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.

The EU might have something to say about Cameron's plan to roll back green policies

Former windmill on David Cameron's former home
publicising a former policy?

David Cameron once said his Coalition would be the "greenest ever", he once even installed a windmill on his own house in the hope of publicising his green credentials. No more it might seem. Yesterday he told the House of Commons:

"We need to roll back some of the green regulations and charges that are putting up bills."

The heat in the cost of living debate is only set to rise, but do not hold out any great hope of a dramatic reduction in energy bills. For the most part they flow from legally enforceable EU laws that the UK signed up to. Something we warned against here and looked at again here.

This begs the question, which ones can the UK scrap on its own and will it seek to renegotiate the others?

• EU Renewables Directive - imposes a legally binding target of 15% of all energy by renewables by 2020, which translates into producing 30% of UK electricity by costly renewables. This is the driving force behind subsidies and support for renewables. 
• The UK does have more control over its new Carbon Price Floor policy (which sets a minimum carbon price) and some of its strict energy efficiency policies. But even these fall under the overall banner of the EU defined emission's reduction targets which the EU will have to work very hard to hit.

So will the UK seek to renegotiate these headline targets to allow for cheaper forms of CO2 reductions? Lets see, but if not then all talk of reducing electricity bills are for the most part hot air.

UPDATE: Reuters reports on UK Government papers arguing that EU needs to cut greenhouse gas emissions by 50 percent from 1990 levels by 2030 to avoid the worst effects of climate change. The "roll back" is going well then!

What lies behind the Government’s renewed interest in the Severn barrage?

A lasting monument to the EU's renewables targets

It has been reported that David Cameron’s attention has fixed on the old idea of building a Severn barrage to provide renewable energy. Much of the reporting puts this in the context of the politics of infrastructure spending; however there may be another reason that we have previously highlighted for his renewed interest. That being that he has little choice if his own desire to comply with the UK’s EU target of producing 15% of its energy form renewable sources by 2020 is to be met.

Background
The EU’s renewable target, (agreed by Tony Blair in 2007) requires the UK to shift from just 1.3% of total energy from renewables in 2005, the baseline year under the EU Directive, to 15% by 2020 – the largest proposed increase of any member state (see graph below). The Government predicts that this will come at a net cost of £66bn to the UK over 20 years. This is a huge cost given that the UK already faces a major energy generation challenge – a quarter of existing power plants in the UK are due to close by 2020 – and that Britain should be in the enviable position of being one of the EU’s top energy producers, largely due to North Sea oil and gas, which makes it far less reliant on traditional energy imports than other member states.

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. The UK currently has one of the lowest proportions of electricity generated by renewables in the EU, illustrating the scale of the challenge.

So why do EU rules make the barrage almost a certainty?Article 5(2) of the original proposed renewables directive (requested by Britain) made it clear that the UK would have to build the controversial Severn Barrage in order to meet its EU renewables target.

The proposed article stated that:

“Member States may apply to the Commission for account to be taken, for the purposes of paragraph 1, of the construction of renewable energy plants with very long lead-times on their territory under the following conditions:

(a) construction of the renewable energy plant must have started by 2016;

(b) the renewable energy plant must have a production capacity equal to or in excess of 5000 MW;

(c) it must not be possible for the plant to become operational by 2020;

(d) it must be possible for the plant to become operational by 2022."

Given the extremely specific description (something five times more powerful than a large nuclear power plant which will be built between 2020 and 2022), this can only realistically have refered to the barrage.

Expensive stuff given this was possibly all based on a "mistake"
In 2008, the UK Government's former chief scientific adviser, Sir David King, suggested that Prime Minister Tony Blair and the other EU leaders did not understand what they were committing themselves to when agreeing the target:

"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."

Tony Blair thought he had signed up to  increase this: 15% of electricity from renewables

But he actually committed the UK to this: 15% renewable share of all energy by 2020

Leaving this: A UK renewables gap even the barrage might not fill

Source: Open Europe: The EU Climate Action and Renewable Energy Package: Are we about to be locked into the wrong policy? (2008)

But the whole idea was rather muddled in any event

Focusing on renewable energy from a climate change point of view sounds good but the 2020 rush to renewables is illogical as it ignores and actually diverts resources away from the easier and cheaper CO2 reduction wins to be gained from all other technologies (clean gas, clean coal, CCS, reducing consumption or even renewables that are at an earlier stage of technological development).

Several aspects of the EU’s climate change policy (forgetting the UK’s own self-imposed targets) are also self-defeating, including the competing and complex nature of the individual policies: the Emissions Trading System (ETS), which is essentially meant to be a market-based carbon pricing framework, and the aforementioned renewables target, which is essentially designed to change the energy mix of member states, often through subsidy.

In practice, forcing electricity generators towards prescribed renewable technologies, such as wind, through the 2020 target and government subsidy lowers the carbon price under the ETS because firms are being subsidised to meet the cap. This undermines the ETS’ carbon pricing function, which is meant to be the driver of investment in the cheapest low carbon alternatives.

A similar conflict can be seen between the EU’s initial push for a biofuels target, and the subsequent move to sustainability criteria, and additional production costs, due to the previously unforeseen impact certain biofuel production had on food prices and land use. All told, this policy mix is unlikely to be the best value for money option in reducing CO2 emissions.

Will Poland become the new North Korea of Europe?

This question can of course be filed under John Rentoul’s ‘Questions to which the answer is No’ category, but there is a significant chance that Poland will be the only EU member state to veto a new EU deal on climate change later today, meaning that at the very least we can expect Europe-wide condemnation and statements along the lines of Poland risking becoming permanently “isolated” right? After all, this was largely the immediate reaction in the European and UK press to David Cameron’s veto over embedding rules on budgetary discipline for eurozone members within the EU Treaties (see our response here), after he claimed such a move was not in the UK's national interest.

We doubt it though.

Some quick background: at today’s meeting of EU environmental ministers, it will be decided whether to adopt the EU’s 2050 low-carbon roadmap which seeks to set out a series of ‘milestones’ in terms of emissions reductions up to 2050. According to the roadmap, the most cost-efficient way of moving to a low-carbon economy is to achieve a 25% reduction by 2020, a 40% reduction by 2030, and finally a 80-95% reduction by 2050 (compared with 1990 levels). Agreeing on the roadmap is a first step to set legally binding emissions targets for the years beyond 2020.

The plan is backed by the Commission, the European Parliament and many member states (including the UK). However Poland has expressed strong concerns, indeed it already vetoed the 25% target once, back in June last year. Given that over 90% of Poland’s energy is generated from coal, this position is not surprising. Polish Environment Minister Marcin Korolec wrote to his counterparts warned against going beyond the agreed 20%, arguing that:

“There is no point whatsoever in gambling with the European economy’s future, introducing policies that might put our industries in jeopardy versus our competitors”

Ultimately is possible some sort of a deal could yet be thrashed out, but as yesterday’s Gazeta Wyborcza reported, Polish Government sources have made it clear they will not hesitate to block the deal unilaterally if is feels it is against its national interest. Unsurprisingly, many other member states and EU officials have not hidden their frustration with Poland's position.

There probably won't be any Auf Wiedersehen Polen headlines in the press, but this episode serves as a useful reminder to those who interpret UK-EU relations as a case of the latter being in permanent isolation. The truth is, as ever, far more complex.

Various EU member states maintain a special interest over economic sectors, industries and/or EU policy areas where they feel these are vital to their wider national interest. For example, the French have a dominant position in agriculture, the Spanish in fishing, the Germans in car manufacture and the UK in financial services, while Poland’s equivalent, naturally, is energy and environmental legislation.

Rather than trading in hyperboles, we should seek to establish a practical and intellectually consistent model for European cooperation, which can comfortably harbour such diverging interests.