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European Commission proposes 40% GHG emissions reduction by 2030


The European Commission (EC) has published a Communication setting out the EU’s policy framework for climate and energy for the period 2020-2030 that left environmentalists disappointed, but potentially enhances Europe’s demand for gas.

The EC determined that targeting greenhouse gas (GHG) emissions reduction would be the ‘least cost pathway’ to a low carbon economy, which in itself would drive a rise in the proportion of renewable energy consumption as well as energy savings. As such, the current framework’s 20/20/20 targets (20% reduction in GHG emissions, 20% share of renewable energy and 20% improvement in energy efficiency) are to be replaced in 2021 by a binding 40% GHG reduction target by 2030. There is also a looser, EU-level renewable energy target of ‘at least‘ 27%, which, in any case, the report claims should be encouraged by the GHG target.

Critics argue the GHG reduction target does not go far enough, describing the approach as ‘walk now; sprint later’, given the EU’s 80-95% GHG reduction goal by 2050. Furthermore, the renewable energy target disappointed in that it would only be binding at the EU-level and not at the Member States level, leaving it up to Member States to determine for themselves what to commit to and potentially rendering it difficult to enforce.

The Communication re-iterates the EU’s plans to improve the effectiveness of the EU Emissions Trading System by supporting the carbon price, which dropped below EUR 3/t in 2013 on concerns of over-supply, by postponing the auction on 900m emission allowances. The EC has also proposed the introduction of a ‘market stability reserve’ to automatically adjust supply of auctioned emission allowances, based on a set of pre-defined rules.

The EC considers the completion of a fully integrated, competitive energy electricity and gas market as pivotal in achieving its energy policy objectives in a cost-efficient manner. That could be positive for European demand for pipeline gas, given the cost-competitiveness of gas supplies compared to renewable energy and other potential sources of natural gas. The EC also calls for further development of energy transport infrastructure, including cross-border interconnectors as part of its goal to enhance the security of energy, which could also open up new markets for Russian gas which were previously inaccessible. Interestingly, the report clearly shows that rising electricity prices within Europe have mainly been driven by rising network costs, taxes and levies.

The European Parliament is expected to debate this Communication late into 2014 and to reach an agreement early in 2015. Paris will be hosting the 21st UN Conference on Climate Change in December 2015.  

Colin Smith, Marc Jacouris
VTB Capital analyst

gas, oil

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