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08/12/2016

EU analysis: Sole 40% CO2 cut target will cut EU GDP by 2030

Energy

EU analysis: Sole 40% CO2 cut target will cut EU GDP by 2030

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EU plans for a sole binding 40% greenhouse gas reduction target by 2030 will lead to a drop in the continent’s GDP of between 0.1% and 0.45% on current trends, according to an overlooked passage in the impact assessment which accompanies the proposal.

On the surface, the finding, which originated in a Cambridge Econometrics model, appears at odds with estimates in the latest IPCC 5th Assessment report released yesterday (13 April), that global decarbonisation would shave just 0.06% off global economic growth figures by 2030.

But much hinges on pathways, and the Commission rejected high energy efficiency and renewables options in its 2030 climate and energy impact assessment that would have offered higher long term GDP numbers and lower costs to industry. 

The ‘negative GDP’ effects of the sole 40% greenhouse gas target would be “more limited if carbon pricing is applied throughout the economy (ie. via ETS or carbon tax) and if revenues are used to lower labour costs,” by reduced labour taxation, the EU’s analysis says.

The EU’s climate and energy communication also pitched a 27% share for renewable energy in the continent’s energy mix by 2030 that would be optional for member states, and was hailed for its economic prudence by the EU’s hierarchy.

“An ambitious 40% greenhouse reduction target for 2030 is the most cost-effective milestone in our path towards a low-carbon economy,” the European Commission President José Manuel Barroso said at the time of the 2030 package’s launch.

The energy commissioner, Günther Oettinger, added that it showed how “action against climate change… needs to be achieved at least cost.”

But according to Pages 81-82 of the Commission’s impact assessment, the greenhouse gas target-led scenario which won the day “projects a loss of between 0.1% and 0.45% of (European) GDP depending on the approach to carbon pricing in the non-ETS (Emissions Trading System) sectors.”

By contrast, the assessment finds that a more ambitious set of energy efficiency policies would increase GDP by 0.53%. The International Energy Agency has forecast that a high energy efficiency scenario would lead to a growth in Europe’s GDP of 1% by 2035.

“There is nothing legitimate about the 40% proposal,” said Brook Riley of Friends of the Earth Europe, who noted the anomaly in his blog. “The whole 2030 debate is built on sand.”

Friends of the Earth contends that the greenhouse gas-only targeting strategy was based on a pessimistic Commission assessment of measures that EU states could be persuaded to adopt.  “And they’re prepared to bury the benefits of ambitious climate and energy policies to justify their defeatism,” Riley added.

The Commission’s impact assessment has also been criticised by the energy efficiency industry and some EU states for what they say is discriminatory and highly-partial modelling that makes energy saving measures falsely appear less cost-effective than the ETS at cutting carbon emissions.

According to the 2030 impact assessment, industry will pay for the EU’s proposed decarbonisation by 2050 by paying a carbon price of €40 a tonne by 2030, which will rise to €264 a tonne by 2050.

Background

The EU’s 2030 climate and energy framework package was presented on 22 January 2014 as a successor to the three 20-20-20 targets of 20% greenhouse gas cuts, improvements in energy efficiency and renewable energy market penetration, all by 2020. The energy efficiency goal is non-binding and remains the only one the bloc is not on track to meet.

For 2030, the EU framework has proposed:

  • A 40% greenhouse gas reduction target that is binding at nation state level and may not be met by carbon offsets
  • The use of carbon offsets to meet further emissions reduction commitments made in international climate talks
  • A 27% renewable energy target that is binding at an aggregate European level but voluntary for individual member states
  • No consideration of any new energy efficiency target until after a June 2014 review of the Energy Efficiency Directive  
  • Non-binding shale gas recommendations which could be made binding after a review in 2015
  • A market reserve facility for the Emissions Trading System, with the power to withhold or release up to 100 million allowances
  • An end to the Fuel Quality Directive, which mandates reductions in the greenhouse gas intensity of transport fuels, by 2020

The package was widely received as a compromise reflecting the balance of power between various member states at the European Council. It will now be discussed by MEPs at the European Parliament and EU heads of state at the European Council before a final version is agreed.

Timeline

  • May 2014: New EU Parliament to be elected
  • May 2014: EU member states must prepare schemes for their energy companies to deliver annual energy savings of 1.5% as part of the Energy Efficiency Directive
  • June 2014: Review of progress towards meeting the 2020 energy efficiency target
  • June 2014: EU Council will discuss energy and climate issues
  • September 2014: International climate summit in Lima, Peru
  • September 2015: International climate summit in Paris, France due to sign off on global agreement
  • 2020: Deadline for new international climate deal to come into effect
  • 2020: Deadline for EU states to meet binding targets for 20% cuts in greenhouse gas emissions, improvements in energy efficiency, and market share for renewable energy

Further Reading