On 17 December 2008, the European Parliament adopted the EU's '20 by 2020' climate change package. The package aims to ensure that the EU will achieve a 20% reduction in greenhouse gas emissions, a 20% improvement in energy efficiency and a 20% share of renewable energy in the EU energy mix by 2020.

THE PACKAGE

Following the votes in the Parliament's Environment and Industry committees in September and October 2008 and several rounds of informal negotiations, Parliament's delegations achieved agreements with the French Presidency of the Council on all six proposals:

  • The revision of the EU Emissions Trading Scheme (EUETS);
  • The 'effort-sharing' decision;
  • The Carbon Capture and Storage (CCS) legal framework;
  • The Renewable Energies Directive;
  • The Regulation of CO2 emissions for cars; and
  • The Fuel Quality Directive.

THE REVISION OF THE EU ETS

The Directive on the revision of the EUETS is a 'key tool' for achieving the EU's aim of reducing its greenhouse gas (GHG) emissions by at least 20% by 2020 from 1990 levels (30% in the event of an international agreement).

The current ETS covers for example, power stations, oil refineries and factories making cement, glass, lime, bricks, ceramics and pulp. The Commission has proposed to extend its scope to include new industries (e.g. aluminium and ammonia production and petrochemicals) and two further gases (nitrous oxide and per-fluorocarbons).

The revised ETS Directive will apply from 2013 to 2020 and should lead to a reduction in GHGs of 21% compared to reported 2005 levels. It will also introduce auctioning of permits, although includes several exceptions as advocated by the European Council on 12 December 2008. These include a transitional free allocation of allowances in the power sector which apply essentially for the new Member States. This must decrease to 0% by 2020. Further, for the manufacturing sector, auctioning will be phased in gradually - in 2013 it is to receive a free allocation of 80% of allowances, decreasing to 30% by 2020 leading to full auctioning in 2027.

Other amendments include the use of auction revenues to adapt to climate change in the EU and in developing countries, the limitation of use of credits to 'offset' emissions to 50% of EU-wide reductions and the inclusion of international maritime emissions if no agreement has been made by the International Maritime Organisation by the end of 2011.

'EFFORT SHARING'

The 'effort sharing' decision will set binding targets for each EU Member State to reduce GHGs 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 GHGs.

The decision aims to reduce these emissions by 10% overall, so as to contribute to the 20% total reduction by 2020. The effort sharing decision is the first of its kind worldwide.

THE CCS FRAMEWORK

Emissions from power plants account for around 40% of all CO2 emissions in the EU. To cut their CO2 emissions, industrial installations and power plants could in the future use new technology to capture C02 and store it in geological formations.

In March 2007 the European Council advocated building at least 12 commercial demonstration facilities by 2014 to test the permanent underground storage, but funding had yet to be secured. MEPs therefore proposed to award ETS allowances to large-scale CCS projects in the EU. The agreement reached during December 2008 foresees that up to 300 million allowances will be set aside to help stimulate the construction and operation of demonstration projects.

The compromise agreement reached also agreed that operators of new power plants with an output of more than 300MW must 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. It had been hoped by the Parliament's Environment Committee that a mandatory 'emissions performance' standard for new power plants with a capacity of more than 300MW would be set, obliging future power stations to store CO2 in order to reach the standards, however this was not achieved.

Member states will have a period of 2 years to effect the Directive into national law once it has been published in the EU's Official Journal. Before then, there may be opportunities for companies to be consulted on the terms of implementation. It is presumed that likely investors would also wish to be consulted, to ensure the Directive is set out in such a way as to enable bankable projects.

THE RENEWABLES ENERGY DIRECTIVE

This Directive sets compulsory targets which Member States must achieve in order that by 2020, 20% of the EU's total energy consumption will come from renewable sources.

To achieve the 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.

Renewable energy action plans will need to be drawn up by Member States to demonstrate how they are going to achieve their national targets, in which certain minimum requirements must be met.

The agreement has incorporated the Industry Committee's proposals for cooperation mechanisms to allow Member States to embark on joint projects with one or more Member States on green electricity production, heating or cooling. This will then enable Member States to share and transfer renewable energy between each other. Member States are also able to jointly or partly coordinate their national renewable energy support schemes.

The agreement also makes provision for reaching a target requiring 10% of fuels in the transport sector to come from renewable sources by 2020. Promotion of "second generation" biofuels produced from waste, residues, or non-food biomass is also included. Recognised as more sustainable alternatives, such biofuels will be double credited towards the 10% target.

Member States will have to bring into force the laws, regulations and administrative provisions necessary to comply with Directive within 18 months of its publication in the EU's Official Journal.

CO2 EMISSION LIMIT FOR CARMAKERS

A draft regulation was approved which will set emissions performance standards for new passenger cars registered in the EU. The regulation sets an average target of 130g CO2/km for new cars to be reached by improvements in the vehicle motor technology.

A long term target was set for new car fleet average emissions of 95g CO2/km by 2020.

THE FUEL QUALITY DIRECTIVE

The revised fuel quality Directive sets a target of reducing GHGs produced throughout the lifecycle of transport fuels of up to 10% by 2020. The Directive also sets out technical specifications for protecting the environment and human health.

The cuts in GHGs could be achieved, for example, by using more biofuels, alternative fuels or by reducing 'gas flaring and venting' at production sites.

We will keep you up to date with legislative amendments and the EU package implementation measures in the UK as and when they arise.