Greenhouse emissions across the EU must be cut by 40 per cent by 2030 (compared to 1990 levels) with 27 per cent of energy sources to come from renewable sources.

The European Commission has released these new binding targets in a revised 2030 framework on energy efficiency in a communication document published on 22 January 2014. The policies mark the world’s most ambitious commitment to tackling climate change. The announcement sends a strong signal to companies looking to invest in renewable technology that a top- down target may increase incentives in the green sector. The Commission intends for this strategy to drive continued investment in low-carbon technologies beyond 2020 and it will form the basis of future EU policy making.

This announcement will be particularly relevant to large industrial operators covered by the EU Emissions Trading System (“EU ETS”), as well as real estate developers, businesses with significant energy demand, and those involved in energy generation.

GHG reduction target

The 40 per cent reduction target can only be achieved through domestic measures. This differs from the current 2020 target to achieve 20 per cent reduction in GHG emissions (from 1990 levels) which allows Member States to rely on international credits from funding projects overseas.

Responsibility to achieve the 40 per cent reduction target will be distributed between the EU ETS and non-ETS sectors, with the former having to deliver a reduction of 43 per cent. The implication of this arrangement could mean a stricter increase in the annual reduction cap in the EU ETS to 2.2 per cent (from 1.74 per cent). This would effectively adjust the available emissions allowance tradable as surplus on the carbon market.

Renewable  energy  target

The 27 per cent renewable energy target will bind the EU as a whole and will not be translated into national targets through EU legislation. In effect, the target would rely on national energy plans to determine each Member State’s energy mix.

The framework document makes reference to the need for Member States to develop policies to facilitate the transformation of energy infrastructure with more cross-border interconnections, storage potential and smart grids to manage demand to ensure secure energy supply.

Plans to improve the EU biomass policy are included in the pipeline. The Commission aims to promote the use of biomass resources in the construction sector, paper and pulp industries, as well as biochemical and energy production. This differs from the UK’s approach, where the DECC has capped subsidies available to biomass plants and introduced new sustainability criteria for funding eligibility.

Energy Efficiency Directive

The Commission is seeking to amend the Energy Efficiency Directive (EED) to encourage countries to improve energy efficiency by 25 per cent, a more ambitious goal compared to the current instrument.

By way of background, the EED entered into force on 14 November 2012, and its main impetus is to push Member States to improve energy efficiency by 20 per cent (compared to 1990 levels) by 2020, through introducing national measures that will affect the entire energy chain – from generation, transmission and supply, to the final stage of consumption. The UK is under an obligation to implement the Directive by 5 June 2014.

The European Commission communication document also abolishes the 6 per cent greenhouse gas reduction target for transport fuels from 2020, which forms part of the Fuel Quality Directive.

Implications

If adopted, the binding targets would apply to all EU Member States from 2015. According to the Commission’s impact assessment, the cost implications of transition to a new energy system will increase investment needs in electricity generation and the distribution network, welcome news to those businesses operating in the renewable energy sector. 

Outside the energy sector, the GHG target will pose both challenges and opportunities as businesses are encouraged to make their products and services more energy efficient. This will affect a wide range of sectors, from property developers constructing new buildings to car manufacturers.

The European Council is due to consider the framework at the next spring meeting between 20 and 21 March 2014. For the targets to take effect, the framework needs to be agreed by European Council and Parliament. There has been a push from the Commission for debates on the framework to settle by the end of 2014.

We will continue to watch this carefully and keep you updated of any developments.