A Delicate Balance: The EU 2030 Climate Framework

In 2011, the parties to the UN Framework Convention on Climate Change (UNFCC) agreed to establish a global climate agreement in 2015. In preparation for this 2015 summit to take place in Paris, it was agreed in Warsaw in late 2013 that governments should establish clear internal climate goals to present on the international stage. On January 21, 2014, the European Union took one of the first steps in outlining such internal climate goals, proposing specific EU-wide climate regulations for 2030. While the regulations maintain the European Union’s position as a major actor on climate change, there are some notable differences in the framework that indicate the increasing importance of economic, energy security, and competitiveness concerns facing EU member states. These proposed regulations, requiring approval from the EU Council, were expected to be the most important discussion point at the EU Council meeting on March 20 and 21. Their importance, however, has been and will continue to be eclipsed by the pressing issue of Ukraine—the Council has postponed its decision on the climate targets until June with a final decision anticipated as late as October.

Instead of being a diversion, the problems in Ukraine should increase the salience of the issue of energy security—an issue that plays a prominent role in the updated climate targets. The new framework represents a serious effort to strike a delicate balance: a renewed commitment to climate regulations and a recognition of energy security and economic competiveness concerns, all while attempting to maintain EU policy cohesion—although this will be very difficult. Approval of a new EU framework, could serve as the foundation of a renewed energy vision for Europe at precisely the right time to make energy reform a top-tier issue.

The 2020 EU Greenhouse Gas Regulations and the Interim

In 2007, the European Union laid out a set of ambitious climate targets for 2020—the first major step in its effort to reduce greenhouse gas emissions by 80–95 percent below 1990 levels by 2050. Under the moniker “20-20-20,” the framework stipulated that, by 2020: (1) emissions be reduced by 20 percent from 1990 levels; (2) 20 percent of energy would be derived from renewables; and (3) primary energy consumption would be reduced (more simply put: energy efficiency increased) by 20 percent. The emissions reduction and renewables targets included mandatory, tailored targets for individual member states, while the efficiency element was nonbinding.

2007 also saw the start of the second trading period of the EU Emissions Trading System (ETS). The first major emissions trading plan, the ETS set a cap on the amount of greenhouse gas emissions to be emitted from power plants, factories, and other energy-intensive enterprises. Under the system, some “allowances” are auctioned off, and some are distributed. If a facility exceeds its allotted emissions, it must purchase further allowances from elsewhere.

The 2020 goals would have been difficult to achieve under most circumstances, yet a plethora of internal changes that took effect shortly after the above system was established—most importantly the economic recession still plaguing Europe—have strained the tenuous political consensus around these policies.

Exogenous events have also had a noticeable impact on European energy policy. The fallout from the 2011 Fukushima disaster continues to reverberate in Europe. The accident dampened the outlook and support for nuclear energy in Europe, resulting in a smaller projected share in the bloc-wide energy mix than was projected in 2007. Most notably, the German government reversed its support for nuclear power shortly after the incident and decided to phase out all nuclear power by 2022. This move against nuclear, largely driven by strong popular opposition to the power source, was echoed in Italy, Switzerland, and eventually Belgium. While certain countries (e.g., Poland, the Baltic states, and the United Kingdom) have reiterated their support for nuclear, this denouncement of a low-carbon energy source that was expected to play a significant role in Europe’s low-carbon future was significantly dulled with no clear plan for what will take its place.

In the intervening years after the initial plan passed in 2007, it has become increasingly clear that European consumers have paid a price to develop and deploy more costly renewable energy technologies. Further, shale gas and tight oil production in the United States, which began to take off beginning in 2008, have widened the price gap across the Atlantic. Shrinking supplies and growing import dependence used to be a shared paradigm for the United States and the European Union; slower demand growth and rising U.S. shale gas production have changed the outlook for the United States—but not for Europe. Natural gas prices were cheaper in Europe than in the United States as late as 2005. Now, natural gas prices in Europe are 2.5 times U.S. prices. Europe has regarded this new American competitive edge with a mixture of circumspection and envy, resisting shale gas development on environmental grounds while simultaneously struggling to maintain its manufacturing sector in the face of contrastingly high energy prices. Simultaneously, cheap coal, which is being displaced in the United States by natural gas, is increasingly migrating over to Europe. With the rise of geopolitical instability in Eastern Europe—an instability instigated by a country that provides over 30 percent of the region’s gas—high European energy prices are increasingly salient in the face of cheap North American energy, bringing to the forefront the debate over energy security and economics versus climate.

The 2030 Greenhouse Gas Regulations: A Reflection of Change

On January 21, the European Commission proposed climate and energy targets for the European Union for 2030—the second step in the greater EU climate roadmap to 2050.There are several key differences in the 2030 framework as compared to the 2020 plan. The new regulations do indeed maintain momentum on the path toward emissions reduction, with a 40 percent mandatory reduction for individual member states by 2030. While the plan does include a renewables target of 27 percent, however, the directive only applies at a regional level—omitting the imposed renewables targets for individual member states. Instead, the framework proposes a governance system in which each member state will work with the Union to draw up an individualized strategy that will include plans to address such things as renewable energy targets and energy efficiency. Energy efficiency itself is generally glossed over in the plan; since the Union belatedly implemented the 2020 energy efficiency target, the 2030 framework postpones creating a new target until a review of the current goals is completed in 2014.

There are three other notable aspects of the 2030 targets:

1. Due to the surplus of carbon credits plaguing the EU ETS (largely a result of lower energy demand following the economic crisis), the Commission has proposed a “market stability reserve”—a form of volume control where credits can either be taken off or added to the market depending on demand. This reform is not intended to take place until 2021, however, as the European Union has already attempted to rectify the oversupply by “backloading”—a scheme that involves withholding the auctioning of intended carbon credits that will end in 2020.
2. The framework includes shale gas recommendations—not regulations. These voluntary guidelines for member states recognize the political reality that the European Union will not develop a pan-European consensus on hydraulic fracturing yet attempts to keep the “policy door open” to future shale development.
3. Finally, the framework included a list of “indicators” in the new framework; more simply put, sign posts for progress. Through the inclusion of issues such as price differentials between the Union and its trading partners, competition/market concentration on a regional basis, technological innovation, etc., the list acknowledges for the first time that competitiveness and energy security must be given equal weight and consideration to climate goals.

What Do These Changes Mean for the European Union?

There has been much criticism about the implications of the 2030 framework. Environmental groups in particular have been highly critical of the plan--labeling it “totally inadequate” and not ambitious enough to set a high bar for action in other countries—and argue that it will make the global aim to remain below 2 degrees of global warming impossible to attain. Since the 2030 framework is the plan that the European Union will bring to the table for the 2015 climate talks, many have expressed concerns that the plan represents a step back on climate, undermining the Union’s traditional support of climate initiatives—a key driver for international climate change policy.

A closer look indicates that the European Union is attempting to strike a workable political compromise—one that encompasses the diverse interests of many divergent constituencies and is thus essential to its success. The EU can induce the most effective changes through cooperative action and it must maintain cohesion in order to do so. In fact, the Commission strove to find an equilibrium in three key areas:

1. The 2030 framework seeks to incorporate logistical recommendations based on the effectiveness of the 2020 structure. For example, remedying the perceived imbalances created by having both an emissions trading regime and renewable energy mandates. Harvard University environmental economist Robert Stavins recently argued that the combination of an emissions trading system and a renewables mandate is ineffective, if not counterproductive. According to Stavins, the required implementation of renewables in the electricity sector would result in a surplus of allowances on the market, allowing other sectors to emit more than they otherwise would. This would stymie technological innovation for carbon reduction, while simultaneously driving down the cost of allowances, thus lessening the burden on emissions. In a response to Stavins, the Council on Foreign Relations’ Michael Levi argued that the international “leakage” caused by high carbon prices is lessened by a renewables mandate that takes the pressure off industry by reducing the carbon price. The combination of a revised ETS and bloc-wide renewables mandates attempts to provide the flexibility to find a balance between the two elements.
2. The change in renewables policy is much more significant in its reflection of divergence between member states. The United Kingdom, for example, pushed strongly against member state renewables mandates, as it increasingly explores nonrenewable lower-carbon options such as nuclear energy and shale gas. Poland was also an opponent of individualized renewables mandates; as a major coal producer and consumer, Poland is seeking to reduce its emissions through carbon capture technology as opposed to renewables development. Germany, conversely, in the throes of establishing a competitive advantage in renewables technology, has long been vocal in its support for the renewables targets. With so many diverging viewpoints, the compromise of the Commission (bloc-wide renewables targets) may be imperfect, but it is a compromise nonetheless.
3. The 2030 framework further acknowledges the pressure put on energy-intensive EU industries by high energy prices while simultaneously toeing the environmental line. Retail energy prices have risen consistently since the 2020 framework was enacted in 2007, with little hope for abatement. The monetary pressure on industry is becoming increasingly disconcerting, with high electricity and natural gas prices resulting in threats of industry relocation. One study has found that over 4 percent of the industry in Germany is considering leaving the country as a result of the higher energy costs. While other studies indicate that this threat is overblown, Europe must work toward energy prices that are more in line with its global competitors. The Commission acknowledged this through its reasonable softening of some of the renewables mandates, while maintaining the ambitious goal of reducing emissions by 40 percent. Coupled with a modified ETS that will allow for a more consistent carbon price, the new plan will place the European Union on a path that still ambitiously addresses climate change. Nonetheless, challenges remain and are perhaps best exemplified by those facing the German Energiewende.  With recent exemptions for German industries at the EU level as a result of cost and logistical difficulties on the state level, the success of the (perhaps overly) ambitious plan seems increasingly intertwined with the success of the pan-European goals.

Thus, while imperfect, the compromise that is the 2030 framework acknowledges the changes that have taken place since 2007 and strikes a delicate balance between several increasingly divergent interests. Yet this balance is still exposed to potential changes that may result in teetering. The energy dimensions of the current crisis in Ukraine resurrect the pressing issue of energy security, specifically decreasing reliance on Russia for Europe’s oil and natural gas needs. Already, calls for the development of alternative supply sources and routes and development of domestic resources have once again taken over the energy debate in Europe. Lest the world forget, the climate change policies put forth by Europe were part of a larger strategy to reduce energy consumption and provide diverse supplies of energy to Europe while meeting emissions reduction goals. The question now is whether the near-term energy supply concerns will have a distorting effect on that longer-term strategic vision. Many have suggested that the current crisis suggests Europe should scrap its climate goals altogether in favor of something more strictly focused on energy security; however, it is unclear what such a policy would look like and if it would in fact be any more effective at improving energy security. The most fortunate outcome would be for the current crisis to serve as impetus for internal and external market reform efforts that will help ensure greater energy security in the region while charting a path forward on climate change. Approving the 2030 framework might be a good first step.

Sarah Ladislaw is senior fellow and director of the Energy and National Security Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Anne Hudson is a research assistant with the CSIS Energy and National Security Program.

Commentary isproduced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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