The economic slump has cut the cost of meeting the EU's current 2020 emission reduction target by nearly a third, making a move to a 30% cut affordable, according to a draft European Commission communication seen by EurActiv.
The cost of cutting emissions by 20% by 2020 has dropped by some €22bn per year from what was estimated in 2008, when climate and energy legislation to reach the target was agreed, the document notes.
It now stands at €48bn per year in 2020, compared to an estimate of €70bn three years ago.
The European Commission is calling for increased ambition in EU climate legislation, without which it warns that Europe risks losing out to the US and China in the race for green jobs.
The Commission notes that the potential of the EU's flagship climate instrument, the emissions trading scheme (EU ETS), to spur low-carbon investment has been "severely affected for a long time". It argues that to deliver an allowance price of €30 per tonne of CO2 as originally planned would require a move to 30%.
The EU executive estimates that the additional cost of upgrading the target to 30% would stand at €33 billion in 2020. This brings the total cost of a more ambitious climate policy to €81bn, or 0.54% of GDP, which is €11bn higher than what EU governments had originally agreed to.
The additional investment could be offset by air quality improvements alone, which would save the EU some €6.5-€10bn in healthcare bills and reduce the need to control other pollutants, the paper states.
In addition, the EU could prevent stranded investments, for example in coal-based electricity generation, and eliminate the need for steeper and more expensive cuts later on.
EU member states are divided on stepping up the targets. Countries like the UK and the Netherlands would like to see a move to 30%, but are encountering fierce opposition from others, like Italy and Poland.
Moving to a 30% reduction target would require adjustments both within the EU ETS and in sectors outside of it, such as agriculture and transport.
The EU ETS could be brought in line with the new target by setting aside 1.4 billion allowances in the third trading period between 2013 and 2020, the document says.
Outside of the system, the Commission is proposing to implement an EU-wide carbon tax, develop spending programmes to move towards a low-carbon society in the bloc's next long-term budget, and increase emission reduction targets for member states in the context of "effort sharing".
Commission to assess border tariffs
The Commission said it is evaluating the introduction of border measures that would require importers from countries with less stringent environmental laws to buy emission allowances to cover the carbon content of certain imported goods.
But while the draft proposal and an accompanying working document keep the option open, they warn that it would "trigger retaliatory measures" and "even hinder international negotiations" to agree on a successor to the Kyoto Protocol.
"Effective border measures, which cannot be circumvented, would be difficult to design, implement and enforce," the Commission argues.
The EU executive adds that it would be hard to define in detail the carbon content of each individual category of goods and "therefore the system could at best only be envisaged for a very limited number of standardised commodities, such as steel or cement".
"This should be the end of the border debate," said Sanjeev Kumar of think-tank E3G.
Kumar described the Commission's draft paper as a "good step forward," arguing that the best way to go about stepping up the EU's climate targets is fixing the ETS cap.