EU May Cut Emissions by 25% as of 2020, Put Permits in Reserve
The European Union may cut carbon emissions 25 percent by 2020 and withhold permits in the next phase of its cap-and-trade program to curb excess supply and promote new technologies.
The European Commission, the EU regulator, stopped short in a draft policy paper of proposing a binding 2020 target for cutting carbon dioxide more than the current goal of 20 percent below 1990 levels. Still, it said the 27-nation bloc may exceed 20 percent as long as it saves more energy, curbs emissions from transport and invests in low-carbon infrastructure.
The document, due to be published in March and presented to national leaders, is a political compromise, as member states remain split on raising the target. Western countries including France, Germany and the U.K. have called for a more-ambitious goal, and eastern nations tend to favor a more-cautious approach. The EU, which is poised to meet its 2020 target, aims to cut domestic emissions by at least 80 percent as of 2050.
“The analysis shows that the cost-efficient pathway to the necessary reduction in 2050 requires a 25 percent domestic reduction in 2020,” the draft EU policy paper said. “It also shows, however, that the EU can produce this reduction if it delivers on its existing commitment to increase energy efficiency by 20 percent by 2020.”
To help attain the climate-protection goals, the bloc’s nations agreed to binding targets for the share of renewable sources used in Europe. They also adopted a political commitment to boost energy efficiency after falling behind on that promise.
‘Technically Feasible’
EU emissions in 2009 were estimated to be 16 percent below 1990, and the draft document said the bloc is poised to achieve 30 percent domestic reductions in 2030 if existing cap-and-trade legislation is fully implemented and countries meet their targets for renewable energy.
The cap-and-trade system, known as the ETS, puts limits on more than 11,000 utilities and manufacturing companies, diminishing gradually by 2020 to 21 percent below 2005 discharges.
A 30 percent target in 2020 is “technically feasible” and “economically affordable,” the EU regulator said last year.
“The 30 percent target is still on the table,” said Isaac Valero-Ladron, EU climate spokesman. “The roadmap will not set any new targets. It’s a modeling exercise that will show where Europe can be in 20 or 30 years if we want to achieve our 2050 climate goals.”
Held in Reserve
Meanwhile, the commission is counting on national governments to go beyond existing requirements by improving energy savings, cutting transport emissions and investing in low-carbon technologies. It signaled in the draft paper that some investments needed to shift to a green economy could be financed by putting 500 million to 800 million EU emission allowances into a reserve for the third phase of the cap-and- trade program, which runs from 2013 to 2020.
That number corresponds to the estimated surplus of permits from the current phase running from 2008 to 2012. The EU system allows permit from the second phase to be used in the third, meaning any surplus effectively spills over. So keeping some third-phase permits in reserve “would restore the originally foreseen overall allowances budget for the next decade,” the commission said.
“This would restore the reward for low-carbon investments, preparing the sector for the innovations needed in a 2030 perspective,” according to the draft document.
Such an approach would avoid the politically contentious step of tightening caps on energy and manufacturing companies in the European carbon program.
After 2020
The EU annual cap in the second phase is 2.04 billion tons of CO2-equivalent. The limits in the third trading period, when the ETS will expand to include new industries and most permits will be auctioned, will decrease by 1.74 percent annually.
“I think allowances would be set aside from the volume to be auctioned, and given that the directive does not require any specific timeframe for selling of any allowance not allocated for free, I understand the setting aside of some allowances to be auctioned is possible as long as these allowances are finally sold, even if it is after 2020,” Isabelle Curien, a Paris-based carbon analyst at Deutsche Bank AG, said in an e-mail.
The EU has already agreed to provide as many as 300 million carbon allowances from the next phase of the ETS to finance less polluting, innovative technologies. Permits set aside in the New Entrants Reserve will be monetized by the European Investment Bank and proceeds will be used to support carbon capture and storage and renewable energy projects.
To contact the reporter on this story: Ewa Krukowska in Brussels ekrukowska@bloomberg.net; Mathew Carr in London at or m.carr@bloomberg.net
To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net
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