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The Long-Term Climate Strategy of the European Union – a Reality Check

Karen Pittel

Taking stock

According to current plans, the EU strives to achieve a reduction of greenhouse gas (GHG) emissions by 80-95% by 2050. If we are to take the Paris Agreement seriously, however, by 2050 we need to reduce net emissions to zero in order to prevent the average global temperature rising by more than 1.5° Celsius. The later the emissions begin to decline, the faster the reductions will have to ultimately be, with greater negative emissions required to achieve the targets.

Yet, according to a report by the Global Carbon Project, a turnaround in global emissions is still not foreseeable. In 2018, global CO2 emissions from burning fossil fuels and from industry reached a record high (CDP 2018). Even in the EU, where GHG emissions fell by almost 23% between 1990 and 2016 (Eurostat 2019), they rose again slightly in 2017 (see EEA 2018).

In response to the Paris Agreement, the European Parliament and the EU Council tasked the European Commission (EC) with developing a new long-term strategy in order to achieve GHG neutrality by 2050.  

In November 2018, the EC presented its strategy paper ‘A Clean Planet for All – A European Strategic, Long-Term Vision for a Prosperous, Modern, Competitive and Climate-Neutral Economy’ (European Commission 2018a). Among other things, the paper includes two scenarios for emission reduction paths, with the goal of achieving greenhouse gas neutrality by 2050. Energy comes mainly from renewable sources, but nuclear energy also contributes on average about 15% to the energy supply.

According to current estimates (see EEA 2018) the EU will meet its emission reduction target for 2020 (-20%), but will clearly miss its target for 2030 (-40%). In order to achieve the latter target – and, above all, GHG neutrality by 2050 - additional measures must be taken. The EU calculates that with a continuation of current policies, an emission reduction of merely 60% will be achieved by 2050 (European Commission 2018a). It identifies seven fields in which action must be taken: energy efficiency, (renewable) energies and electricity (including sector coupling), mobility, industry and environmental services, bio-economy and CO2 sinks, as well as CO2 capture and storage.

Goals versus possibilities

These fields of action are not surprising in themselves and largely uncontroversial; they correspond to 20 years of ongoing discussions. However, concrete measures are not included in the strategy paper, and only a few clues can be found as to how the gap to existing targets is planned to be closed - let alone how an even more ambitious goal is to be achieved.

The EU's approach is reminiscent of that of the Paris Climate agreement. In it, the widely accepted 2° target was tightened, stating the intention to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C” (UNFCCC 2015). In view of the development of the past few years, however, even the achievement of the 2° target seems hardly realistic. Nevertheless, the goal has been tightened, without underpinning it with appropriate measures.

A positive interpretation would be that the tightening of the target illustrates the urgency of rapid emission reductions. The tightening could also reflect the hope that at least a limitation to a temperature rise of 2° will be reached if the target is increased to 1.5°. But a negative interpretation can be found just as easily: It is easier to agree on new goals than to make efforts to reach existing goals. The analogy with the strategy paper is clear.

Although a certain signaling effect could certainly be attributed to the goal of a climate-neutral Europe, it is hardly foreseeable, despite the lack of binding force, that all member states will agree to such an ambitious strategy. But let's assume for a moment that the strategy will be adopted by the EU. Would this make the achievement of the global 1.5° (or even 2°) target more likely?

To answer this question, we naturally need to look at the development of global, not just European, emissions. The EU itself only accounts for just under 9% (BMU 2018) of global emissions, so its direct influence on the global climate is limited.

A long-term strategy of the EU, therefore, should explicitly aim to incentivize other regions of the world to increase their ambition level. On this topic, however, the strategy says almost nothing. It merely points out that the "EU will use its external action, trade policy and international cooperation to support global transformation to low-carbon sustainable development pathways".

The strategy does highlight the role of the EU as a pioneer and role model. Yet, it should be critically examined how effective such a role really is. As, for example, Sturm and Weimann (2008) point out, unilateral climate protection efforts create incentives for other regions to reduce their own efforts.

The strategy paper hardly addresses the issue of global climate policy, although the effectiveness of unilateral policies depends crucially on the international framework in which they are conducted. Without a corresponding increase on the global scale, additional mitigation efforts in the EU can be offset rapidly by emission increases elsewhere. Since an increase EU emission reduction from 80% to 100% corresponds to just under 2% of global emissions, the EU will hardly be able to reach the global climate goals on its own.

Neglecting the global perspective in the strategy paper would still be understandable if it concentrated on concrete measures that are enforceable within the EU. But the relative vagueness of the described measures means there would have been enough room in the strategy to pay more attention to the global level.

What are the opportunities within the EU to achieve a more ambitious climate target? The most important instrument the EU has in regulating member states is the European Emissions Trading Scheme (EU ETS). It regulates almost half of the GHG emissions in the EU by covering emissions from the electricity sector and a number of other energy-intensive industries. Traffic and large sectors of the supply of heat, for example, are not included (so-called non-EU ETS sectors). Moreover, the EU is relatively restricted in terms of new direct regulation through price signals, as the levying of EU-wide taxes must be unanimously adopted.

For the non-EU ETS sectors, the new regulation of the “Governance of the Energy Union and Climate Action” in 2018 (cf. European Commission 2018b) was admittedly an important step to strengthen long-term planning of emission reductions. Yet, the extent to which this new regulation will be complied with remains uncertain in view of the lack of sanctioning mechanisms.

In addition, emissions trading, like all other climate policies, has until now been geared towards achieving a 40% emission reduction by 2030. If the long-term targets were to be tightened, this target would have to be reviewed as well. Although individual Member States are already aiming for higher emission reduction by 2030, scaling this goal - and its implementation - to the European level seems currently not very realistic.

A framework for action

Regardless of whether the long-term strategy is adopted and implemented, it redirects the attention of both the EU and the public to an extremely important issue: to achieve the ambitious energy and climate targets in the long run, the foundations must be laid as soon as possible. If there is to be a realistic chance of realizing emission reductions of 80-100% by 2050, the basic framework must already be put into place today.

The basis for such a long-term framework is the general and comprehensive coverage of GHG-related damages in the prices of goods and services. It creates the necessary conditions for efficient climate protection contributions of the various fields of activity mentioned in the strategy paper.

Further measures that address individual fields should be used systematically only where markets failures arise beyond CO2 damages and where, for example, path dependencies (Acemoglu et al 2016) prevent or delay efficient decarbonization. This includes in particular, targeted and coordinated EU support in fields like research and infrastructure.

It is proving problematic that existing regulations that hamper transformation and reduce investment incentives are often not within the reach of the EU. This particularly concerns distortions through existing national taxes and duties. Explicit or implicit subsidization (e.g. through lack of coverage of local emissions and other environmental impacts) prevents effective climate protection at a national level. Here, the EU depends on the cooperation of its Member States.

With regard to the goal of establishing a comprehensive price system for GHG emissions at EU level, a distinction should be made between measures that have a realistic chance of implementation in the short term, and measures which appear implementable only in the medium term. For instance, reforming the EU ETS in order to integrate emissions that are so far not included does not seem to be achievable on short notice.

Nonetheless, integration of non-EU ETS emissions should remain the strategic policy focus as it provides the opportunity to not only directly control the emission reduction path, but also to relatively easily tighten emission targets. Existing long-term goals would be achieved quasi-automatically. If, in contrast, CO2-taxes were implemented nationally or even in strategic alliances of ‘willing’ member states and reduction targets were not met, discretionary adjustments of the CO2 price would become necessary. Predictably, this uncertainty would affect investment in clean technologies.

The idea of including other sectors, for example transport, in emissions trading is by no means new (Métivier et al. 2017). In the EU, however, it remains contested as to whether the integration of other sectors as part of an upstream approach complies with the definition of relevant emission sources in the Emissions Trading Directive (Tagesspiegel 2019). An adaptation of the corresponding definition might be required accordingly before such an integration were feasible.

Yet, with the most recent reform of the EU ETS just one year ago, further reform cannot realistically be expected for several years. In the meantime, we need a general CO2 price in non-EU ETS sectors, at least at national levels. Depending on the design of this pricing scheme, it might initially lead to only a limited increase of the burden on economy and population (if, for example, it is accompanied by a reform of existing tax and levy systems). In case a CO2 tax is introduced on a sub-EU level, the tax rate could be aligned to the expected CO2 price in the EU ETS, making not only a later integration into the EU ETS relatively simple but also keeping intersectoral distortions to a minimum.

At the international level, the EU should promote the introduction of a joint emissions trading system for – at least – the most important industrial nations (the G20 alone account for more than 80% of global CO2 emissions). In the long term, the inclusion of all countries in global emissions trading should be aimed at.

In order to increase the willingness of hesitant EU Member States to expand the EU ETS and tighten emission reduction targets, the EU could consider using transfer payments. Weissbart (2018) shows, for example, that the deployment of transfer payments can increase the size of coalitions supporting significant climate targets. Edenhofer et al (2017) emphasize that a redistribution of EU ETS revenue between richer and poorer member states will increase the efficiency of the emissions trading system.

An area whose future importance is highlighted by the EU's long-term strategy is negative emissions. Although the Intergovernmental Panel on Climate Change (IPCC) repeatedly stressed the need for negative emissions in order to achieve global greenhouse gas targets, this has only been partially reflected in the political discussions so far. The EU long-term strategy emphasizes that emissions that are difficult to avoid in the short or even long term need to be offset by negative emissions. This applies in particular to some industrial and transport applications as well as agriculture (see European Commission Commission 2018a, p.28, see Fig. 6).

Negative emissions can result from the creation of CO2 sinks (forests, soils, agricultural land, coastal areas and wetlands) or the use of carbon capture and storage technologies (CCS), especially based on biomass. Yet, due to the low acceptance of CCS technologies and the lack of awareness of the importance of negative emissions, there has hardly been any discussion about their use in recent years - especially in Germany. If the Paris climate targets are taken seriously, however, there will have to be extensive investment in research, development and demonstration projects in this field in the years to come.



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Karen Pittel: The Long-Term Climate Strategy of the European Union – a Reality Check, EconPol opinion 23, August 2019