July 3, 2017
BRUSSELS INSIDER #1 by Sonja van Renssen
UPDATE: Where do we stand on EU climate and energy policy? (part I)
EU ETS: deal in sight
July 3, 2017
As the summer break approaches, Energy Post takes stock of where the EU institutions stand in defining a new legislative framework for climate and energy policy in Europe for the next decade. This week: the EU Emission Trading Scheme (ETS), national emission reduction targets for non-ETS sectors, energy efficiency and electro-mobility. Part II will follow next week with updates on renewables, bioenergy, electricity market design and a new governance regime for the Energy Union. This update comes as Estonia takes over the rotating 6-month EU presidency from Malta on 1 July and sets out its priorities for the second half of the year.
Finally, EU negotiators have moved forward on a long-running reform of the EU Emission Trading Scheme (ETS). Representatives from the European Commission, Parliament and Council (Member States) reported progress when they met in Brussels on 27 June to discuss an EU ETS reform that was launched almost two years ago.
EU ETS experts such as Julia Michalak from the International Emission Trading Association (IETA) say that this was really the first “trilogue” of substance on the reform. Two earlier trilogues had been cancelled after the Parliament’s chief negotiator, UK Conservative MEP Ian Duncan, focused his attention on the UK elections of 8 June. He has now been replaced by his colleague Julie Girling, who reportedly ably represented the Parliament on 27 June. A next trilogue is scheduled for 10 July. After that, Michalak says, the big question is whether a deal on the reform will be sealed before the German elections on 24 September. If not, she nonetheless expects the EU ETS file to be wrapped up soon after.
Girling has reportedly said she is committed to striking a deal with Member States by the end of the year. The incoming Estonian Presidency more cautiously commits to “substantial progress” on all climate files in its environment work programme. But most Brussels insiders expect the EU ETS reform to be wrapped up this autumn.
“The file has not really moved since February, but that is due to political circumstances, not fundamental disagreements between Parliament and Council,” Michalak says. “All the big issues are on the table and will probably be solved all together.”
The trio of issues to find agreement on are how to: strengthen the EU ETS (raise the carbon price), protect energy-intensive industries from leaving Europe (guard against carbon leakage), and manage a series of funds fed by carbon market revenues.
These may sound like big questions, but in practice MEPs and Member States are not miles apart on any of them. For example, the reform measure that is expected to have the biggest short-term impact on the carbon price, a proposal to double the rate at which carbon allowances are channelled from the market into a so-called Market Stability Reserve (MSR), is supported by both Parliament and Council. Both also support the cancellation of a large number of allowances from that MSR. Both want to give certain industries extra free allowances to protect them from carbon leakage. And both see the value of funds to promote innovation in and modernisation of the energy system.
The devil is in the detail: exactly how many carbon allowances to cancel and when (Parliament: 800 million in 2021; Council: up to 3 billion, mainly in 2024); how many extra free allowances to give to industry if demand exceeds supply (Parliament: 5%; Council: 2% of the auctioning share) and how generously to give to an Innovation Fund (Parliament: 650 million allowances; Council: 450 million allowances) and govern a Modernisation Fund. Another issue concerns “article 10c” derogation which still lets some certain Central and Eastern European countries give free allowances to their power plants (Parliament wants a 450gCO2/kWh investment criterion to prevent aid to coal plants, and stricter governance criteria). These questions really boil down to a decision over how to get maximum value out of each individual allowance.
Beyond the EU ETS reform, there is increasing talk about a possible carbon price floor to further bolster the carbon price. Environmentalists such as Green MEP Claude Turmes expect Germany and France to take the lead on this after the German elections. But some don’t like it.”We’re concerned about national measures,” says Michalak. “They undermine the effectiveness of the EU ETS, distort the market and make emission reductions more expensive.”
Analysts are divided on how much of a price lift the reform on its own can deliver. In reports issued this spring, Barclays predicts €15 a tonne or more by the early 2020s. Thomson Reuters suggests around €10 a tonne in 2020 and €25 in 2030. ICIS is the most optimistic with €35 a tonne by 2024. “We will see an impact on the market,” Michalak says. Others are more pessimistic however. Representatives from UK-based NGO Sandbag and the German Öko-Institut said back in February that without further intervention, they expect the price to languish at €5-10 a tonne for the next 5-10 years. Certainly for now, it’s still firmly stuck at €5 a tonne.
BRUSSELS INSIDER #2 by Sonja van Renssen
Non-ETS: struggling to meet the Paris pledge
July 3, 2017
One issue that could hold up a deal on the EU ETS is a parallel negotiation on national emission caps for non-ETS sectors in 2030. Non-ETS emissions come mainly from transport, agriculture, waste and buildings, and add up to about 60% of total EU emissions. The so-called “Effort Sharing Regulation” (ESR) was unveiled a year after the EU ETS reform, but some Brussels insiders say that political compromises may need to stretch across both files.
EU environment ministers failed to reach a negotiating position on the ESR at their last council under Malta’s leadership on 19 June. You can read our detailed report on why here. Suffice it to say that quite a few member states believe that the targets the Commission has proposed for them are too high to meet cost-effectively. To address this, they want to change how these targets are calculated and what flexibilities are available to meet them. This includes via land use, land-use change and forestry (LULUCF), the accounting rules for which are being negotiated in a separate piece of legislation alongside the ESR.
On 19 June, Estonia’s environment minister Siim Kiisler said that he aims to get Council to agree its negotiating position on the ESR by October. This is a little more ambitious than the end-of-the-year deadline Estonia gives itself in its environment work programme. The push for October is with an eye on the next UN climate conference (COP23) in Bonn, in November. The Parliament already adopted its non-ETS position on 14 June, so trilogue negotiations can start as soon as the Council is ready. As for the EU ETS, Council and Parliament are not that far apart on this file, so a deal on all EU climate policy for 2030 by the end of the year seems feasible. And appropriate to match the EU’s Paris rhetoric.
BRUSSELS INSIDER #3 by Sonja van Renssen
Energy efficiency: bitter disappointment
July 3, 2017
The International Energy Agency (IEA) estimates that two-thirds of all the EU’s low-carbon energy investments between now and 2035 will need to be made in energy efficiency, to avoid stranded assets. And yet, EU energy ministers could not agree on a binding 30% energy efficiency target for 2030 at their most recent ministerial on 26 June. Instead, they agreed on a whole new raft of “flexibilities” to meet an annual 1.5% energy end-use savings requirement. See Council text here.
Malta said from the outset of its presidency in January that it would broker a political agreement in Council on a revision of the EU’s 2012 energy efficiency directive (EED). It has delivered this, but energy efficiency advocates say the deal is bad news for investors.
In a classic fudge reportedly led by France and Germany, ministers in the end simply left out any mention of “binding” or “indicative” in their reference to the Commission’s proposal for a 30% energy efficiency target for 2030. This effectively postpones the decision. Member states have long been split between those who favour a non-binding 27% target (e.g. the UK and some Central and Eastern European states) and those who favour a binding 30% target (e.g. France, Germany, Luxembourg, Sweden, Denmark and Ireland). The European Parliament has repeatedly called for a binding 40% target.
Equally controversial was the Commission’s proposal to extend a current 1.5% annual energy end-use savings target beyond 2020. An informal energy ministerial in Valletta, Malta, in May showed just how divided member states were.
This is the provision that has delivered most of the EED’s energy savings so far and was expected to do so in future. But after a whole slate of compromise attempts that failed to garner support in Council, the final text on this could cancel out much of the measure’s potential impact, warned the Brussels-based Coalition for Energy Savings last week. This is a multi-stakeholder group of energy efficiency advocates.
The Coalition argues that while the Commission proposed to continue existing “loopholes” for the 1.5% – which it says reduce the measure’s impact by half – the Council’s proposals “could further halve the annual energy saving requirement after 2020”. The Coalition uses the Commission’s own impact assessment to illustrate what this might mean: 400,000 lost jobs and 13% higher gas imports by the end of the next decade, for example.
The Coalition also criticised what was originally an Italian proposal aired at the informal in May, to lower the 1.5% target to 1% from 2026, unless a Commission review in 2024 shows that the EU is not on track to its 30% target. The Council has deleted the automatic roll-over of the end-use savings target all the way out to 2050.
The Coalition’s other big complaint is that new “loopholes” could now be used to cover up to over a third (35%) of the 1.5% goal, up from a quarter today. These new “loopholes” include the possibility to count up to 30% of the renewable energy generated in or on buildings for self-consumption as energy savings, and to count savings from individual actions before 2020 towards compliance after 2020.
More broadly, member states would have the option of choosing whether they deliver primary or final energy savings, although the EED has traditionally required both. This last question could become especially pertinent with the Parliament’s lead MEP on the file, Polish Socialist Adam Gierek, proposing in his long-awaited report in June to shift the focus of the entire directive from consumers to producers.
Gierek wants to focus entirely on primary energy savings. Fellow MEPs largely rejected this approach in a first debate on 22 June however. Some of them, as well as environmentalists, argue that it would shift investments from helping consumers to helping energy companies.
That first debate in Parliament also rekindled old divisions over the EU’s overall ambition on energy efficiency. The Parliament’s largest political group, the centre-right EPP, called anew for a renegotiation of support for a 40% energy efficiency target for 2030. There is time yet for the Parliament to sort out its thinking. It is not due to adopt a position on the EED until October, after which negotiations could start with Council.
BRUSSELS INSIDER #4 by Sonja van Renssen
Electro-mobility: Commission can’t deliver on its ambitious plans
July 3, 2017
The second file that Malta promised – and managed – to wrap up at its energy council on 26 June was a revised Energy Performance of Buildings Directive (EPBD). So much for its official name. In practice, this turned into a fight over what kind and how much electric vehicle charging infrastructure to mandate in new and renovated buildings in Europe. See final Council text here.
Back in November last year, the Commission caused a furore with its proposal to mandate the roll-out of 3.1 million recharging stations through a provision in its revised EPBD. This plan came with a price tag of nearly €9 billion. Since then, it has struggled – and generally failed – to win over member states and MEPs.
On 26 June, EU energy ministers gave the green light to a compromise text that would see the roll-out of just a few per cent (<150,000 charging points) of the Commission’s original plans, acknowledged EU climate and energy commissioner Miguel Arias Cañete at a press conference in Luxembourg that evening.
Ministers agreed to require first, one recharging point and second, “ducting infrastructure” for every third parking space, in non-residential buildings. They called for ducting infrastructure for every parking space in residential buildings. All the requirements only apply to buildings that are either new or undergoing “substantial” renovation and that have at least ten parking spaces. “Ducting infrastructure” is the tubing through which electric cables would eventually run to form the foundations of a recharging station. The main difference with the Commission’s proposal is that the obligation to install recharging points is not extended to all non-residential buildings from 2025.
Cañete said he hoped to see an increase in ambition once negotiations with the European Parliament start later this autumn. But Teodora Serafimova, Policy Manager for Electro-Mobility at NGO Bellona and coordinator of the European Platform for Electro-Mobility’s work on infrastructure told Energy Post: “Surprisingly, the Council compromise text is more ambitious than the Parliament”. The Parliament’s position is currently based around a draft report by lead MEP Bendt Bendsen, a Danish Conservative. It is not expected to finalise its position until October or November.
For Serafimova, the big difference is in the requirements for non-residential buildings: “The Council compromise text retains the obligation for new and renovated buildings with more than ten parking spaces to install at least one charging point, while adding a new element: that ducting infrastructure should be installed for at least one in every three parking spaces. The Bendtsen report, on the other hand, deletes the requirement to install an actual recharging point (per ten parking spaces) and replaces it with a mere requirement for ducting in one out of every ten parking spaces!”
Ducting infrastructure costs around €1 per metre versus €8 per metre for pre-cabling (ducts with cables in them) and anything from a few hundred to a thousand Euros for a full charging point. Electro-mobility campaigners such as Serafimova are not opposed to ducting requirements because this is “the most important pre-condition” for charging infrastructure. But they say that if policymakers go for this option, it should be required for every parking space in all new and renovated buildings, not just those with at least ten parking spaces.
What the switch to ducting misses out on is an opportunity to raise awareness of electro-mobility. “Consumer anxiety is one of the main barriers,” says Serafimova. “An actual charging point ensures ‘visibility’: the technology is here and available.” For her, the EPBD reform is a “once in a decade” opportunity to promote electric vehicle charging infrastructure. Its provisions complement the EU’s 2014 alternative fuels infrastructure directive: while the latter deals with charging in the public domain, 90% of charging is actually done in buildings.
There are several hurdles for Member States and MEPs however. One, energy ministers are not transport ministers and electro-mobility is a new topic for them. Two, there was the nearly €9 billion price tag. Three there is a fear that this will discourage renovations. Four, some worry that too strong a focus on electro-mobility could result in technological lock-in and does not solve problems such as congestion. And five, Member States simply don’t like this level of prescription from Brussels. The next debate on the EPBD will be held by MEPs before the summer break still, on 11 July.
Key dates for the Estonian EU Presidency from July-December 2017:
Work programme on environment (including climate policy)
13-14 July – Informal meeting EU environment ministers, Tallinn, Estonia
19-21 September – Informal meeting of EU energy and transport ministers, Tallinn, Estonia
13 October – EU environment council, Luxembourg
24 October – EU energy council, Luxembourg
6-17 November – UN climate conference (COP23), Bonn
18 December – EU energy council, Brussels
19 December – EU environment council, Brussels