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EU Climate Policy

EU Climate and Energy Policy

As climate action is one of the European Union's political priorities, the EU has agreed on targets which will guarantee a transformation towards an energy-efficient and low-carbon economy. In 2009, the EU heads of state and government set out the long term goal of reducing greenhouse gas emissions by 80 to 95 percent by 2050 compared to 1990 figures. According to the Intergovernmental Panel on Climate Change (IPCC) this greenhouse gas reduction is needed from industrialised countries to stave off the worst impacts of climate change. The EU has agreed on the first interim steps to ensure these targets are reached.

European framework for climate action

In March 2007 under German Presidency, the European Council agreed on European climate and energy targets for the first time. The 2020 climate and energy package contains three targets to be achieved by 2020. With this triad of targets the EU has committed itself to cutting its greenhouse gas emissions by at least 20 percent by 2020 compared to 1990 levels. The decision also provided for an increase of the target to 30 percent if other industrialised countries committed to a comparable emissions reduction by 2020 and emerging economies committed to making an appropriate contribution in a global agreement. However, with the failure of the Climate Change Conference in Copenhagen in 2009 this did not happen. The second target set out was to increase the share of renewable energies in the EU to 20 percent. Thirdly, the EU set itself the target of cutting energy consumption by 20 percent of projected 2020 levels by improving energy efficiency.

EU Emissions Trading System (EU ETS)

The EU Emissions Trading System is the key instrument of the EU for reducing greenhouse gas emissions in the energy and industry sectors. The system establishes caps on emissions for energy-intensive companies in these two sectors. These companies are required to purchase sufficient emissions allowances (which can be traded with other companies) to cover the emissions they produce, thus creating an incentive for them to cut emissions. However, for a number of reasons including the economic and financial crises and the generous options still available for the use of international project credits, at present there is still a surplus of allowances. The ETS therefore needs to be reformed. In a first step, the EU initially postponed the auctioning of 900 million emissions allowances (back-loading) and then decided to transfer the allowances held back directly into a market stability reserve (MSR) from 2019 so as to create a scarcity of allowances on the market and make the system more resistant to imbalances between supply and demand. An increase in the annual rate of emissions reduction to 2.2 percent is envisaged for phase four of EU ETS from 2021 onwards, thus creating more incentives for investments in green technologies.

Effort Sharing Decision (ESD)

he Effort Sharing Decision applies to all sectors not included in the EU ETS, for example transport, buildings and agriculture, and establishes binding annual targets for member states for the period 2013 to 2020. Within the EU, the non-ETS sectors have been set the target of cutting emissions by ten percent by 2020 compared to 2005 levels. Due to the vast regional differences within the EU, the contribution of each member state to achieving this reduction has been set on the basis of Gross Domestic Product per capita. Targets range from a 20 percent emissions reduction for the richest member states to a 20 percent increase for the least wealthy. Non-ETS sectors in Germany must lower their emissions by 14 percent by 2020. In July 2016, the European Commission published a proposal for achieving the adopted greenhouse gas emissions reduction of 30 percent by 2030 in non-ETS sectors for member states. The new Effort Sharing Regulation (ESR) sets out minimum reduction targets in accordance with the economic strength of each member state ranging from zero to 40 percent compared to 2005 levels. The proposed target for Germany is 38 percent.

Regulation on land use, land-use change and forestry (LUKUCF regulation)

LULUCF denotes emissions and sinks (CO2 removals for example) from forests and soils caused by human activities. So far, emissions reductions and carbon sequestration in the LULUCF sector have not been included in the European 2020 climate targets. At EU level, member states are only obligated to submit a report on emissions, sinks and related measures. In July 2016 the European Commission published a proposal for a regulation on the inclusion of the LULUCF sector in the EU 2030 climate and energy framework. According to the regulation, member states must ensure that the LULUCF sector is neutral for example must have no net emissions (no-debit rule). However, member states do have the option of compensating net emissions by purchasing net removals from another member state or by transferring emission allowances from other sectors. The proposal also provides for an improvement in accounting rules for calculating emissions and removals in the sector and regular compliance checks for member states.

Renewable Energy Directive

The Renewable Energy Directive specifies targets, based on the GDP per capita, for each member state regarding the degree to which their share of renewable energies in final energy consumption should be increased. The Directive also stipulates that by 2020, ten percent of final energy consumption in the transport sector must come from renewable energy sources.

Energy Efficiency Directive (EED)

The Energy Efficiency Directive establishes a binding set of measures for all EU member states for increasing energy efficiency at all levels of the energy sector – production, supply and consumption. To achieve this, member states must submit a national energy efficiency target and an action plan.

Energy Performance of Buildings Directive (EPBD)

According to the Energy Performance of Buildings Directive, from 2021 onwards all new buildings must comply with the EU's nearly zero-energy standards. New buildings occupied and owned by public authorities will need to fulfil these standards from 2019 onwards. In the Directive, the nearly zero-energy standards do not strictly apply to existing buildings, nevertheless member states are required to draw up national plans with a view to increasing the number of nearly zero-energy buildings. Minimum requirements for energy performance must be applied in the case of existing buildings undergoing major renovation.

At the European Council Summit in October 2014, EU member states, at the level of the heads of state and government, agreed on the 2030 climate and energy framework as a follow-up on the 2020 targets. The decision includes the continuation of a triad of targets in the areas of climate action, renewable energies and energy efficiency. The framework sets the target of reducing greenhouse gas emissions by at least 40 percent by 2030 compared to 1990. This is to be achieved solely through measures within the EU. Increasing this target to beyond the minimum of minus 40 percent therefore remains possible, in particular in the context of the Paris Agreement adopted at the UN Climate Change Conference in December 2015. Furthermore, the EU set itself the target of increasing the share of renewable energies in overall consumption to at least 27 percent. This target is only legally binding at EU level and not for the individual member states. An indicative target was set at EU level to reduce energy consumption by at least 27 percent compared to the projected use of energy. This target is not legally binding at national level. The energy efficiency target will be reviewed before 2020 with a view to increasing it to 30 percent. In addition, the European Commission presented a legislative proposal in July 2016 to include the land use, land-use change and forestry sector (LULUCF) in the 2030 climate and energy framework. Emissions will be also cut through climate action measures in the transport sector. Further steps towards achieving this are contained in the European Strategy for Low-Emission Mobility also submitted in July 2016 by the European Commission.

Germany's role in European Climate Action

In the past, the Federal Ministry for Environment and the German Government, as a driving force, have always had a decisive influence on negotiations on European climate policy. Germany has long been leading the way for climate action in the EU with its ambitious national targets. Compared to the base year 1990, national greenhouse gas emissions are to be lowered by 40 percent by 2020, by 55 percent by 2030 and by 70 percent by 2040, culminating in a reduction of 80 to 95 percent by 2050. In line with the EU Energy Efficiency Directive, Germany is making a significant contribution to reducing European energy consumption. In the national energy concept and national reform programme 2013 (NRP), a 20 percent reduction in primary energy consumption by 2020 and a 50 percent reduction by 2050 compared to levels in 2008 is envisaged. Similarly, the national energy concept set the target of increasing the share of renewable energies in gross domestic energy consumption to 30 percent by 2030, 45 percent by 2040 and 60 percent by 2050. The share of renewable energies in total energy consumption should increase to 55 to 60 percent by 2035. The German Climate Action Plan 2050 provides guidance to all areas of action in the process to achieve the domestic climate targets in line with the Paris Agreement.

Key EU Instruments for Climate Action

The overall emission reduction target of the EU is to be achieved using two major instruments for climate action.

  • The EU Emissions Trading System (EU ETS) is used for major emitters in the energy and industry sectors, which are required to cut their greenhouse gas emissions by 43 percent by 2030 compared to 2005 levels (and by 21 percent by 2020).
  • The EU Effort Sharing Decision (ESD) sets out targets for sectors not included in the EU ETS, in particular buildings, transport, agriculture, smaller industrial plants and waste. These sectors must lower their emissions by 30 percent by 2030 compared to 2005 levels (and by ten percent by 2020).

The European Commission has submitted proposals for amending legislation on both the ESD and ETS, which are currently being negotiated between the member states and the European Parliament.