2030 Climate and Energy Policy Framework
Following the package issued by the Commission in January 2014, the European Council in October 2014 adopted ambitious targets for the EU’s Climate and Energy Policy. Elements that are relevant for the refining industry include the following targets for 2030:
- A binding target to reduce GHG emissions by at least 40%, compared to 1990 levels.
- A binding target for at least 32% of energy used at EU level to come from renewable sources.
- An indicative target of a 32.5% increase in energy efficiency.
Legislations that translates the framework into regulations include:
- The Emissions Trading System (ETS) that sets out the trading of GHG emissions in the European economy (-43% in 2030 compared to 2005);
- The Effort Sharing Regulation (ESR) covering the sectors not covered by the ETS, aiming to reduce their emissions by 30% compared to 2005; and
- The National Energy and Climate Plans (NECPs), through which Member States lay out their plans of action in reaching the GHG emission targets, which need to be completed by the end of 2019.
EU climate regulations not followed by other regions would not lead to a lower carbon world but result in job losses in Europe and of relocation of production activities in countries with less stringent GHG emission limits.
FuelsEurope welcomed the European Council’s decision in October 2014 to maintain free allocation of emissions allowances after 2020, as long as no comparable efforts are undertaken in other major economies. We believe that the EU climate framework should safeguard the competitiveness of industry and allow 100% free allocation for the best performing installations based on technically and economically achievable benchmarks. In particular, the EU refining sector remains fully exposed to the risk of carbon leakage as most of its main competitors do not face any carbon costs at the moment.
Without a competitive level playing field among world economies, and/or such protection measures Europe will lose competitiveness in vital industrial sectors. This could contribute to shifting industrial production out of Europe to regions with weaker environmental regulation. Such shift would undermine the EU’s climate objectives proposed in the package while at the same time reducing European jobs. Relocation of production outside Europe would indeed have negative consequences on global GHG emissions as currently the average emission intensity of EU-refineries is lower than the average emission intensity of non-EU refineries.
In particular, the 40% by 2030 (vs 1990) target implies that energy intensive industries, such as refining, will have to cut GHG emissions by 43% by 2030 (vs. 2005). For the refining industry, even considering its world class energy and carbon efficiency, this is technologically and economically unachievable. To meet its obligation, the refining industry would therefore only be left with the choice to either reduce capacity or to buy allowances.
On the issue of the multiple targets for 2030, FuelsEurope believes that it would have been more effective if the EU had simply set a technology neutral GHG emissions goal rather than setting a target for renewables.
Indeed, learnings from the past show that in the implementation of the 2020 package the overlapping targets on energy mix (renewables) and energy efficiency distorted the carbon price signal within the EU Emissions Trading System (ETS). This prevented the optimal adoption of technology that abate carbon dioxide emissions, leading to a relative rise in energy costs in the EU compared to its competitors – just when the EU needs affordable energy to fuel an industrial revival.
FuelsEurope thus calls for a governance system that can achieve both the renewables and energy efficiency targets whilst avoiding such detrimental effects.