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EU looks to move towards a 30 per cent emissions cut

On 26 May the European Commission presented an analysis of the costs, benefits and options for moving beyond the EU's greenhouse gas reduction target for 2020 from 20 percent below 1990 levels to 30 percent once the conditions are met.

At present these conditions have not been met. The EuropeanCommission recently presented an analysis of the costs, benefits andoptions for moving beyond the EU's greenhouse gas reduction target for2020 from 20% below 1990 levels to 30% once the conditions are met. Atpresent these conditions have not been met. This communication followsthe Commission's Communication on "How to reinvigorate internationalclimate negotiations" and the Council's request to present anassessment on the impacts of a conditional move to a 30% emissions cut.The measures taken to support energy-intensive industries against therisk of carbon leakage are also examined as required under the ETS(Emissions Trading System) Directive.

The Communication shows that the reduction in EU emissions as aconsequence of the economic crisis, together with a drop in carbonprices, has changed the estimations two years ago when the revised ETSwas presented. Therefore in light of the new data, an analysis of theimplications of the different levels of ambition as a motor formodernising the EU economy and creating new jobs by promotinginnovation in low-carbon technologies is provided. This analysisencompasses the efforts required in the main different sectors toreduce greenhouse gas emissions beyond 20%, up to 30%, looking also atthe impacts of these efforts and the potential policy options toachieve them. The current context of constrained public finances andeconomic contraction is also fully taken into account when assessingpossible alternatives.

Connie Hedegaard, European Commissioner for Climate Action, said:"Whether to increase our reduction target for 2020 from 20% to 30% is apolitical decision for the EU leaders to take when the timing and theconditions are right. Obviously the immediate political priority is tohandle the crisis. But as we exit the crisis, the Commission has nowprovided input for a fact-based discussion. The decision is not fornow, but I hope that our analysis will inspire the debate in the MemberStates on the way forward."

 Cost of meeting targets

 Since 2008 the absolute costs of meeting the 20% target havedecreased from €70 billion to €48 billion (0.32% of GDP) per year by2020. This is due to several factors: lower economic growth has reducedemissions; higher energy prices have spurred energy efficiency andreduced energy demand; and the carbon price has fallen below the levelprojected in 2008 as EU ETS allowances not used in the recession arecarried forward. However, at the same time, this reduction in absolutecosts comes in the context of a crisis which has left businesses withmuch less capacity to find the investment needed to modernise in theshort run.

Since 2007 the EU is committed to move to a 30% emissions cut by2020 if other major economies take on their fair share of the effortunder a global climate change agreement. The cost of reaching the 30%target is now estimated at €81 billion per year by 2020, €11 billionhigher that the price tag for the 20% target two years ago. The 30%target would cost €33 billion (0.2% of GDP) more than the estimatedcosts for the 20% target is estimated to cost today.

Low-carbon growth

Countries worldwide are recognising the potential of green,low-carbon growth to create new sustainable jobs and strengthen energysecurity. Europe's lead in this revolution cannot be taken for grantedas global competition becomes fiercer. The 20% target was seen as acritical driver for modernising the EU economy, but now, with carbonprices lower than expected, its potential as an incentive for changeand innovation has decreased. Moreover Europe has also to prepare itslong term objectives, as part of the developed countries group, ofachieving 80-95% reduction by 2050 at an optimal cost.

Options for moving to 30%

The Communication sets out options for meeting the 30% target withinthe EU ETS and in the other sectors. These include: reducing the numberof auctioned allowances under the EU ETS; regulation to promote greaterenergy efficiency; smart use of fiscal instruments; directing EUcohesion policy funding towards green investments; and improving theenvironmental integrity of the international carbon credits recognisedin the EU ETS.

A measure that is attractive even ahead of a possible move to 30%would be to use some unallocated free EU ETS industry allowances toaccelerate innovation in low-carbon technologies, in a similar way tothe existing demonstration programme for innovative renewable energyand carbon capture and storage technologies funded with 300 millionallowances.

Carbon leakage

The Commission has examined the situation of energy-intensiveindustries with regard to the risk of "carbon leakage" (relocation ofproduction from the EU to countries with laxer carbon constraints).

The key conclusion is that the existing measures to prevent carbonleakage from these industries - free allowances and access tointernational credits - remain justified. The analysis also shows thatraising the target to 30% while other countries implement theirreduction pledges under the Copenhagen Accord would have a limitedimpact in terms of carbon leakage, provided the existing measures stayin place.

The Commission will continue closely to monitor the risk of carbonleakage, particularly in relation to third countries which have not yettaken action to limit emissions. Among the potential measures thatmerit continued examination is the inclusion of imports in the EUETS.

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