Challenges to the European Union’s Post-2020 Climate and Energy Framework

The European Union is in the process of developing its climate change targets for the post-2020 period. The EU is the third largest greenhouse gas emitter and has been a leading advocate of ambitious global climate change policies. However, new challenges are on the horizon that may further complicate Europe’s goal to set ambitious long-term targets for carbon reduction and renewable energy.

Ambitious Climate Goals

The centerpiece of Europe’s policy proposal is to achieve a 40 percent reduction in its greenhouse gas emissions by 2030 as compared to 1990. Another key element is an EU-wide target for renewable energy consumption of 27 percent (up from the current target of 20 percent). The European Commission has also developed a market stability fund that would stabilize the carbon price under its emissions trading scheme. The proposal has received mixed reviews, but given substantial concerns about the economic impact of climate policy following the Eurozone crisis, it is probably about as ambitious as one could expect.   

The European Commission estimates that to meet these climate change targets will require investments of approximately 38 billion euros annually over the period 2011 to 2030. And the total cost of the energy system in 2030 is projected to increase by 0.15 percent if targets are met cost-effectively, or at an average annual cost of 2 billion euros per year.  

Challenges: Divergence, Pricing and Geopolitics

There are nevertheless a range of challenges to EU adoption and implementation of these climate change goals. A key challenge is divergence within the EU on energy use.  In particular, eastern European member states such as Poland and the Czech Republic that rely heavily on coal (almost 90 percent of Poland’s electricity comes from coal) are concerned about the economic costs of these post-2020 targets.  In contrast, EU member states from the so-called Green Growth Group— the United Kingdom, Germany, France, Spain, Belgium, Portugal, Netherlands, Sweden, Finland, Denmark, Italy, Luxembourg and Slovenia—are pushing to adopt the European Commission proposals as soon as possible to create a stable investment climate that will help move the continent toward a low-carbon economy. 

Another challenge for EU climate policy is the current functioning of Europe’s emissions trading scheme. The low EU carbon price has caused abundantly available coal resources to become the preferred feedstock for electricity generation, which on a marginal cost basis is now less expensive than natural gas, a situation that analysts believe will continue for a number of years. This is leading to significant growth once again in greenhouse gas emissions in northwestern Europe. In the case of Germany, add to this the phaseout of nuclear power following the Fukushima Daiichi nuclear explosion, and the country’s greenhouse gas emissions are at a record high, despite its progress in increasing the share of renewable energy up to 27 percent. 

Finally, the Ukraine crisis is affecting the energy debate in Europe. As opportunities to further diversify supplies are currently investigated, it is too early to determine how this debate will play out and what the climate change implications will be. Some countries are using the crisis to highlight the need for stability of supply, arguing that this can be achieved by greater exploitation of domestic resources such as coal, or possibly shale gas. For others the crisis is another argument to accelerate decision-making regarding the 2030 policy proposals, and formulate even more ambitious clean energy targets for 2030 than the European Commission has proposed.  

As a result of the above mentioned challenges, Europe is facing a prolonged and increasingly complex debate on its post-2020 climate and energy targets. One of the risks is that it could lead Europe to adopting a less ambitious climate change framework, which would be a loss for all.