BRUSSELS INSIDER #1 - September 4, 2018
High on the Brussels autumn agenda: electricity market design, CO2 standards for cars, climate policy
by Sonja van Renssen
As Brussels re-opens for business, there are a few big energy files to wrap up before the European Parliament enters election mode next year. It’s down to Austria, holder of the EU presidency until the end of the year, to broker a deal on an electricity market reform, which will decide on capacity mechanisms, priority dispatch and balancing responsibilities for renewables. A second highly contentious file is new CO2 standards for cars and vans (plus a sister proposal for trucks and buses). And finally, EU climate and energy policymakers will be looking to leave their mark on the world stage at the next round of UN climate talks in Katowice, Poland (COP24) in December.
European Commission officials insist that they are not in ‘legacy-mode’ just yet, but it is hard to ignore the burgeoning wave of chatter about the upcoming changing of the guard in Brussels. In May 2019, there are European Parliament elections; in November 2019, a new European Commission will take office. Who will be the next Commission President? How much of a grip will populist parties get on the Parliament? These are the questions that are already occupying much of the Brussels bubble.
But there is work to be done before then. The politics is exciting; the laws are the legacy. It falls to Austria to close a number of important legislatives files before the year is out. Austria took on the rotating 6-month EU presidency from Bulgaria on 1 July. It will hand over to Romania on 1 January, but by then, many MEPs will already be in campaigning mode.
The most urgent energy file to close is the power market redesign proposed by the Commission in its Clean Energy Package of November 2016. This package creates a new climate and energy framework for the EU for 2021-30. Before the summer break, Commission, Parliament and Council (Member States) managed to seal deals on new EU directives on renewables, energy efficiency and governance (i.e. national energy and climate plans).
That’s half the package done. The second half – another four legislative proposals – seeks to rewrite the rules of European electricity markets. The primary goal is to adapt them to an ever greater share of renewables and a more active consumer, whilst preserving security of supply. The EU’s success in meeting its renewables, energy efficiency and indeed future climate targets will depend to a large extent on the rules that govern its power markets.
Power market reform will rewrite EU energy mix
Back in June, when negotiators reached agreement on a new EU renewable energy directive, the European Consumer Organisation (Beuc) already warned that market design is crucial. The new renewables directive was hailed as a victory for self-consumption – or the right for citizens to produce and consume their own energy without punitive taxes – but the power market reform will decide on “technicalities” such as whether the power produced by households is prioritised when it comes to uploading it to the grid.
MEPs and the Commission want to maintain priority dispatch for all existing and small (<500kW) new renewables installations; Member States want the freedom to decide for themselves. National energy regulators have proposed to scrap priority dispatch, arguing that the cheapest plants should run to minimise consumer bills.
Where MEPs and Member States do agree – and what renewables groups like lot less – is that national governments should be able to impose balancing responsibilities on renewables producers. SolarPower Europe has warned that this could inflict “serious burdens on consumers”. It is part of a “Small is Beautiful” campaign to protect the current privileges of decentralised energy providers. WindEurope says: “It’s unclear what compensation will need to be paid [by renewables producers] to TSOs [Transmission System Operators].”
Overall however, renewables stand to benefit from the move to more short-term, dynamic, flexible markets. Unlike coal and possibly gas.
One of the other most contentious parts of the reform is a proposal – backed by all three EU institutions – to introduce a 550gCO2/kWh emission standard for capacity mechanisms. This standard will exclude coal plants from capacity payments. Council and Parliament need to thrash out when it takes effect – and whether to exempt strategic reserves. The Parliament has come up with an alternative 200kgCO2/kW annual limit for strategic reserves, which would basically let even the dirtiest German lignite to run, if not for too long.
As we’ve reported in the past, how the 550gCO2/kWh is calculated will also decide whether open cycle gas plants are in or out. More broadly, the power market reform is crucial for capacity mechanisms because the rules it sets will be binding, including for existing schemes.
MEPs and Member States will hold their first real negotiation on power market reform this week, after a ‘meet-and-greet’ session at the end of June. At that session, the 550gCO2/kWh standard reportedly emerged as a flash point. Other areas of contention going forward are set to be the role of a European (vs. national) resource adequacy assessment(s) – to determine the need for capacity mechanisms in the first place – and the rules around the use of the grid and its operators.
Fresh controversy erupts over post-2020 car CO2 standards
One of the other most important climate and energy files out there is a legislative proposal for new CO2 standards for cars and vans for after 2020. This is a highly political – and controversial – proposal, coming in the aftermath of Dieselgate and at a time when transport continues to be the biggest challenge for climate policymakers. Transport consumes a third of Europe’s energy and emits a quarter of its CO2. Its emissions are still above 1990 levels.
No surprise then that new CO2 standards for cars and vans are at the heart of a low-emission mobility package issued by the Commission in three parts in May and November 2017, and May 2018. The Commission wants the average CO2 emissions of new cars and vans to be 30% lower in 2030 than in 2021. That’s neatly in between the 20% advocated by the car industry and 40% put forward by NGOs – not that it has stopped the two from some vigorous interaction.
Fresh controversy erupted over the summer when campaign group T&E obtained a letter and explanatory ‘non-paper’ from the Commission, in which the EU’s climate and industry Commissioners, Miguel Arias Cañete and Elżbieta Bieńkowska, outline evidence of the car industry manipulating a new CO2 emissions test, the so-called worldwide light vehicles test procedure (WLTP).
T&E explains: “The non-paper details the methods used to inflate CO2 emissions values. The Commission explains that such inflation effectively weakens the ambition of the proposed new car CO2 reduction targets for 2025 and 2030 [since they would be based on an inflated baseline]. The letter and paper were sent to the Austrian presidency of the EU, the chair of the European Parliament environment committee and the lead MEP on the legislation for new car CO2 targets.”
Yes, it’s urgent: on 10 September, the European Parliament’s environment committee will vote on the post-2020 standards in a first step towards negotiations with Member States (who, for the moment, remain deeply divided).
Cañete and Bieńkowska have made several suggestions to “rectify” the inflation problem, including basing targets on “values measured” not “values declared by manufacturers”. The European Automobile Manufacturers Association (ACEA) said in a response that it “fully agrees that CO2 values should not be artificially increased on purpose in any way”.
In parallel to the talks on cars, don’t forget trucks. In the third and final part of its mobility package, the Commission proposed the EU’s first-ever CO2 standards for trucks and buses. With Dutch Green MEP Bas Eickhout at the helm in Parliament, you can expect the sparks to fly. Eickhout presented his report to the Parliament’s environment committee on 29 August.
EU doesn’t plan to go to Katowice empty-handed
It’s been common knowlege in Brussels for a while now that the EU’s new energy efficiency and renewable energy targets will see it exceed its 2030 climate target. In short, the EU’s 40% emission reduction pledge for 2030 – its contribution to the Paris Climate Agreement – is based on a 27% renewables and 30% energy efficiency target. But EU negotiators settled on a 32% renewables and 32.5% energy efficiency target when they closed these files in June.
A Commission non-paper that was widely circulated during the negotiations more or less did the maths: this adds up to a 45% emissions reduction. So why such an uproar when EU climate and energy Commissioner Miguel Arias Cañete did the obvious and suggested that the EU increase its climate target?
The Spaniard told the Deutsche Presse-Agentur (dpa) on 21 August that he plans to ask Member States to raise the EU’s greenhouse gas emission reduction target from 40% to 45% “later this year”. He hopes to get the green light in October – presumably at a meeting of European heads of state and government pencilled in for 18-19 October – ahead of the next round of UN climate talks in Katowice, Poland, in December, the dpa reported.
Katowice is already being held up as a potential milestone. It is here that world governments are supposed to make good on the historic Paris Climate Agreement of 2015 by agreeing a “rulebook” to implement it. Of course the elephant in the room is US President Donald Trump’s decision last year to withdraw from the agreement. In response to that, the EU has made much of stepping up climate and energy cooperation with other partners, such as China. The show must go on.
Except that the script is still being written. An extra round of talks takes place this week in Bangkok, Thailand, in an attempt to get the UN negotiations on track.
Back in Brussels, Cañete elicited criticism from both NGOs and businesses with his 45% proposal. The former said it doesn’t go far enough, while the latter warned against more uncertainty and unilateral action. “It is wrong to pretend that Europe could compensate for the US exit from the Paris climate deal,” Holger Loesch from the Federation of German Industries (BDI) told the dpa.
Half of the EU’s Member States have called for a higher target. But German Chancellor Angela Merkel has poured cold water on the idea, telling German broadcaster ARD on 26 August: “We should first reach the goals we have already set. I don’t think that constantly setting new targets makes sense.”
Cañete has another card to play of course: a new EU 2050 climate and energy strategy. The Commission plans to finish this for November. This should inform the 2030 pledge. This is the bigger prize. It’s intended to be part of a much deeper reflection on where the EU as a whole is going. Which brings us back to the elections next year. With the changing of the guard and Brexit on top, 2019 is the moment for the EU to reinvent itself. Until then however, policymakers please remember: the politics is exciting, the laws are the legacy.