On 17 December 2008 the European Parliament has approved the EU's climate change package. The European Council had already reached agreement on this package on 12 December 2008. The package aims to ensure that the EU will achieve its climate targets by 2020: a 20% reduction in greenhouse gas emissions, a 20% improvement in energy efficiency, and a 20% share for renewables in the EU energy mix.
The climate change package consisted of six proposals: 1. revision of the EU Emission Trading Scheme (ETS); 2. the decision on effort-sharing; 3. the carbon capture and storage (CCS) legal framework; 4. the renewable energies directive; 5. the regulation on CO2 emissions from cars; 6. the fuel quality directive.
1. revision of ETS
The directive on the revision of the EU ETS is a key tool for achieving the EU's aim of reducing its greenhouse gas emissions by at least 20% by 2020 from 1990 levels, or by 30% in event of an international agreement (at the Copenhagen Conference in December 2009) .
The EU ETS is a 'cap and trade' system: it caps the overall level of emissions allowed but, within that limit, allows participants to buy and sell allowances as they require, so as to cut emissions costs effectively. The ETS currently covers over 10,000 installations in the energy and industrial sectors, which are collectively responsible for close to half of the EU's emissions of CO2 and 40% of its total greenhouse gas (GHG) emissions.
The revised ETS directive will apply from 2013 to 2020 and should lead to a reduction in greenhouse gas emissions of 21% compared to reported 2005 levels. The Community-wide quantity of allowances issued each year will decrease in a linear fashion, so as gradually to reduce the overall level of emissions each year.
In the first and second trading periods (2005-2012) the great majority of allowances were allocated free of charge to installations. The new directive establishes auctioning from 2013 in principle, but it includes several exceptions, as advocated by the European Council on 12 December 2008.
For electricity generation, full auctioning is to be introduced from 2013. But a transitional free allocation of allowances has been agreed upon, which will apply essentially for the new Member States. It must not exceed 70% in 2013 and must decrease to 0% in 2020. Free allocation will only be possible under certain conditions and under the obligation for these Member States to modernise their electricity generation sector.
For the processing industry, auctioning should be phased in gradually - in 2013 it is to receive a free allocation of 80% of allowances, decreasing to 30% by 2020 and leading to full auctioning in 2027. However, a broad exception is inserted for sectors at serious risk of 'carbon leakage' - that is the relocation of production to third countries with a less strict climate policy, leading to increased CO2 emissions by these countries. Until an international agreement is concluded, these sectors might receive up to 100% of their allowances free until 2020 under certain conditions. According to the Commission, more than 90% of the emissions from the processing industry would be covered by this exception. The sectors 'exposed to carbon leakage' will be determined by the Commission by 31 December 2009 at the latest and every 5 years thereafter.
At least 50% of ETS auction revenues should be used by Member States for climate-related adaptation and mitigation purposes, e.g. to further reduce emissions, develop renewable energies, and address social issues such as possible increases in electricity prices.
Member States may 'offset' emissions, i.e. to buy credits resulting from projects in third countries under the UN's Clean Development Mechanism (CDM), as a means of complying with their greenhouse gas emission limits. However, no more than 50% of the EU-wide reductions over the period from 2008 to 2020 may stem from such credits.
Member States are allowed to exclude small installations from the scope of the ETS, provided they are subject to equivalent emission reduction measures. Small installations are installations with a rated thermal input below 35 Megawatts and reported emissions of less than 25,000 tonnes of CO2 equivalent in each of the three years preceding the entry into force of the revised ETS.
2. the decision on effort-sharing
The "effort sharing" decision will set binding national targets for each EU Member State to reduce greenhouse gas emissions from non-ETS sources (e.g. road and sea transport, buildings, services, agriculture and smaller industrial installations), between 2013 and 2020. These sources currently account for about 60% of all EU greenhouse gas emissions. The decision aims to reduce these emissions by 10% overall between 2013 and 2020, so as to contribute towards the EU's overall aim of a 20% reduction in total greenhouse gas emissions by 2020. The decision stipulates that in the event of the conclusion of an international agreement, the overall EU reduction commitment would be stepped up to minus 30%. In that event, the Commission will assess the overall situation and make legislative proposals. Corrective measures will apply when a Member State exceeds its annual limits. In this case, Member States will have to compensate for this underachievement in the following year. Additionally, the excess emissions will be multiplied by a mandatory climate "abatement factor" of 1.08, thus further reducing the emissions allowed for the following year. Parliament and Council agreed to allow the trading and transfer of "overachievement" of targets among Member States, so as to enhance cost efficiency and to favour reductions within the EU as a whole:
- up to 5% of the annual emission allocation may be transferred from the following year to the year in question,
- in the event of extreme meteorological conditions, an even higher rate may be transferred in 2013 and 2014, and
- a Member State may transfer up to 5% of its annual emission allocation of a given year to another Member State.
The decision will allow Member States to "offset" emissions, i.e. to buy credits resulting from projects in third countries under the UN's Clean Development Mechanism (CDM), as a means of complying with their greenhouse gas emission limits. The annual use of such credits may not exceed 3% of the greenhouse gas emissions of that Member State in 2005; in addition to this 3%, certain Member States with stricter targets will be able to use additional credits from projects in least-developed countries and small island developing states amounting up to 1% of their 2005 emissions. Member States will be required to report on the quality of external offset credits, following non-binding guidance on criteria which is set out in a recital.
The national target for the Netherlands is to reduce greenhouse gas emissions from non-ETS sources by 16% in 2020 compared to 2005.
3. the CCS legal framework
A directive was approved providing the legal framework for new carbon dioxide capture and storage technology (CCS). Emissions from power plants - especially from those fired by oil, coal and natural gas - account for around 40% of all CO2 emissions in the EU, estimates the European Commission. To cut their CO2 emissions, industrial installations and power plants could in future use new technology to capture CO2 and store it "permanently and safely underground" in geological formations. The European Council in March 2007 advocated building at least 12 large-scale commercial demonstration facilities by 2015 to test the permanent underground storage of CO2, but the necessary funding had yet to be secured. Now, up to 300 million allowances will be set aside "to help stimulate the construction and operation of up to 12 commercial demonstration projects that are aiming at the environmentally safe capture and geological storage of carbon dioxide as well as the demonstration projects of innovative renewable energy technologies, in the territory of the EU". The value of this support mechanism will depend on the price of CO2 when the gas is eventually buried underground, but according to the rapporteur it could mean EUR 6-9 billion, providing funding for 9 or 10 demonstration projects. The directive requires operators of new power plants with an output of more than 300 Megawatts to assess whether storage sites are available, transport facilities are viable and if it is technically and economically feasible to retrofit the power station for CO2 capture. If these conditions are met, Member States' authorities should guarantee that "suitable space on the installation site for the equipment necessary to capture and compress CO2 is set aside".
4. the renewable energies directive
The new renewables directive seeks to ensure that by 2020 renewable energy makes up at least 20% of the EU's total energy consumption. In 2005 renewable energies - that is energy produced from hydro power, solar, wind, biomass or geothermal sources - accounted for less than 7% of the EU's total energy consumption. To achieve the 20% target, the new directive will lay down mandatory national targets to be achieved by the Member States through promoting the use of renewable energy in the electricity, heating and cooling, and transport sectors. The agreement foresees that by 2020 renewable energy - biofuels, electricity and hydrogen produced from renewable sources - account for at least 10% of the EU's total fuel consumption in all forms of transport. Each Member State will thus have to increase its share of renewable energy in transport to 10%. Biofuels, for example, accounted for only around 1% of all transport fuels consumed in the EU in 2005, says Eurostat. Unlike traditional, "first-generation" biofuels, the second generation ones do not compete with food or feed production as these biofuels are, for example, produced from wastes, residues, or non-food cellulosic and ligno-cellulosic biomass such as algae, wood residues, or paper waste. To promote those new, more sustainable alternatives, "second-generation" biofuels will be double credited towards the 10% target. The new legislation will also establish binding criteria to ensure that biofuels production is environmentally sustainable. From 2017 onwards, the greenhouse gas emission savings of biofuels produced in existing production plants must be at least 50% compared to fossil fuels. The greenhouse gas emissions of biofuels produced in new installations will have to be at least 60% lower than those from fossil fuels.
There will be cooperation mechanisms to allow Member States to achieve their renewables targets jointly. Member States may also count towards their national targets "green" electricity consumed in the EU but produced by newly constructed joint projects with third countries. The directive also requires Member States to develop transmission and distribution grid infrastructure, intelligent networks, storage facilities and electricity systems that can be operated safely while accommodating renewable energies. Green electricity should either be given priority or guaranteed grid access. Member States will have to bring into force the laws, regulations and administrative provisions necessary to comply with the directive within 18 months after its publication in the EU's Official Journal.
The national target for the Netherlands is 14% renewable energy of the total energy consumption in 2020 (in 2005 this was 2.4%).
5. the regulation on CO2 emissions from cars
The new regulation sets emission performance standards for new passenger cars (the "M1" category) registered in the EU. These account for 12% of overall EU emissions of carbon dioxide (CO2). The regulation sets an average target of 130g CO2/km for new passenger cars to be reached by improvements in vehicle motor technology. It will be supplemented by additional measures to achieve a further 10g/km reduction, so as to reach the 120g/km target (compared to the current 160 g/km), through other technical improvements such as better tyres or the use of biofuels. The regulation also introduces a long term target for 2020 for the new car fleet of average emissions of 95g CO2/km. Manufacturers will be given interim targets of ensuring that average CO2 emissions of 65% of their fleets in January 2012, 75% in January 2013, 80% in January 2014 and 100% from 2015, so as to comply with each manufacturer's specific CO2 emissions target. Manufacturers will have to pay fines (so called "excess emissions premiums"), if their average emissions of CO2 exceed the specific emission target set by the regulation.
6. the fuel quality directive
The revised fuel quality directive sets a target of reducing greenhouse gas emissions produced throughout the life cycle of transport fuels (i.e. fossil fuels like petrol, diesel and gas-oil and also biofuels, blends, electricity and hydrogen) of up to 10% by 2020. The directive also sets out technical specifications for protecting the environment and human health. Parliament and Council agreed that suppliers should reduce, "as gradually as possible", greenhouse gas emissions caused by extraction or cultivation, including land-use changes, transport and distribution, processing and combustion of fuels, by up to 10% by 2020. The 10% total breaks down as follows:
- a binding reduction of 6% from 2010 levels is to be achieved by the end of 2020. To achieve this 6% reduction, Member States may set interim targets of 2% by the end of 2014 and a further 4% by the end of 2017,
- an indicative additional 2% reduction is to be obtained through the use of electric vehicles or greenhouse gas saving technologies such as carbon capture and storage in the production process, and
- credits purchased under the United Nations' Clean Development Mechanism are expected to achieve a further indicative 2% cut.
The Commission must submit a review by 2012, when the directive might be amended to make the indicative 4% reduction by the end of 2017 mandatory, too.