as
to mandate plants to become equipped with CCS technology in case they go
over). The idea was to ensure that only the most efficient gas- and
coal-fired plants (combined heat and power plants or those with CCS) could
be built from 2015. However, the final agreement only includes a rather
vague statement on new power plants being “capture ready”.
Financial mechanisms and transfer of responsibility
The Parliament asked for industries to contribute to a fund to pay for
oversight, surveillance and remediation after the closure of a storage site
and for transferring responsibility to public authorities. Under the final
agreement, the operator, on the basis of modalities to be decided by member
states, must make a financial contribution available to the competent
authority.
Contrary to what the European Commission proposed, the MEPs required the
industry to remain responsible for storage sites for at least 50 years
after a site closure. The final compromise remains vague, referring to a
minimum period to be determined by the competent authority which should be
no shorter than 20 years before the responsibility may be transferred from
the private operator to the national authorities.
Composition of the stream
The Parliament demanded more specifications on the CO2 stream to be stored
(in particular the proportion of CO2 in relation to other gases such as
oxygen). It set the amount of CO2 in the CO2 stream at 95%. Nevertheless
the final compromise just states that the gas should be overwhelmingly
comprised of CO2.
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