EU Climate Change Policy
ALPS International Symposium
RITE, Kyoto, Japan

Prof Dr Jos Delbeke
EIB Climate Chair
European University Institute/(Florence, Italy)
KULeuven (Belgium)
08.03.2022

Europe’s International Climate Strategy• Today’s climate change is caused by Western industrialisation• Tomorrow’s will be related to the industrialisation of the emerging economies:• Accumulated emissions amount to 2/3 or even 3/4 of the 2°C limit• Multilateral Approach:• Paris Agreement includes policy action by ALL countries• Paris Agreement builds on UNFCCC (1992) and Kyoto Protocol (1997)• Europe as a laboratory for ‘low-carbon’ technologies and policies:• Climate responsibility• Economic opportunity

De-coupling economic growth from emissions
240

GDP

220
200

GDP and Net Emissions (1990=100)

180
160
140
120
100

80
60-55%

Greenhouse Gas
Emissions andRemovals

40
20
0-20
1990

1995

2000

Non-CO2 otherTertiary
PowerNet emissions

2005

2010

2015

2020

2025

Non-CO2 Agriculture
TransportCarbon Removal Technologies
GDP

2030

2035

2040

2045

ResidentialIndustry
Land use and forests

2050

EUI
3

EU Green Deal: Investment Challenge•€350bn additional annual investment in 2021-2030 (compared to 2011-2020)•Energy••••Transport••

Electrification of car fleet

Construction•••

Renewable: solar and wind
GridDigital, transport, construction (buildings)

Energy efficiency
Electrification of heating – heat pumps

Industry:•

Low-carbon innovation based on hydrogen, CCUS, bio-chemicals, …

4

EU Climate policy combines policy instruments• Market-based approach: flexible and cost-effective• ETS: putting a price on carbon (since 2005)• Disclosure of climate/sustainable information by private companies and banks• Mandatory standards/benchmarks: administratively more complex• Renewables• Energy efficiency• Fluorinated Gases• Car emissions• …
• Governance• Member State targets for non-ETS emissions: MRV (monitoring, reporting, verification)• National Energy and Climate Plans (including on Social Climate Fund)EU target 2030: 55% domestic emission reduction(based on 1990)“Non-ETS”

Emissions
Trading
System-61 %(based on 2005)
Including: Power/Energy Sector andIndustry, Aviation

limitedflexibility

ESR
-40 %
(based on 2005)

Including: roadtransport, buildings,
waste, agriculture
non-CO2

LULUCFlimitedflexibility"No-Debit"1. Carbon pricing: EU ETS• A price on carbon is key: W. Nordhaus (Nobel prize Winner Economics 2018)• Either through taxes or through carbon market (P or Q approach)• EU tried a tax approach, and then switched to carbon market• ETS (Emissions Trading System) in place since 2005
• Covers more than 10.000 installations, i.e. more than 40% of EU’s CO2 emissions• In power generation, manufacturing, and intra-EU aviation• Treats companies inside the EU in an identical manner through a ‘waterbed’ effect• Reduced emissions by 43% by 2021 compared to 2005
• without reduced economic activity (decoupling)• Importance of Revenues: almost 60% of allowances are auctioned• Today’s annual revenues: roughly €50bn• To finance innovation and social concerns

EU ETS: prices range €60-€90 per tonne CO2

EU ETS policy proposals• Carbon Price will remain significant• Cap being strengthened from 43% to 61% reduction by 2030 (based on 2005)• Carbon Border Adjustment Mechanism (CBAM) to prevent Carbon Leakage• Gradual phasing out of free allocation• Scope extension:• Maritime, international aviation (CORSIA)• Separate (adjacent) ETS system for heating and transport fuels:• Broadening the carbon price signal to the entire economy• Generating revenues for ‘Social Climate Fund’ i.a. to address fuel poverty• €72bn to be topped up by Member States to €144bn

EU CBAM Proposal by EU Commission• Mechanism• Importers surrender CBAM certificates, priced weekly on basis of EUAs (notional ETS)
• Based on actual emissions (and verified) – options for default values still available• No export rebates envisaged• Sectorial scope• 6 sectors initially – cement, steel, electricity, aluminium, fertilizers & some chemicals(nitric acid, ammonia, nitrates of potassium)• Includes simple goods (e.g. clinker) and more complex (e.g. pipes, tubes, rails)• Emissions scope• Only direct emissions (scope 1) covered• Emissions from electricity and heat (scope 2) may be considered in a future review (byend 2025)
10• Free allocation• Gradual reduction with CBAM implementation• 10-year transition from 100% in 2025 to 0% in 2035 in covered sectors• CBAM applies to emissions above the free allocation handed out – methodology to be
set out by EC• Policy crediting• Only explicit carbon pricing policies in the exporting country to be considered• Prices of these policies to be deducted from the CBAM charges• Timing• “Pilot” or “transitional” phase in the period 2023-2025 – mostly reporting (quarterly) anddata gathering, no payments to be collected• By end 2025 review by EC and possible proposals on extending scope (indirectemissions and other goods)• Full implementation of CBAM from 2026

11

2. Renewable energy: 40% by 2030
(final energy consumption)
45.0%

40%

40.0%

35.0%

32%

33%

2030 (REDII)

2030 (MS plans)

30.0%

25.0%

19.7%

20.0%

15.0%

14.4%

10.0%

5.0%

0.0%
2010

2019

2030 (Fit-for-55)

EU energy mix (hotly debated in context of Ukraine crisis)• By 2030:• Renewable energy (mostly solar and wind) increases spectacularly• Coal becomes marginal• Nuclear remains stable• Oil and natural gas remain significant• By 2050:• Oil and gas decline: imports decrease with 60-80% (compared to 2015)• Continued growth of renewables; breakthrough in energy storage anddigital technology facilitating decentralized production• Steady increase in energy efficiency and electricity use• In heating, industry, transport (EV’s)

3. EU Sustainable Finance• Taxonomy Regulation: which activities are ‘green’?

• Sustainable Finance Disclosure Regulation (SFDR): for all financial
companies• Corporate Social Reporting Directive (CSRD): applicable to all major
companies (50000)• Sustainability information that investors and other stakeholders need
• Follow-up to Non-Financial Reporting Directive (NFRD) since 2018

Conclusions
1. A market-based approach allows for a cost-efficient strategy• Carbon Pricing through ETS• Mandatory disclosure of sustainable and climate risks by companies•

Financial sector and Industrial corporations

2. The EU Green Deal is a massive investment program• Support by EU budget, NextGenEU, EU ETS revenues• Innovation and Modernisation Fund: deployment of low-carbon investment• Social and Just Transition Funds: dealing with energy poverty
3. Energy is key: less use of fossil fuels• Renewables, storage, dealing with increasing flexibility (digital)• Energy efficiency: accelerate renovation rate of existing buildings

Thanks and …. more to read
• Available in paperback by Routledge:• https://www.routledge.com/Towards-a-ClimateNeutral-Europe-Curbing-the-Trend/DelbekeVis/p/book/9789276082613• Free downloadable through open access:• https://www.taylorfrancis.com/books/towardsclimate-neutral-europe-jos-delbeke-petervis/e/10.4324/9789276082569?context=ubx&refId=5f0a85c0-4f7f-4e3e-9c32-8c9cb53c4deb