Time to reassess the EU’s environment and climate change policies

EU leaders are meeting today in Brussels to discuss the EU’s 2030 energy, environment and climate change framework which will likely involve some new targets for emissions reduction. You can find our full thoughts on the original Commission proposal here – but broadly we think that the more flexible structure is a good approach and that dropping the binding renewables target is the right approach.

To that effect Open Europe today published a new comprehensive analysis of the EU’s 2020 framework. The highlights that some of the key assumptions that drove the policy have proven to be incorrect:

1. A global deal – Without this the net benefits of the EU’s approach fall from over €200bn to between -€11.4bn and -€20.6bn.
2. Emissions targets will lead to lower emissions – while the UK’s domestic carbon emissions have stabilised or even fallen slightly, its overall consumption of carbon has risen (save for a drop during the financial crisis).
3. UK’s targets are achievable – Recent simulations for the European Commission suggest the UK will fall 4% short of its target of 15% of energy from renewable sources by 2020.

4. Technological developments will cut cost of renewables – renewable energy remains, for the large part, reliant on subsidies and unable to compete with fossil fuels on the open market.

5. UK’s energy security will increase – far from increasing, the UK’s energy future looks more uncertain than ever, with talk of blackouts now commonplace in the media. The renewables target is exacerbating the coming energy crunch. Given the intermittent and unpredictable nature of many renewable sources close to 50% of the UK’s generation capacity will need to be from renewables. The only real option is offshore wind. However, given the size of fields needed they will need to continually move into deeper, rougher water. The available data suggest a clear correlation between deeper water and higher costs.

Therefore, while the likely removal of the renewables and other binding targets from 2020 to 2030 is welcome, we believe it will not be sufficient. In particular we highlight that the current policies are having a significant impact on bills. Open Europe estimates that, in 2013, the average household’s dual gas and electricity bill was increased by £59 (5%) due to EU regulations or UK implementation of EU defined targets. By 2020, EU-related regulations or targets will increase annual household bills by £149 (11%).

The impact on medium sized businesses is particularly troubling as shown in the graph below. Open Europe estimates that in 2013 the average medium sized business bill was increased by 9% (£130,000) due to EU regulations or UK implementation of EU defined targets.  By 2020, EU-related regulations or targets will increase medium sized firms’ bills by 23% (£350,000). With these figures there are some caveats: DECC claims that there are sufficient offsetting policies which will reduce these costs, however, it’s not clear why these cannot exit in any case (i.e. why bills could not be even lower on net) and that even if these policies were changed, the costs may not evaporate entirely.

Lastly, in terms of the overall picture these policies have proven to be costly but with limited benefit, while many countries, including the UK, look off track. Therefore, we recommend an urgent reassessment of the current policy along with the 2030 framework. After all, if there is a move away from a binding renewables target after 2020, logically it seems strange for governments and businesses in the UK to make huge investments just to meet the current target which will soon be obsolete.

A crucial part of EU reform will creating more flexible policies which can adjust to changing circumstance, which involve continuous, rigorous economic assessment and where mistakes can be undone. This seems as good a place to start as any.

Miliband vague on most EU issues but categorical on energy

Labour leader Ed Miliband addressed his party conference in Manchester this afternoon. While the focus was on ‘togetherness’, the NHS and his various encounters with members of the public with useful bits for his speech, there were a couple of mentions of the EU and related issues. On the topic he said:

“Let me say it plainly: Britain’s future lies inside not outside the European Union. And the way we reform the EU is by building alliances, not burning them. And it’s why all those who want to leave, including in the Conservative Party, are now a huge threat to the prosperity of our country.”

Miliband went on to add that he saw the need for EU reform in areas such as “the economy, migration and other big issues”. He also cited the UK’s failed opposition to Jean-Claude Juncker’s Commission Presidency as evidence that UK Prime Minister David Cameron cannot achieve reform in Europe, since all countries simply believe he is pandering to his party.

Ultimately the EU section was a side note to the main messages of his speech. Once again there was no detail about exactly which reforms Labour would pursue with regards to the EU, no mention of whether a referendum would be held or not and only vague talk of alliance building with no clear message of how this would be achieved other than by not being the Conservative Party. He also glossed over the fact that the Labour Party ostensibly supported the anti-Juncker push by the UK and that the negotiations over Juncker seem to have resulted in the UK securing a prime post in the new Commission – one many thought they would never get.

Interestingly, there was a bit more detail at one of Open Europe's fringe events with Shadow Europe Minister Gareth Thomas stating that he (and presumably his party) support a red card for national parliaments as well as a specialised European affairs committee to better scrutinise all EU legislation. Certainly commendable if they prove to be concrete Labour policy.

One final interesting point on substance from Miliband regarding energy:

“[We are] making a clear commitment to take the carbon out of our electricity by 2030.”

This is a pretty bold statement (although he did hint at something similar last year), which essentially says that all of the UK’s electricity consumption will be met by renewable sources in 2030. To put that into context current renewable share of electricity generation is around 16%, and is due to rise by to 30% by 2020 – that is if the UK meets its EU set targets (quite a big if at this point).

To achieve the current 2020 target, according to government impact assessment, the Renewables Directive costs £4.2bn per year over the course of a decade. Miliband’s target would essentially involve tripling the increase of renewables over the same timeframe up to 2030 – exactly how much would such a policy cost per year!? (We’d hazard a guess at…a lot). As the graph above from the National Grid shows, most forecasts expect the UK to still have a sizeable chunk of electricity generation from gas and coal, mostly due to the cost and complexity of overhauling the entire grid and the intermittent nature of renewables (note - we have an upcoming paper on these issues and more soon so stay tuned).

All of this also takes place in a context where carbon prices (via the EU ETS) and targets are set and negotiated at the EU level. Will Miliband unilaterally commit to such an approach when it seems likely few, if any, other EU members would sign up to it? We've highlighted before the potential conflict between Labour's energy policy and the EU. Again, more detail needed but at least here there are some interesting questions to chew over.

Which Commission post should the UK push for (clue: not energy)?

When it comes to EU top jobs, if you snooze you lose, as
Gordon Brown discovered to his cost in 2009

In a new briefing published this morning we argue that after the row over Jean-Claude Juncker’s appointment, David Cameron can regain the initiative by sending a heavy-hitter - and not simply someone who happens to be available - to Brussels with the view to securing a top job in the new European Commission. But here is the crucial question - what job should the UK push for?

Here are the key points from our briefing:

• Even though conventional political wisdom says that it’s impossible for the UK to bag the internal market portfolio, this is precisely what David Cameron should ask for, not least given that Germany, in particular, may want to give the UK a quick win in order to reduce the risk of Britain leaving the EU.

• To boost the chances of this happening, financial services could be split off from the internal market portfolio. However, in this scenario, the key is for this portfolio to go to a country that actually has a meaningful financial services industry, or the strategy could backfire.

• The second best outcome for the UK would be to secure the competition portfolio. competition is by far the most powerful DG, with the power to impose multi-million euro fines, prevent mergers and restructure banks. The portfolio would allow the UK to ensure a business-friendly environment and ensure fair competition within the single market by preventing discrimination against non-euro member states. It also establishes a political link to eurozone - it’s impossible for eurozone leaders not to engage with the Competition commissioner.

• The Trade portfolio is often mooted as a good one for the UK, and on substance it certainly is. Being able to conclude the EU-US free trade deal (TTIP) would be a great scalp. However, it is important to remember that Commissioners’ ability to impact EU policy is not limited to their own briefs; many policy proposals are debated within the College of Commissioners offering every Commissioner the opportunity of raising any concerns at an early stage. Just as the EU’s High Representative for Foreign Affairs – currently held by Baroness Ashton - the Trade Commissioner is often absent from Brussels, thereby limiting the UK’s overall influence.

• The energy portfolio would be a relative disappointment for the UK. Yes, energy is a hugely important issue for Europe – and liberalised single market could help tremendously in both boosting energy security and keeping cost down. The Energy Commissioner could also play a key role in keeping the EU out of shale gas regulation – a key UK objective. However, the big push needed to change the political culture in Europe for this to happen won’t come from the European Commission and will take a long time to achieve anyway. This battle will first need to be won in national capitals. Taken together though, the Competition Commissioner probably has more sway over the EU energy market by being able to strike down attempts at creating national champions and new forms of intervention – as illustrated by the current stand-off between Germany and the Commission over Berlin’s rebate for energy intensive industries from its domestic renewable surcharges.

• Arguably, the social affairs brief would be better than the energy portfolio given how hugely important the rules on access to benefits for EU migrants are for the wider debate in the UK.

Just as important as the UK’s portfolio is the distribution of other key portfolios among reform-minded countries like the Netherlands and Sweden. Cameron needs to be far cleverer than Gordon Brown was in 2009, when France got internal market and Romania agriculture. This won’t be easy though. Having lost out on one of the three ‘top jobs’, France could push for either the competition or internal market brief. However, if France keeps the internal market, financial services should be split off as well.

Finally, the appointment of the new President of the European Council will also be crucial – in some ways just as significant as that of the Commission President – given that this will be the person in charge of brokering Cameron’s negotiations with other heads of state and government.

It's certainty all to play for.

Could Ukrainian shale gas break Ukraine's dependence on Russia?

Could Ukraine's shale gas turn the tables on Russia?

Ukraine is currently both dependant on Russian gas imports (60% of Ukrainian gas comes from Russia) and a major transhipment route for gas to Russia's export markets in the EU. This has historically put Ukraine in a weak position vis-a-vis its eastern neighbour. A fact underlined in the last few days when Gazprom increased the price it charged following the change of government in Kiev, forcing Ukraine to seek emergency finance from the west.

This could however change. Ukraine has two large shale gas deposits, one (the Lubin basin) in the Ukrainian speaking west and another (the Dniper-Donets basin) in the Russian speaking east. The eastern one has, according to the energy consultancy Advanced Resources International, nearly 76 trillion cubic feet (Tcf) of potentially recoverable gas, the western basin shared by Moldova and Poland another 72.5 (Tcf). For context, the same consultancy suggests there are 26 Tcf in the UK and 136.6 Tct in Poland.

Ukraine is in the middle of Russia's export pipe line to the EU

These deposits are therefore sizeable and close to existing pipelines making both production for domestic consumption and export possible. If Ukraine could attract investment to develop these fields then it could measurably improve its energy and economic independence from Russia.

However, Ukraine should not get its hopes up quite yet. Although large in themselves the deposits are small by US standards (they have 1,161 Tcf  of technically recoverable shale) and for that matter Russian (285 Tcf). It is also unlikely they could come on stream in the near future.

The eastern gas deposit falls within
Ukraine's Russian speaking regions

The larger, more obvious problem is political instability. The eastern basin falls exclusively in the Russian speaking part of the country and until the impasse with Russia is broken it is unlikely international energy companies would want to sink the investment needed into an unstable political environment. So if energy independence could help Ukraine escape from Russia's orbit and calm the political crisis, it cannot do so until it has settled its current dispute with Russia. Of course Russia knows this too and Ukraine's shale reserves therefore present another factor in this deeply complicated and difficult geopolitical standoff.

Greece appeals to Russia over natural gas prices

As we reported in today’s press summary, there were some interesting reports circulating in the Greek press this morning about Greek Prime Minister Antonis Samaras sending a letter to Russian President Vladimir Putin to request assistance with cost of Greek gas – namely the gas which Greece imports via Gazprom.

Looking at the data it’s clear why the Greek government is concerned about this:

As the graph shows, in the second half last year, Greek gas prices were the highest in the EU not including taxes and third highest including taxes. This is very problematic for Greece for a few reasons:

• Obviously in the depth of a deep recession very high energy prices can act as a significant drag on the economy (both on supply as it impacts business and consumption as it eats into the spending power of consumers).
• Greece is completely reliant on imports for much of its energy supply, particularly gas and oil. This makes it vulnerable to future price shocks and gives it little control. Incidentally it also makes its current account adjustment (moving to a surplus) more difficult since it has an almost permanent deficit from energy imports.
• Surprisingly, Greece has so far managed to keep fairly low electricity prices. This is positive for consumers but problematic for the producers facing very low margins. Usually, this might be an easy problem to balance out, however, with the government looking privatise the sector it makes investment look much less appealing. Partly in response to this, the government has allowed prices to be pushed up further squeezing the standard of living.

Even though the request may be understandable then, it treads on unsteady ground for the EU. 

As we noted during the Cypriot crisis, Russian influence in the region (particularly in relation to energy) is a very dicey issue, which brings out conflicting goals in various EU member states.

Natural Gas Europe reported last week that negotiations between Gazprom and Greece have been on-going for some time but are at somewhat of an impasse with the former offering price reductions of around 10% and the latter requesting up to 20%.

Any favour on gas prices from Gazprom (via Putin) is unlikely to come for free. The EU (and the US for that matter) will likely be mindful of ceding further influence over an EU member to Russia, especially one in as strategically important position as Greece. Gazprom has also widely been mooted as the likely buyer of DEPA, the Greek gas monopoly which is being privatised, although it did refrain from bidding earlier this year. Still the prospect for increasing Russian presence in Greece and the Greek energy market is clear, while hope of Greece tapping into 'vast' reserves under the Mediterranean are still a pipe dream to a large extent.

All that said, its clearly early days and we shouldn't get ahead of ourselves. But we’re certain other EU leaders will be watching this one closely.

Even more hot air? EU emissions targets post-2020...

Grand room, grand ideas....

Today, over a two hour working lunch in Dublin Castle's grand State Dining Room, EU Environment Ministers will be discussing the EU's contribution to reducing global CO2 emissions post-2020. The Commission's Green Paper on the menu is austere stuff - it calls for reductions in EU emissions of up to 80 - 95% by 2050.

This raises many obvious questions. Leaving aside arguments over climate change, the impact on living standards and whether unilateral decarbonisation is sensible in a global economy, is this plan remotely credible? And if it is, where does the EU believe the cuts will come from? 



Commission's plans to reduce CO2 by 80 - 95% (Mt CO2 eqv)

Firstly, as you can see on the right, as these cuts are calculated over 1990-levels, we're already some way down the road (due to a recession and continued de-industrialisation). But the majority of the heavy lifting is yet to come.

You can also see from this that emissions from some states (Spain for instance) are allowed to go up before 2020. This is due to "burden sharing" allowed under EU rules. If the assembled ministers decide to do that again for 2030 it will mean higher cuts for the UK.

So, again, where will the cuts come from? Well, mostly  from industry and power generation, it seems. The most startling projection is that power generation is planned to reduce to 0%. Right...


EU Green paper: Power generation - 0% CO2?

This is a massive and expensive undertaking as you can see from looking at the UK's current electricity generation mix (below). Currently, at only 7% renewables, a large share will either have to be modified to use Carbon Capture and Storage technology or replaced by new nuclear or renewables, such as wind. Beyond that, the UK's emissions from industry will also have to decrease by a very large percentage. Is that remotely credible while maintaining a manufacturing base? Strangely the only area to be exempted from the emissions cut is agriculture - always a special case in the EU. 


UK electricity gerneration (2010)

Keeping the lights on: The UK's looming energy gap and the EU

The UK's energy regulator Ofgem's chief executive Alistair Buchanan made headlines this week by highlighting a looming UK energy generation crisis saying that it:

"will face a tougher challenge over the next few years because of the possibility of a prolonged lack of spare power station capacity."

Very true, but this should have come as no surprise to anyone - Ofgem was already highlighting a serious generation gap in its October 2012 assessment - as others have for many years. To cut a long story short policy decisions (and the lack of policy decisions) over decades mean that, in Ofgem's assessment, by 2016/17 the excess capacity of UK electricity generation over demand is predicted to fall to just 5%. And that is a mid-point estimate - so if demand is higher (a cold winter), there are delays in building new gas plants or a problem with existing plants, there will be even greater problems dealing with peak demand.

In the short term this problem is exacerbated by EU environmental laws that require the closure of large coal plants. This is in addition to the closure of nuclear plants which are coming to the end of their lives.

This is a looming problem for the UK and something politicians of all stripes should be aware of given the political resonance of higher fuel bills and the possibility of black outs. Other than building more coal or gas plants, immediate action could require the UK to seek to renegotiate its legally binding commitments with the EU, something that has been highlighted by the EU Fresh Start Group of MPs.

The UK's electricity generation at the moment:

DECC 2010

This is what Ofgem thinks could happen to this capacity

Ofgem highlights that on a midpoint prediction the UK will only have a 5% safety threshold

The big difference is the decommissioning of coal plants. And if Ofgem is gloomy, some analysts such as Credit Suisse have gone further by predicting that the UK could even end up 10% short.


Credit Suisse

So why is this all happening now? Well there are two parts to this.

Firstly we have the failure of domestic policy. Energy generation has become a political football with politicians from all parties promising to reduce CO2 (a vote winner) without committing to the policies and costs required (a vote loser). Creating new energy generation capacity requires a long lead time, something the current political culture is seemingly ill fitted to.

Secondly, we have the EU. The UK has signed itself up to some of the most ambitious/unrealistic (delete as appropriate) legally binding environmental legislation in the world. Specific to power generation are the following:

2009 Renewables Energy Directive

The renewable target requires the UK to shift from just 1.3% of total energy (i.e. not just electricity) from renewables in 2005, the baseline year under the EU Directive, to 15% by 2020 – the largest proposed increase of any member state. The consensus is that the 15% target is likely to require the UK to produce 30-35% of its electricity from renewables by 2020, because it is far harder to source energy for transport or heating from renewables. This is obviously a big ask and it is not clear where the energy will come from.

2001 Large Combustion Plant Directive (LPCD) and 2011 Industrial Emissions Directive

If you look at the graph above Ofgem puts a large proportion of the generation gap down to the decommissioning of coal fired power stations. This is important as coal (unlike wind) is a base load generator and can respond to peak demand. Unfortunately many of these coal plants are due to close.


Kingsnorth coal power station due to be closed by EU emissions legislation

This is due to the LPCD, which is designed to reduce the amount of sulphur dioxide, nitrogen oxides and dust emitted from large conventional power stations. Existing plants had the choice to either comply with the new targets by installing new technology to remove emissions or remain open for a limited period only. In the UK, 11GW of capacity opted out of the Directive and will consequently have to close in 2015 - and some will close sooner. In fact, Ofgem notes that, "power stations 'opted out' under the LCPD are using up their running hours faster than expected" and that "most LCPD opted out plant will come off the system well before the 2015 deadline."

In addition, the EU's Industrial Emissions Directive will place restrictions on the operation of some existing coal and older gas stations from after 2016/2017.So what can be done?

The problem needs a solution in two parts. Firstly the UK needs a huge amount of investment in new generation capacity of all flavours. For instance in 2011 the Government noted that:

“Around a quarter of existing power plants in the UK are due to close by 2020. Replacing this capacity will require up to £110 billion of investment in new generation and grid connections by 2020. Compared with the last decade, rates of capital expenditure on energy infrastructure will need to double." 

A second option to escape the short term generation crunch brought on by the EU's LCPD could be to seek to negotiate for a UK opt-out or extension from the Directive. This could for instance come in the form of a limited exemption for a number of hours at times of peak demand. The problem with this is the Directive is legally binding and so would require other EU states to agree.

 
Will the Coalition attempt to re-negotiate a partial exemption? Well it is clear that a large number of Conservative MPs are becoming wary of how higher fuel bills and possible blackouts could reflect on them in the next election. The EU Fresh Start group of MPs has for instance called for the renewables and LCPD to be reviewed. This is what their manifesto says:

"The UK should renegotiate, or, if unsuccessful, suspend its obligations under the 2009 Renewables Directive, and not sign up to further commitments with respect to renewable energy targets. Our own roadmap (which would replace it) should maximise the cost efficacy of the reduction measures taken."

"We should review the timescale of the Large Combustion Plant and Industrial Emissions Directives with particular reference to the requirement to close down our large coal burning stations. To the extent we believe that premature closure is causing an unacceptable impact on fuel poverty or energy network resilience, we should extend their lives. We should make it clear to our EU partners that the large scale construction of unabated coal stations while we switch ours off is not a fair or an acceptable position."

Will this happen? Well David Cameron's commitment to re-negotiation is only for the post 2015 Parliament which might be too late. So could there be a case for early action? Yes, but immediate action seems unlikely, at least for as long as the lights are still on. Both the Conservatives and Liberal Democrats have reiterated their support for legally binding renewables targets and if Labour were to return to Government they were the party that originally put them in place!

So, expect to hear more about the looming energy crunch and expect the political temperature to increase.

Another cold front on the way from Europe?

Ofgem's 'Electricity Capacity Assessment', published today, makes for some interesting reading as we enter the winter.

This is from the executive summary:

The high level of spare capacity in the GB electricity market is set to end quite rapidly over the next few years. As identified in our 2009 Project Discovery analysis the impacts of replacing older coal and oil power stations under EU environmental legislation together with changes to the generation mix over the next decade pose new challenges to security of supply. Recent developments have strengthened this view. Indeed, power stations 'opted out' under the [EU's Large Combustion Plant Directive] are using up their running hours faster than expected: most LCPD opted out plant will come off the system well before the 2015 deadline.

In short, a mixture of EU environmental legislation and a change in the UK's energy mix, also driven in large part by EU renewables targets, means that the UK's spare energy generating capacity could fall from 14% now to only 4% in three years, under Ofgem's baseline scenario. The graph below shows that in a 'high winter peak demand' scenario, the situation could get far worse, with the UK having no spare capacity in 2015/16, which could very likely to lead to blackouts.

So, as well as trying to get a lot more gas and nuclear power stations built, the UK Government may also need to choose between complying with EU environmental legislation and keeping the lights on.

Cap and trade - not the only way to skin the cat

Following his defeat in the mid-term elections, US President Barack Obama has now announced that he will drop his plans for a cap and trade system to reduce CO2 emissions. The idea behind cap and trade is to put a limit on greenhouse gases and then allow companies to buy and sell pollution permits under that ceiling.

President Obama said:

Cap-and-trade was just one way of skinning the cat; it was not the only way...I'm going to be looking for other means to address this problem.

As we've argued many times before, the cost of the EU's Emissions Trading Scheme (EU ETS) is massive and it's far from clear that a cap and trade system is the best way to achieve global emission cuts, while also encouraging investment in alternative energy. Obama's decision is sensible. But it clearly has implications for Europe, not least since the EU might now be put at more of a competitive disadvantage in the absence of a cap and trade system in the US.

Interestingly, former deputy prime minister John Prescott - who was a key UK negotiator at the Kyoto global warming conference in 1997 - today argued that in light of Obama's decision world leaders should ditch their hopes for achieving enforceable targets for emissions reductions. Instead, he said, they should push for a voluntary agreement at the upcoming Cancun summit:

Let's have a voluntary agreement. Let's stop the clock. Instead of Kyoto having to be done by 2012, stop it for about five years, put in a voluntary agreement and a verification system.

For his part, German Economy Minister Rainer Brüderle warned yesterday against imposing more environmental rules on German industry, arguing that global competition doesn't allow for a go-it-alone approach. He has a point.

The better way forward for the EU would be to set overall targets but then allow individual member states to reach them in whichever way they deemed to be the most cost-effective.

There is more than one way to skin the cat - also in the EU.

Talk about micro-managing...

First the EU sets renewable energy targets that force member states to build thousands of wind turbines, then the Commission tells them how not to build them...

According to Euractiv:

The European Commission has issued guidelines on how to design wind farms so that they do not disturb birds and bats living in the EU's 'Natura 2000' network of protected sites.

Taxing questions

The EU's new Taxation Commissioner Algirdas Semeta has announced that he is planning to revive previously shelved plans for an EU-wide carbon tax, aiming to set a minimum levy of €10/tonne of CO2 emitted (although the exact level is a bit unclear) from energy sources such as petrol, coal, and natural gas when they are used as motor and heating fuel, or to produce electricity.

Based on the Commission's previous proposal we've calculated that such a tax would cost the UK economy at least £3.2bn a year. This cost will hit poorer consumers and small businesses disproportionately hard.

Is the cost worth it? Well, a carbon tax can, and has worked in some member states - Sweden being the most conspicous example (the country has cut carbon emissions by 9% since introducing a carbon tax in 1991, while the economy has grown by 48% during the same time period). Unlike the EU's flawed Emissions Trading Scheme, a carbon tax would create a firm price on carbon (although still largely arbitrary) and ensure that polluters have to pay rather than being rewarded. This, in turn, would provide a strong incentive to switch to, and invest in, green energy. If replacing other, poorly targeted, CO2 policies a carbon tax could be the right way to go.

But apart from this discussion, the proposed tax raises two further important issues.

Firstly, why an EU-wide harmonised tax? We must remember that the EU already has all manner of climate change policy instruments playing different tunes. It has an extensive cap-and-trade system for large emitters of CO2, such as power generators and heavy industry. It has heavily prescriptive renewable energy targets and biofuel targets (the latter of which even the Commission now admits might be a mistake). It also has various other environmental regulations restricting emissions such as the Large Combustion Plant Directive, which will force the closure of nine of the UK's power plants by 2015.

Those in favour of an EU-wide tax say that it must be harmonised across Europe in order to avoid 'distortions to the Single market'. However other countries, Sweden for instance, have successfully implemented a domestic carbon tax without any detrimental impact on their economies.

But more importantly, if the stated end goal is not EU tax harmonisation in and of itself but emissions reduction, all that really needs to be decided at an EU level is the extent of the emissions reduction targets. As for the means, who cares? The job of meeting these targets should be left up to member states, who are best equipped to devise a policy mix tailored to their individual circumstances - and when it comes to energy, these are often very diverse.

A carbon tax may be a cost-effective option, or it may not. But it should not be the European Commission's job to decide.

This leads us to the second issue. There are understandable concerns that the Commission has an ulterior motive for its carbon tax. While the current proposal would see member states collecting the revenues from any tax, such "eco taxes" have long been seen by many within the Commission as a way of directly financing the EU budget - a view shared by EU President Herman Van Rompuy.

If such a carbon tax were established, it would clearly create an obvious focal point for those calling for an EU funding stream that bypasses member states' treasuries, with the ultimate aim being a direct tax.

All the more reason to follow a pragmatic approach that concentrates on the stated aim of cutting emissions at the lowest cost to businesses and consumers, rather than creating yet more centralised and complex EU rules that limit member states' ability to tailor climate change policies to their own needs.

Turn the air con down

The Department of Energy and Climate Change has produced an Impact Assessment for the Government's 'Renewable Energy Strategy' - in other words, its plans for meeting EU targets for renewable energy. It it rather serious stuff. The plans will cost £4.2bn a year ,with annual benefits of £0.3bn a year. The cumulative cost is estimated at £60bn over 20 years, while the value of carbon saved is estimated at £5bn.

While these large figures might seem pretty abstract to many, the following will not. A significant proportion of the cost will be passed on to consumers, with the Government estimating that domestic electricity prices will increase by 15 percent and gas prices by 23 percent by 2020. This equates to average increases of £75 and £172 to electricity and gas bills.

Besides the cost, the UK’s share of the EU target of producing 20 percent of energy from renewables by 2020, a national target of 15 percent, is widely regarded as 'ambitious' and by others as 'unrealistic'.

Those in the latter camp include the UK's Chief Scientific Advisor at the time the agreement was made (Tony Blair was in the hotseat for us). Sir David King said:

"I think there was some degree of confusion at the heads of states meeting dealing with this. If they had said 20% renewables on the electricity grids across the European Union by 2020, we would have had a realistic target but by saying 20% of all energy, I actually wonder whether that wasn't a mistake."

In a report last year we estimated that the EU's entire climate and energy package, of which the renewables target is only a part, will cost the UK £9bn a year and push an extra 1 million people into fuel poverty.

We're not arguing against an EU role in fighting climate change - a global challenge which the EU can contribute to solving with regional cooperation. We are, however, objecting to the EU's desire to micro-manage and continually centralise policy.

An EU-wide binding renewables target removes the UK’s flexibility to find the cheapest way of reducing emissions, which should be the overall aim. The cost is so high because the Government is now forced to 'pick winners' by subsidising the renewable technologies it thinks can achieve reduced emissions at the cheapest cost.

State bureaucrats do not have the ability to predict new advances in renewable technologies and their relative costs, which are at different stages of development and also depend on the fluctuating price of fossil fuels.

Decision time

There have been widespread fears for some time that the Large Combustion Plants Directive, which will force the shutdown of nine oil and coal-fired power plants by 2015, will raise the possibility of blackouts in Britain.

A survey of energy experts by the BBC has reconfirmed this fear. Although the shutdown of such a large amount of coal capacity obviously does raise the risk of the lights going out, what is most likely to happen is the rapid construction of new gas plants (which can be brought online in just a few years) to fill the generation gap. But even higher gas dependency is in itself bad news for energy security and the availability of cheap power.

Whatever happens, it is pretty clear that this Directive is a huge problem for the UK's already strained energy infrastructure.

At a conference yesterday organised in Brussels by the Major Energy Users Council, many participants were deeply concerned over the Large Combustion Plant Directive, raising the question of whether the British government should refuse to comply with the directive, or perhaps negotiate a special dispensation.

One important point that arose was that, although the Directive works towards a 2015 deadline, the British Government will have to make a decision very soon indeed if it wants to try and go down this route.

This is because, as a result of the LCPD, power generation companies are unlikely to invest to maintain the plants in the run-up to 2015, and may even begin to 'cannibalise' parts of the equipment. This means that the damage to UK coal plants may already have been done within a few years, meaning that they will not be able to stay open in any scenario - even if the Government attempted to withdraw from the LCPD in three or four years time.