Politics as "the art of the possible" is well demonstrated by the European Commission’s proposed new policy framework for energy and climate change for the period 2020-2030, announced on 22 January. In the interests of flexibility and cost-effectiveness – as well as reflecting the increased maturity of renewables technology – the new policy initiative, the 2030 Framework for Climate and Energy, abandons binding individual country targets for renewables (as stipulated for 2020 in the current "20-20-20" (20% emissions reduction, 20% renewable energy, 20% increase in energy efficiency) set of policies).

Instead, the Commission is now proposing a "binding" 2030 greenhouse gas reduction target for the EU as a whole of 40% relative to 1990, and a "binding" target for renewables for the EU as a whole, requiring them to account for at least 27% of total EU energy consumption by 2030, estimated to amount to about 45% of electricity consumption. It remains to be seen how such binding targets for the EU as a whole will be translated into obligations for each member state.

The new policy proposal, described in EC jargon as a "Communication" , which "launches a dialogue with member states" has some way to go before the details are fleshed out and it becomes a mandate. It will be debated by the European Council (heads of state), probably initially at its spring meeting, 20-21 March, by the European Parliament (for which elections are being held in May) and by the member states themselves. The job of implementation will fall to a new Commission, to be in place by November 2014, under a new president.

Anticipating criticism by renewables NGOs for lack of ambition in the new proposals, Connie Hedegaard, Commissioner for Climate Action, commented at the launch press conference on 22 January: "It’s not such a big political art just to propose something, the art of politics is to propose something that you can actually get through. And for those of us who think that it is absolutely key for Europe to continue with a very strong emphasis and a still stronger emphasis on renewables, I also think it’s important to think about how we can make a more flexible system. If we did not do that this proposal would be dead as of today politically speaking. That’s just the reality. We are trying now to propose something that makes it achievable, that makes it do-able, that makes it possible also for 28 governments of Europe actually to back this."

She noted that "A 40% emissions reduction is the most cost-effective target for the EU and it takes account of our global responsibility. And of course Europe must continue its strong focus on renewables. That is why it matters that the Commission is proposing today a binding EU-level target. The details of the framework will now have to be agreed, but the direction for Europe has been set. If all other regions were equally ambitious about tackling climate change, the world would be in significantly better shape."

European Commission President José Manuel Barroso said: "Climate action is central for the future of our planet, while a trulyEuropean energy policy is key for our competitiveness. Today’s package proves that tackling the two issues simultaneously is not contradictory, but mutually reinforcing. It is in the EU’s interest to build a job-rich economy that is less dependent on imported energy through increased efficiency and greater reliance on domestically produced clean energy."

The main points of the 2030 Framework

The key elements of the 2030 Framework for Climate and Energy can be summarised as follows:

A binding greenhouse gas reduction target: The centre piece of the EU’s energy and climate policy for 2030, the target of a 40% emissions reduction below the 1990 level would be met through domestic measures alone (ie no more offsetting). The annual reduction in the ‘cap’ on emissions from EU ETS sectors would be increased from 1.74% now to 2.2% after 2020. Emissions from sectors outside the EU ETS would need to be cut by 30% below the 2005 level, and this effort would be shared equitably between the member states. The Commission says it invites the Council and the European Parliament to agree by the end of 2014 that the EU should pledge the 40% reduction in early 2015 as part of the international negotiations on a new global climate agreement due to be concluded in Paris at the end of 2015. The Commission believes this 40% target "will ensure that the EU is on the cost-effective track towards meeting its objective of cutting emissions by at least 80% by 2050."

An EU-wide binding renewable energy target. Renewable energy will play a key role in the transition towards a competitive, secure and sustainable energy system, says the Commission. Driven by a more market-oriented approach with enabling conditions for emerging technologies, an EU-wide binding target for renewable energy of at least 27% in 2030 comes with significant benefits in terms of energy trade balances, reliance on indigenous energy sources, jobs and growth, says the Commission. An EU-level target for renewable energy is necessary to drive continued investment in the sector. However, it would not be translated into national targets through EU legislation, thus leaving flexibility for member states to transform their energy systems in a way that is adapted to national preferences and circumstances. Attainment of the EU renewables target would be ensured by the new proposed governance system based on national energy plans (see below).

Reform of EU ETS. The Commission proposes to establish a market stability reserve at the beginning of the next ETS trading period, in 2021. The reserve would both address the surplus of emission allowances that has built up in recent years and improve the system’s resilience to major shocks by automatically adjusting the supply of allowances to be auctioned. The creation of such a reserve – in addition to the recently agreed delay in the auctioning of 900 million allowances until 2019-2020 (‘back-loading’) – is supported by a broad spectrum of stakeholders, says the Commission. Under the proposed legislation, the reserve would operate entirely according to pre-defined rules that would leave no discretion to the Commission or member states in its implementation.

Energy efficiency. Improved energy efficiency will contribute to all objectives of EU energy policy and no transition towards a competitive, secure and sustainable energy system is possible without it, says the Commission. The role of energy efficiency in the 2030 framework will be further considered in a review of the Energy Efficiency Directive due to be concluded later this year. The Commission will consider the potential need for amendments to the directive once the review has been completed. Member states’ national energy plans will also have to cover energy efficiency.

Competitive, affordable and secure energy. The Commission proposes a set of key indicators to assess progress over time and to provide a factual base for potential policy response. These indicators relate to, for example, energy price differentials with major trading partners, supply diversification and reliance on indigenous energy sources, as well as the interconnection capacity between member states. Through these indicators, "policies will ensure a competitive and secure energy system in a 2030 perspective that will continue to build on market integration, supply diversification, enhanced competition, development of indigenous energy sources, as well as support to research, development and innovation", says the Commission.

Energy prices and costs

The Communication setting out the 2030 Framework was accompanied by a report on energy prices and costs, which assesses the key drivers and compares EU prices with those of its main trading partners. These findings inform the 2030 Framework, says the Commission.

The prices and costs report shows that energy prices have risen in nearly every EU member state since 2008 – mainly because of taxes and levies, but also due to higher network costs. The comparison with international partners highlights rising price differentials, notably with US gas prices – which could undermine Europe’s competitiveness, particularly for energy intensive industries.

Nevertheless, rising energy prices can be partly offset by cost effective energy and climate policies, competitive energy markets and improved energy efficiency measures, such as using more energy-efficient products, says the Commission. European industry’s energy efficiency efforts may need to go even further, bearing in mind physical limits, as competitors do the same and European industry decides to invest abroad to be closer to expanding markets.

The prices and costs report notes that between 2008 and 2012 on average EuropeFramework has seen a significant rise in retail prices for households and industry while over the same period, wholesale electricity prices declined by one-third and wholesale gas prices remained the same. For electricity, wholesale prices in Europe declined over the period, are relatively low and are of a roughly comparable level to wholesale electricity prices in the US. The report also finds that in Europe:

  • Household electricity prices have risen by 4% a year, an increase higher than inflation for most member states;
  • Household gas prices have risen 3% a year, also more than inflation for most member states;
  • Industry retail electricity prices have risen by 3.5% a year;
  • Industry retail gas prices have risen by less than 1% a year, which is below inflation for most member states;
  • Wholesale electricity prices declined between 35% and 45% over the period 2008-2012;
  • Wholesale gas prices, despite fluctuations over the five year period, have remained the same.

In the case of electricity retail prices, the energy component largely shadowed wholesale power prices. However, higher network tariffs and energy taxes/renewable subsidies significantly contributed to higher final retail prices.

The report finds that broadly speaking, EU industry currently pays three to four times higher gas prices than industry in the US, India or Russia. The prices for EU industry are 12% higher than in China, but similar to those in Brazil and lower than in Japan.

At present exchange rates, EU industrial electricity prices (before taking account of tax or levy exemptions for energy intensive industries) are more than twice those in the US and Russia, 20% higher than China’s but 20% lower than those in Japan, says the report. Lower US and Russian gas prices (and subsequent lower coal prices) have helped bring down those countries’ electricity prices.

The 2030 Framework also takes on board input from a public consultation launched on 27 March 2013 with adoption of a green paper on 2030 climate and energy policies. The consultation lasted until 2 July and allowed "member states, other EU institutions and stakeholders to express their views…on the type, nature and level of potential climate and energy targets for 2030."

The energy supply and policy aspirations in the 28 member states vary widely, from Poland’s espousal of cheap coal to Germany’s Energiewende, and, not unexpectedly, steering through this has proved difficult.

Commission sets out fracking principles

Alongside the launch of the 2030 Framework for Climate and Energy the European Commission also adopted a recommendation aiming to ensure that "proper environmental and climate safeguards" are in place for fracking. The recommendation "should help all member states wishing to use this practice address health and environmental risks and improve transparency for citizens", says the Commission and "lays the ground for a level playing field for industry and establishes a clearer framework for investors."

The recommendation was accompanied by a communication that considers the opportunities and challenges of using fracking to extract hydrocarbons.

Environment Commissioner Janez Potocnik said: "Shale gas is raising hopes in some parts of Europe, but is also a source of public concern. The Commission is responding to calls for action with minimum principles that Member States are invited to follow in order to address environmental and health concerns and give operators and investors the predictability they need."

Building on existing EU legislation and complementing it where necessary, the recommendation invites member states in particular to:

  • plan ahead of developments and evaluate possible cumulative effects before granting licences;
  • carefully assess environmental impacts and risks;
  • ensure that the integrity of the well is up to best practice standards;
  • check the quality of the local water, air, soil before operations start, in order to monitor any changes and deal with emerging risks;
  • control air emissions, including greenhouse gas emissions, by capturing the gases;
  • inform the public about chemicals used in individual wells, and
  • ensure that operators apply best practices throughout the project.

EU member states are invited to apply the principles within six months and, from December 2014 onwards, inform the Commission each year about measures that they have put in place. The Commission will monitor the application of the recommendation with a publicly available scoreboard that will compare the situation in different member states. It will review the effectiveness of this approach in 18 months.