EU cost-benefit study seen backing 55% emissions cut by 2030

According to some EU policy analysts, the Commission is laying the groundwork to make the case for a higher 2030 benchmark. [Shutterstock]

In the middle of the COVID-19 outbreak, the European Commission published last week what would have otherwise been a high-profile initiative: the launch of a cost-benefit analysis of increasing the EU’s climate ambition for 2030 in view of reaching net-zero emissions by mid-century.

The draft analysis, released on Thursday (19 March), is only at “inception” stage, but it does give an indication as to where the Commission is heading as it tries to steer the 27-member EU towards climate neutrality by 2050.

“Global warming has already reached 1°C and the world is currently not on track to achieve the Paris Agreement,” the document says, arguing that “EU leadership in 2020 is needed more than ever” to keep warming below 2°C.

“The EU’s ability to demonstrate the feasibility of a trajectory to climate neutrality and to manage a just transition will send a strong signal to other countries to follow suit,” the document argues.

To keep in line with the Paris goals, the European Commission has committed to raising the EU’s greenhouse gas reduction objective for 2030 – from a 40% cut in emissions to a 50 or 55% cut compared to 1990 levels.

The “impact assessment” study, launched last Thursday, will try to evaluate the pros and cons of choosing one option or the other and invites comments in view of the Commission’s final study, expected to be published in September.

Importantly, the Commission argues that ramping up climate ambition now would spread out costs over time, and “would result in a more gradual annual reduction path and distribution of efforts between now and climate neutrality in 2050”.

By contrast, delaying action would likely require a more brutal adjustment after 2030, even though it would ease the economic pain in the short term.

“The EU would need to eliminate more than half of its 1990 economy-wide emissions in only 2 decades after 2030 to achieve climate neutrality by 2050. This is a much faster reduction in annual emissions than has been achieved so far and thus a greater transition challenge than in the prior four decades,” the document points out.

“Therefore, the initiative aims to assess what would be required to have a more balanced reduction pathway from 2020 to 2050 and thus redistribute in time the transition effort towards climate neutrality,” it says.

EU’s next top climate model under scrutiny

The European Commission insisted on Wednesday (4 March) that in-depth climate number-crunching has to be finished before it can update an emissions-busting target for 2030. That impact assessment could make or break the EU’s green agenda.

A “politically predefined” result?

According to some EU policy analysts, the message is clear: the Commission is laying the groundwork to make the case for a higher 2030 benchmark.

“A really important point – maybe the most important – is the extent to which the results of the impact assessment are politically predefined,” said Brook Riley, head of EU affairs at the Rockwool Group, a manufacturer of building insulation.

“Nobody will admit it, but it’s a safe bet to say the guideline is to justify 55%,” Riley told EURACTIV in emailed comments.

Riley has followed the twists and turns of previous impact assessment studies that were produced under past Commissions. And he sees a similar pattern emerging.

“If the Commission wants to land on 55%, they need to model and make a solid case for more. They need to be able to say ‘look, our assessment of the likely climate damages, the health costs, etc, means we really should be targeting 60%. But yes, it will require more investment, so ok, let’s compromise on 55%’. That’s what happened back in 2013, under Barroso, when the Commission first assessed the 2030 goals.”

Why number crunching can make or break Europe's climate ambition

After the EU committed to climate neutrality by mid-century, the European Commission is now busy performing a detailed cost-benefit analysis of raising the bloc’s climate target for 2030. Brook Riley peaks into the EU’s modelling engine room to decipher the assumptions behind the figures.

Coronavirus uncertainty

A big difference this time, however, is the current political and economic context dominated by the coronavirus crisis. Although the pandemic hasn’t reached its peak yet, the Commission predicts that it will throw the European economy into a recession. And as politicians grapple with the immediate fallout of the pandemic, the risk is that climate policies will be put on the backburner.

“We expect this discussion to be heavily influenced by parallel efforts to provide a European economic response to the ongoing coronavirus,” says Andreas Graf, EU energy policy analyst at Agora Energiewende think tank.

“Given the many uncertainties surrounding the corona pandemic, the Commission will not be able to definitively guarantee at this point in time that the timeline it envisages can be maintained. But by signalling its intention to adopt a Communication with the Impact Assessment in the third quarter of 2020, it is sending the message that it plans to continue onwards with its goal to still adopt a higher 2030 climate target this year,” he said.

The response to the coronavirus crisis could indeed divert attention from other debates such as the EU carbon border tax, seen by Commission President Ursula von der Leyen as “a key tool” to “ensure that EU companies can compete on a level playing field” with countries like China, which don’t regulate CO2 emissions from industry.

But Graf believes the carbon border tax “will take significant time to implement due to legal, administrative and political challenges”. It is therefore urgent, he says, to think of other measures to protect EU industries from unfair competition as they invest into low-carbon technologies.

Those include continued free allocation of CO2 pollution credits for some industrial sectors like steelmaking or the introduction of a climate surcharge on selected end products. Green public procurement and standards for green products will also play a role, Graf says.

The key objective, he argues, is to prevent companies from moving abroad as Europe tightens the noose on industrial emissions. “Here, it will be important that the Commission also identifies the risk of investment leakage”, where companies build new factories outside of Europe, where environmental constraints are lower.

“A strong investment framework for climate-neutral industry” will be even more important “given the large reinvestment cycles for heavy industry in the coming decade, especially for steel and chemicals,” Graf said.

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Winners and losers

To be sure, the transition towards net-zero emissions will mean deep transformation for many industries, and will create winners and losers.

While some sectors are expected to grow – like renewables, energy and construction – others “are likely to transform”, the Commission document says, citing the automotive sector, energy-intensive industries, transport services, and agriculture.

Meanwhile “a limited number of sectors should decline,” the document continues, citing “coal mining or oil refining and their original equipment manufacturers and solution providers”.

With a deeper decarbonisation target by 2030, these transitions are likely to be amplified in the short term, sending “ripple effects on the entire economy,” the Commission says, with related social impacts.

This is creating anxiety among the sectors concerned. “We can’t just set a target and expect entire industries to magically ‘transform’,” says François Régis Mouton, Europe director at the International Association of Oil and Gas Producers (IOGP).

“We need to design enabling policies to scale up the large-scale carbon abatement technologies that will help them retain their competitiveness throughout this journey,” he added, citing carbon capture and hydrogen among the key future technologies for industry.

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