EUROCHAMBRES response to the European Commission s Consultation on the Green Paper on a 2030 framework for climate and energy policies

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1 Position Paper 02 July 2013 EUROCHAMBRES response to the European Commission s Consultation on the Green Paper on a 2030 framework for climate and energy policies 4.1. GENERAL Which lessons from the 2020 framework and the present state of the EU energy system are most important when designing policies for 2030? The economic crises and the energy price development on the global market (esp. the widening gap between EU and US natural gas prices) have been the two main factors which influenced the context of the energy and climate targets, agreed in 2007 and However, so far, the changed economic context has insufficiently been taken into account. Also, when designing the 2020 targets, interdependencies had not been considered sufficiently. The discussions on the low CO 2 price, which inter alia resulted from the decline in production and the increased use of renewable energy sources, provide a perfect example for conflicting targets. Against this background, the EU s future energy and climate policy requires a holistic approach and has to become more coherent with other strategic EU objectives, like the reindustrialisation of Europe 1, as well as general growth and employment objectives. Moreover, the competitiveness of European businesses on the global market has to be guaranteed in the long term and must not fall victim to impracticable climate and energy policies. EUROCHAMBRES welcomes the Green Paper as starting point for a comprehensive discussion which follows-up on the EU s role as a pacemaker in global climate and energy policy, but which equally takes into account other crucial factors like growth, innovation, security of supply and affordable energy prices. Instead of increasing the burdens of the EU economy, innovation potentials have to be strengthened. 1 In October 2012, the Commission adopted a new 2020 target in order to reverse the declining role of industry in Europe from its current level of around 16% of GDP to as much as 20% by the end of this decade. EUROCHAMBRES Position Paper 02/07/2013

2 4.2. TARGETS Which targets for 2030 would be most effective in driving the objectives of climate and energy policy? At what level should they apply (EU, Member States, or sectoral), and to what extent should they be legally binding? EUROCHAMBRES supports the further reduction of CO 2 -emissions via the Emissions Trading Scheme as cost-efficient, market-based instrument. The level of ambition of the new CO 2 -target should depend on whether a legally binding international climate agreement can be reached in 2015 or not. Europe can continue its role as a pacemaker, but it cannot be the only economic area in the world putting (financial) effort in CO 2 -reduction if it wants to remain competitive. EUROCHAMBRES also supports a cost-effective expansion of those renewable sources of energy, which have sufficient potential to compete in the free market. However, the development has to be targeted and new production capacities have to be embedded in the overall system. The security of supply must not be threatened at any time. Moreover, the various different national support schemes for green electricity increase the costs significantly. Therefore, Chambers urge the EU to firstly focus on the completion of the internal energy market, the harmonisation of support schemes and the expansion of the necessary infrastructure. A new EU renewable energy targets can only be reached cost-effectively once the aforementioned necessary conditions have been created. With regard to energy efficiency, the EU should continue its role as an international pacemaker, especially in the buildings sector. However, at this point in time, the discussion on an energy-efficiency target for 2030 appears premature. In general, defining a rigid compulsory ceiling regarding the overall energy consumption seems problematic, not least because weather conditions and economic trends can lead to massive ups and downs. Thus, EUROCHAMBRES believes that energy efficiency has to be achieved by voluntary initiatives, rather than by mandatory requirements. Have there been inconsistences in the current 2020 targets and if so how can the coherence of potential 2030 targets be better ensured? Interdependencies between the three current targets, as well as their effects on growth, competitiveness and security of supply have not sufficiently been analysed so far. However, this is an important precondition for the preparation of the discussion on the 2030 framework. EUROCHAMBRES therefore urges the Commission to examine potential inconsistences in form of an impact assessment and a stakeholder consultation. New targets for 2030 have to be aligned in a more coherent way, in order to minimise burdens for businesses. In this context, especially efforts aimed at promoting growth and employment must not be undermined. Moreover, the security of energy supply and affordable energy prices (especially in comparison with other world regions) have to be taken into account. In general, it must be considered to replace fixed absolute targets by relative ones linked to the respective efficiency and the economic development (possible indicator for CO 2 reduction: tco 2 per GDP unit). In this way, efficient production locations would be prevented from facing additional burdens. Are targets for sub-sectors such as transport, agriculture, industry appropriate and, if so, which ones? For example, is a renewables target necessary for transport, given the targets for CO 2 reductions for passenger cars and light commercial vehicles? Wirth regard to designing the 2030 energy and climate policy framework, different characteristics and potentials of all sub-sectors have to be taken into account. In order to guarantee a fair distribution of efforts, especially the competitiveness and cost-effective potentials of the respective sectors have to be considered. EUROCHAMBRES Position Paper 02/07/2013 Page 2 of 8

3 Whether a renewable target for transport makes sense, will largely depend on the future developments in the areas of electro mobility and biofuels. In this context it is crucial that realism prevails over idealism. How can targets reflect better the economic viability and the changing degree of maturity of technologies in the 2030 framework? EUROCHAMBRES supports the Commission s view to bring renewables to the market in a speedy and cost-efficient manner. The excessive financial support for some technologies increases the costs for energy consumers and impedes the necessary competition between different sources of energy. The EU and its Member States must therefore endeavour to achieve the most effective impact with deployed funding. Increases in productivity and cost cuts have to be passed on to consumers as quickly as possible. Moreover, support schemes have to be harmonised within the EU and must become much more cost efficient and less bureaucratic. In general, we need a carefully reconsidered way to move towards renewable energy, based on thorough analyses, taking into account the stability of the grid and the effects on energy prices. Therefore, the expansion of renewable energy has to come along with an expansion of the grid in order to transmit additional capacities to the consumers. Apart from that, it should not be neglected that fossil energy sources will continue to play an important role in the energy mix of the foreseeable future. The ongoing discussion on CCS acknowledges this fact. However, CCS lacks acceptance among the population of many countries. Against this background, the implementation of CCS in the near future seems very uncertain. The gap between emission reduction scenarios published by the Commission and the (political) availability of technologies has to be considered in the current discussion. How should progress be assessed for other aspects of EU energy policy, such as security of supply, which may not be captured by the headline targets? EUROCHAMBRES welcomes the fact that the Commission attaches great importance to security of supply, which must not be threatened by any future energy or climate targets. The security of supply should even be increased by future energy and climate policy measures. Though it will be difficult to assess security of supply by using only one indicator, there are qualitative and quantitative parameters that could help to analyse progress and which could be provided by grid operators. Security of supply should also incorporate the affordability of energy, as increasing energy prices increasingly threaten the budget of households and enterprises INSTRUMENTS Are changes necessary to other policy instruments and how they interact with one another, including between the EU and national levels? The ongoing discussion on the post-2020 framework has to be seen as an opportunity to evaluate and challenge the entire legislation in the field of energy and climate policy. The 2030 climate and energy package must follow a holistic approach and has to be consistent within itself and as well as with other policies (e.g. environment, competition, internal market and transport policy). The Emissions Trading Scheme should be kept in the centre of the policy instruments as it is marketbased and thus ensures cost-efficiency. Furthermore, along the lines of good governance, the Commission is required to better coordinate legislative proposals tabled by different Directorate Generals (eg. Energy Efficiency Directive vs Buildings Directive). EUROCHAMBRES Position Paper 02/07/2013 Page 3 of 8

4 How should specific measures at the EU and national level best be defined to optimise cost-efficiency of meeting climate and energy objectives? EUROCHAMBRES welcomes the Commission s and the Council s new focus on cost-efficiency. Businesses must have the chance to achieve future energy and climate targets through economically viable measures. With regard to renewable energy, the focus has to be put on the completion of the internal market and the harmonisation of national support schemes. Renewables should be supported in those areas where climatic and topographic conditions are most favourable. In any case, support schemes must be degressive and should expire once the competitiveness of a certain RES has been ensured. How can fragmentation of the internal energy market best be avoided particularly in relation to the need to encourage and mobilise investment? First and foremost, the EU has to assure that Member States fully implement the EU legislation regarding the internal market in the electricity and gas sector. Developments which could lead to further fragmentations of the internal energy market have to be prevented by effective European mechanisms. In order to complete the internal energy market the grid has to be expanded, distribution networks must be better linked across borders and relevant infrastructure projects have to be coordinated between all countries affected. In order to enable private investments in this area, planning and consent procedures have to be implemented as swiftly as possible. Security of supply and affordable energy can only be guaranteed in the European context. Therefore, the Commission has to press for the full implementation of the third internal market package and remove the remaining barriers to competition. Violations of the EU rules on competition, state aid and the internal market must be sanctioned. Furthermore, the Commission should come forward with a reflection on the existing energy market design which often makes it difficult to handle a further increase of electricity from renewable energy sources. Which measures could be envisaged to make further energy savings most cost-effectively? EUROCHAMBRES believes that energy efficiency has to be achieved by voluntary initiatives, rather than by mandatory requirements, which would lead to new administrative burdens. Competition and business considerations should work as main drivers for energy efficiency investments. However, smart regulatory and financial incentives can have supportive effects. How can EU research and innovation policies best support the achievement of the 2030 framework? Apart from competitiveness, innovation has to be an important cornerstone of the future climate and energy policy framework. EU funds for R&D as well as structural and cohesion funds should have an increased focus on climate and energy-relevant issues. Especially with regard to storage of electricity, demand-response mechanisms (smart grids, smart meters) and the exploitation of energy efficiency potentials, we need new and better technologies in order to meet the challenges of the coming decades. In this context, Europe has to be a pacemaker and must secure competitive advantages. EUROCHAMBRES Position Paper 02/07/2013 Page 4 of 8

5 4.4. COMPETITIVENESS AND SECURITY OF SUPPLY Which elements of the framework for climate and energy policies could be strengthened to better promote job creation, growth and competitiveness? Security of supply and affordable energy prices are the most important elements that should be strengthened to better promote job creation, growth and competitiveness. Especially in comparison to the USA, European energy prices are very high, which causes a competitive disadvantage for energyintensive industries in the EU. This certainly has a knock-on effect on the entire economy and jeopardises growth and employment. If the future climate and energy policy does not succeed in revering this trend, this may result in the delocalization of important industries. Also, security of supply is a crucial factor for Europe as industrial location and the competitiveness of EU businesses. What evidence is there for carbon leakage under the current framework and can this be quantified? How could this problem be addressed in the 2030 framework? The most viable solution for coping with risk of carbon leakage is to establish an international level playing field. Sustainable climate protection can only be guaranteed globally by comprehensive, coordinated actions, including all major CO 2 emitting countries. Thus, far more importance should be attached to international cooperation instead of stand-alone climate actions. As long as a true level-playing field (esp. regarding CO 2 -costs) has not been achieved, the EU has to take political steps against carbon leakage. A smart way to do so is to extend carbon leakage rules on the basis of continuity. The current international imbalances have to be considered in any future discussion on post-2020 targets. What are the specific drivers in observed trends in energy costs and to what extent can the EU influence them? The reasons for the currently high energy costs in the EU are diverse and complex. One is certainly the relative price of energy in comparison to the U.S. Due to the massive shale gas extraction in recent years there has been a reduction in U.S. gas prices, resulting in a competitive advantage for the United States. Even in Europe there is potential for domestic fossil resources, which would have a positive effect on energy prices. In the gas sector, long-term contracts linked to oil prices are certainly another reason for high prices. The massive expansion of renewable energy and relating subsidies have also contributed to the rising costs. Furthermore, the investments in the expansion and modernization of the energy infrastructure are costly. Moreover, taxes and duties and the lack of competition due to a very fragmented internal energy market cause high energy prices. Nevertheless, some factors can be influenced strategically and politically. It is important to pursue policies that mitigate an increase in costs or even counteracts that trend. Diversification of gas sources - both through new suppliers and routes as well as through the increased use of European conventional and unconventional resources - is essential. In this case it is crucial that the EU communicates its clear position within the external energy policy. Furthermore, the harmonization of support schemes for renewable energy sources and the completion of the internal energy market including increased cooperation and coordination between Member States - could substantially reduce energy costs in Europe. EUROCHAMBRES Position Paper 02/07/2013 Page 5 of 8

6 How should uncertainty about efforts and the level of commitments that other developed countries and economically important developing nations will make in the on-going international negotiations be taken into account? The competitiveness of European companies and the attractiveness of the EU as a production location should not be weakened by unilateral binding climate and energy policy targets. EUROCHAMBRES is convinced that an uncoordinated, unilateral action harms the European economy. Moreover, sustainable climate protection can only be guaranteed globally by comprehensive, coordinated actions, especially by industrialised countries. Only if all major global emitters follow the example of the EU, we will be able to combine climate and energy targets with other EU objectives such as economic growth and competitiveness. The level of ambition of the new CO 2 -target should depend on whether a legally binding international climate agreement can be reached in 2015 or not. Europe can continue its role as a pacemaker, but it cannot be the only economic area in the world putting (financial) effort in CO 2 -reduction when it wants to remain competitive. How to increase regulatory certainty for business while building in flexibility to adapt to changing circumstances (e.g. progress in international climate negotiations and changes in energy markets)? Planning and investment security are crucial with regard to the needed investments in the EU energy system. Therefore, we are pleased that the European Commission has opened a debate on the climate and energy policy framework until However, planning security can only be guaranteed if existing rules are not changed in an ad hoc manner. The "set aside" or "backloading" of ETS certificates as well as the recent proposal on biofuels (ILUC) are "worst practice examples" because they cause uncertainty. We need to be able to respond quickly to changing circumstances, without changing the rules as such. Therefore, flexible instruments are preferable, whereas rigid and binding targets should be avoided. How can the EU increase the innovation capacity of manufacturing industry? Is there a role for the revenues from the auctioning of allowances? The last years have shown that countries with strong, innovative manufacturing and processing industries have been economically more stable during the crisis than others. Therefore, it is essential to focus on those sectors and ensure that they can make use of their potential for innovation. At the EU level, it requires clear measures, willingness and support to strengthen the manufacturing base, reducing competitive barriers and facilitating the access to funds. Currently, the revenues from the EU-ETS are being channelled mainly into the general budget of the respective Member States. However, the earmarking of funds and related reinvestment in funds of the affected economy (in innovation and environmental investments) should be part of the 2030 discussion. How can the EU best exploit the development of indigenous conventional and unconventional energy sources within the EU to contribute to reduced energy prices and import dependency? To reduce our dependency on imports from external suppliers, the focus should be on domestic resources - both conventional and unconventional. Renewable energy sources such as hydro power and indigenous fossil fuels (e.g. shale gas) should be expanded. This will reduce the import dependency; however, it will not lead to lower energy prices in the medium term. Unconventional fossil fuels could make an important contribution to the security of supply in Europe and lead to lower gas prices, which could counteract the current competitive disadvantage compared to the EUROCHAMBRES Position Paper 02/07/2013 Page 6 of 8

7 U.S. By means of a Green or a White Paper, the EU Commission should examine scientific studies, the current EU legislation and provide recommendations and suggestions for actions at the EU level. They should analyse potential risks and benefits while taking economic issues into account. In any case, conventional fossil energy sources will still be necessary in the future EU energy mix. How can the EU best improve security of energy supply internally by ensuring the full and effective functioning of the internal energy market (e.g. through the development of necessary interconnections), and externally by diversifying energy supply routes? Regarding the climate and energy policy framework in 2030, more attention must be paid to security of energy supply. From EUROCHAMBRES, supply security is less of a problem of production capacity but more a problem of transportation and storage facilities especially within the electricity sector. While of course continuing the promotion of renewable and conventional fossil resources, a focus on ecologically sustainable unconventional sources should also be a priority. With regard to electricity storage, the significant role of pumped storage power plants must be emphasized. Additionally, investment in research and development of innovative solutions and technologies should be increased. It is also necessary to accelerate the modernization of the infrastructure. A completion of the single market is necessary: liquid wholesale markets, further market linkages, interconnectors and cross-border lines are essential to secure energy supply. In addition, sufficient energy compensation must be guaranteed. Supplementary to volatile power generation by wind and sun, water and gas should be considered. Regarding the external energy policy, focus should be on security of supply as well. Diversification of import sources and generally less dependence on third countries is crucial CAPACITY AND DISTRIBUTIONAL ASPECTS How should the new framework ensure an equitable distribution of effort among Member States? What concrete steps can be taken to reflect their different abilities to implement climate and energy measures? As part of the Climate and Energy Package 2008, the respective objectives of the Member States (RES and CO 2 ) were split according to a "GDP per capita " - key, this key distribution cannot be continued. Already taken efforts regarding CO 2 reduction, energy efficiency and the deployment of renewable energy sources were not sufficiently recognized by the Commission. When it comes to setting goals one has to take the initial situation of the MS and the available national potentials into account. Climate and energy policy objectives are set for environmental considerations and should therefore not be overburdened with cohesion policy. The effort sharing between ETS and non-ets has not been in balance since If this imbalance is further exacerbated after 2020, carbon leakage will be increasingly become a reality. Therefore, a trend towards more balanced distribution of the burden between ETS and non-ets has to be promoted. What mechanisms can be envisaged to promote cooperation and a fair effort sharing between Member States whilst seeking the most cost-effective delivery of new climate and energy objectives? Article 1 of the Emissions Trading Directive clarifies that the scheme for greenhouse gas emission allowance trade should reduce greenhouse gas emissions in a cost-efficient and cost-effective manner. In principle, therefore, the EU ETS would have set the goal to achieve efficient emission reduction targets. EUROCHAMBRES Position Paper 02/07/2013 Page 7 of 8

8 However, discussions in 2012 and 2013 have shown that because of an overload of objectives and a focus on the price of CO 2 with regard to "back loading" or the structural measures presented in the "carbon market report" - the original goal of efficiency is undermined. Another barrier that hampers the practicability of the EU-ETS is bureaucracy. A clear simplification of reporting and documentation requirements for small emitters in the EU-ETS needs to be achieved in order to create a reasonable balance between regulated emissions and the reporting obligations. In the area of renewable energy sources cooperation should be fostered. This should build on existing initiatives such as the cooperation mechanisms in the Renewables Directive. The needed trans-european infrastructures require cross-border cooperation. The recently adopted energy infrastructure regulation can serve as model for future efforts. Are new financing instruments or arrangements required to support the new 2030 framework? The discussion about the current EU budget has promoted the idea of using existing resources at EU level for energy and climate aims. Certainly, the Cohesion Fund, the regional development and research at EU level should be pursued. However, we regret the budget cutback with regard to "Connecting Europe Facility". Large energy infrastructure projects are required to ensure security of supply and competitiveness. But public investment is often needed to promote more private sector investment. The revenues from the EU-ETS are currently allocated in the general budget of the respective Member States. Earmarking of funds and related investment of funds in environmental innovation in the economy of each MS should be included in the discussion up to Further information: Mr. Michael Steurer, Tel , steurer@eurochambres.eu Press contact: Ms. Guendalina Cominotti, Tel , cominotti@eurochambres.eu All our position papers can be downloaded from EUROCHAMBRES The Association of European Chambers of Commerce and Industry represents over 20 million enterprises in Europe 93% of which are SMEs through members in 44 countries and a European network of 2000 regional and local Chambers. ASSOCIATION OF EUROPEAN CHAMBERS OF COMMERCE AND INDUSTRY Chamber House, Avenue des Arts, 19 A/D B Brussels Belgium Tel Fax eurochambres@eurochambres.eu EUROCHAMBRES Position Paper 02/07/2013 Page 8 of 8