Council adopts climate package for 2020

Following several rounds of negotiations under the French presidency, the European Council reached an agreement on 12 December 2008 on a revised version of the EU Commission’s “20-20-20” climate change package.

The deal, which sets emission reduction, renewable energy and energy efficiency targets will impact companies that will be subject to the EU Emission Trading Scheme (EU ETS) from 2013 onwards as well as to stakeholders involved in the renewable energy sector or likely to be affected by the proposed energy efficiency measures.

Overview

The deal reached by the EU Council sets the following 3 targets for the EU:

• a 20% reduction in the EU’s greenhouse gases (GHGs) emissions by 2020 compared to 1990 levels;
• 20% of the EU’s energy consumption to come from renewables by 2020 (as we recently reported);
• a 20% increase in energy efficiency within the EU by 2020.

Full auctioning for power sector - derogations

Last minute changes were made to the proposed reform of the EU ETS for Phase 3 (2013 onwards). The Commission’s original proposal was for the power sector to acquire 100% of its required emission allowances (“EUAs”) through auctioning. However, under the latest deal, power plants in EU states heavily reliant on fossil fuels, such as Poland, will be required to purchase only 30% of their required allowances through auctioning in 2013 and will only be required to purchase 100% of their required allowances from 2020.

Carbon leakage

The deal also envisages that derogations from the EU ETS will be granted to industrial sectors, where there is a risk that EU ETS compliance costs may result in plants and jobs being relocated outside the EU in countries which do not have similar emission reduction targets (the so-called risk of “carbon leakage”). The Commission will now have to carry out an analysis to determine which sectors may be at risk from carbon leakage and should be granted derogations.

Other decisions

Other decisions regarding the EU ETS include:

• 12% of the EU ETS revenues in Phase 3 will go into a so-called “solidarity fund”, to assist the EU’s poorer Member States to modernise their heavy industry;
• a certain amount of free emission allowances will be granted to 12 demonstration carbon capture and storage (CCS) projects (details on the exact figures should shortly be released);and
• a certain proportion of the proposed emission reduction targets will be realisable by purchasing emission reduction credits from clean energy projects in third countries, such as the Clean Development Mechanism projects that have been set up in recent years under the Kyoto Protocol.

Link with United Nations climate talks

The EU Council reached its climate change deal on the final day of the United Nations Framework Convention on Climate Change (UNFCCC) talks in Poznan, where talks were being held to pave the way for a successor treaty to the Kyoto Protocol to be agreed in Copenhagen in December 2009.

The Council made clear that the progress of UNFCCC negotiations would have an impact on the EU’s climate change package by keeping the Commission’s original proposal to increase the EU’s GHG emission reduction objectives from 20 to 30%, should an ambitious global climate change deal be signed in Copenhagen and as long as other developed economies take on similar emission reduction targets. To this end, the Council has required the Commission to prepare a report for March 2010 analysing the results of the Copenhagen agreement and setting out whether or not the EU’s emission reduction objectives should be increased.

Next steps

Prior to becoming law, the Council’s climate change deal (which includes several draft directives) has to be reviewed this week by the European Parliament as part of the co-decision procedure, which may still propose some amendments to the deal.
To read our recent law-now on the Council’s recent agreement on the EU’s renewable energy directive, please click here.

To read our law-now on the Commission’s original climate change proposals, please click here.