# EUR-Lex - 52014DC0015R(01) - EN

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# 52014DC0015R(01)

**COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS A policy framework for climate and energy in the period from 2020 to 2030 /* COM/2014/015 final/2 */**

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COMMUNICATION FROM THE COMMISSION TO
THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL
COMMITTEE AND THE COMMITTEE OF THE REGIONS

A policy framework for climate and energy
in the period from 2020 to 2030

1.            Introduction

Much has been achieved since the EU adopted
its first package of climate and energy measures in 2008. The EU is now well on
track to meet the 2020 targets for greenhouse gas emissions reduction and
renewable energy and significant improvements have been made in the intensity
of energy use thanks to more efficient buildings, products, industrial
processes and vehicles. These achievements are all the more significant given
that the European economy has grown by around 45% in real terms since 1990. The
20/20/20 targets for greenhouse gas emissions, renewable energy and energy
savings have played a key role in driving this progress and sustaining the
employment of more than 4.2 million people in various eco-industries[1], with continuous growth
during the crisis.

Box 1: Key achievements of the current energy and climate policy framework The Union has set itself three targets to be attained by 2020 for greenhouse gas emissions reductions (20%), the share of renewable energy (20%) and improvements in energy efficiency (20%). Current energy and climate policies are delivering substantial progress towards these 20/20/20 targets: · Greenhouse gas emissions in 2012 decreased by 18% relative to emissions in 1990 and are expected to reduce further to levels 24% and 32% lower than in 1990 by 2020 and 2030 respectively on the basis of current policies. · The share of renewable energy has increased to 13% in 2012 as a proportion of final energy consumed and is expected to rise further to 21% in 2020 and 24% in 2030. · The EU had installed about 44% of the world's renewable electricity (excluding hydro) at the end of 2012. · The energy intensity of the EU economy has reduced by 24% between 1995 and 2011 whilst the improvement by industry was about 30%. · The carbon intensity of the EU economy fell by 28% between 1995 and 2010.

Much has also changed since 2008. Most
obvious is the impact of the economic and financial crisis which has affected
Member States' capacity to invest. Fossil fuel prices remain high which
negatively affects the Union's trade balance and energy costs. In 2012, the
EU's oil and gas import bill amounted to more than €400 billion or
approximately 3.1% of the Union's GDP. There has been a decisive shift in the
centre of gravity of global energy demand towards emerging economics, notably
China and India.  At the same time, households and industrial users are
increasingly concerned by rising energy prices and price differentials with
many of the Union's trading partners most notably the USA. The internal energy
market has developed but new risks for fragmentation have emerged. The EU's
Emissions Trading System (ETS) is not driving investments in low-carbon
technologies sufficiently well, increasing the likelihood of new national
policies that undermine the level playing field the ETS was meant to create. While
renewable energy technologies have matured and costs have fallen substantially,
the rapid development of renewable energy sources now poses new challenges for
the energy system. Many energy using products are now more efficient and consumers
are benefitting from real energy and financial savings.

At the same time, there has been further
confirmation of the likely impact of human influence on climate change and of
the need for substantial and sustained reductions of greenhouse gas emissions to
limit further changes in the earth's climate[2].

It is now time, therefore, to reflect on these
developments and the policy framework we need for 2030. In line with
stakeholders' responses to the Green Paper[3],
there is a need to continue to drive progress towards a low-carbon economy which
ensures competitive and affordable energy for all consumers, creates new
opportunities for growth and jobs and provides greater security of energy
supplies and reduced import dependence for the Union as a whole. We need to
make an ambitious commitment to make further greenhouse gas emission reductions
in line with the cost-effective pathway described in the 2050 roadmaps[4], and to do so in time
for the upcoming negotiations on an international climate agreement. We need to
provide regulatory certainty as early as possible for investors in low-carbon technologies,
to spur research, development and innovation and up-scaling and
industrialisation of supply chains for new technologies. This must all be done in
a way which takes account of the prevailing economic and political realities
and builds on our experience of the current policy framework.

Against this background, the 2030 policy
framework should be based on full implementation of the 20/20/20 targets and the
following:

· 
An ambitious commitment to reduce greenhouse gas
emissions in line with the 2050 roadmaps. Delivery of this commitment should
follow a cost-efficient approach which responds to the challenges of
affordability, competitiveness, security of supply and sustainability, and
which takes account of current economic and political circumstances.

· 
Simplification of the European policy framework
while improving complementarity and coherence between objectives and
instruments.

· 
Within this EU framework, providing flexibility for
Member States to define a low-carbon transition appropriate to their specific
circumstances, preferred energy mix and needs in terms of energy security and allowing
them to keep costs to a minimum.

· 
Strengthening regional cooperation between
Member States to help them meet common energy and climate challenges more
cost-effectively while furthering market integration and preventing market
distortion.

· 
Building on the momentum behind the development
of renewables with a policy based on a more cost-efficient approach which
reinforces the European dimension and has further integration of the internal
energy market and undistorted competition at its core.

· 
A clear understanding of the factors that
determine energy costs so that policy is based on facts and evidence so that we
are clear what can be influenced through national and Union policy and what
cannot. Ensuring that the competitiveness of business and affordability of
energy for consumers are central in determining the objectives of the framework
and the instruments to implement it.

· 
Improving energy security, while delivering a
low-carbon and competitive energy system, through common action, integrated
markets, import diversification, sustainable development of indigenous energy
sources, investment in the necessary infrastructure, end-use energy savings and
supporting research and innovation.

· 
Enhancing investor certainty by providing clear
signals now on how the policy framework will change after 2020 and by ensuring
that substantial changes to existing objectives and instruments do not take
effect before this date.

· 
Fair sharing of efforts between Member States
which reflects their specific circumstances and capacities.

This Communication develops a framework for
future EU energy and climate policies and launches a process to arrive at a shared
understanding of how to take these policies forward in the future.

2.           Key elements of the
Framework

The Commission's Green Paper asked for views
on the most appropriate range and structure of climate and energy targets for
2030. There was a broad consensus among stakeholders that a new target for
greenhouse gas emissions reduction is desirable while views differed on the level
of ambition[5].
There were also mixed views on whether new targets for renewable energy and
energy efficiency were necessary to deliver further progress in the 2030 perspective.

The analysis in the impact assessment published
alongside this Framework assessed various GHG reduction targets (35%, 40%, and
45%). It confirmed the conclusions of the Energy Roadmap 2050[6], namely that the costs
of a low carbon transition do not differ substantially from the costs
that will be incurred in any event because of the need to renew an aging energy
system, rising fossil fuel prices and adherence to existing climate and energy
policies. Nonetheless, energy system costs are expected to rise over the period
to 2030 to a level of around 14% of GDP compared to about 12.8% in 2010. There
will, however, be a major shift away from expenditure on fuels towards
innovative equipment with high added value that will stimulate investments for
innovative products and services, create jobs and growth and improve the
Union's trade balance. A favourable economic framework and a targeted
industrial policy as outlined in the accompanying Communication for an
Industrial Renaissance[7]
should assist industry and businesses to exploit these opportunities.

Experience with the current 2020 framework
indicates that while European and national targets can drive strong action by
the Member States and growth in emerging industries they have not always
ensured market integration, cost-efficiency and undistorted competition. The
impact assessment indicates that a main target for greenhouse gas emissions
reduction represents the least cost pathway to a low carbon economy which of
itself should drive an increased share of renewable energy and energy savings
in the Union.

In the light of the evidence and the
experience of current policies, the Commission proposes a new reduction target
for domestic GHG emissions of 40% compared to 1990, to be shared between the
ETS and non-ETS sectors[8],
as the centre piece of the EU's energy and climate policy for 2030. The non-ETS
target would be allocated amongst Member States (see below).  It would be
accompanied by a coherent headline target at European level for renewable
energy of at least 27% with flexibility for Member States to set national
objectives. The question of how best to deliver the optimal energy savings in
2030 will be analysed in greater detail in a review of the Energy Efficiency Directive
to be concluded later in 2014.

The increased flexibility for Member States
will be combined with a strong European governance framework to deliver EU
objectives for renewable energy and energy savings in a manner that is
consistent with attainment of national and European greenhouse gas targets and
coherent with the wider principles of European energy policy, including the
operation and further integration of the internal energy market and the
delivery of a competitive, secure and sustainable energy system.

2.1        Greenhouse gas emissions
target

The Commission proposes to set a greenhouse
gas emission reduction target for domestic EU emissions of 40% in 2030 relative
to emissions in 1990. It is important to note that the policies and measures
implemented and envisaged by the Member States in relation to their current
obligations to reduce greenhouse gas emissions will continue to have effect
after 2020. If fully implemented and fully effective, these measures are
expected to deliver a 32% reduction relative to emissions in 1990. This will require
continued effort but at the same time shows that the proposed target for 2030
is achievable. Continuous appraisal will, however, be important to take account
of the international dimension and to ensure that the Union continues to follow
the least cost pathway to a low-carbon economy.

The EU level target must be shared between the
ETS and what the Member States must achieve collectively in the sectors outside
of the ETS. The ETS sector would have to deliver a reduction of 43% in GHG in
2030 and the non-ETS sector a reduction of 30% both compared to 2005. In order
to bring about the required emissions reduction in the ETS sector, the annual
factor by which the cap on the maximum permitted emissions within the ETS decreases
will have to be increased from 1.74% currently to 2.2% after 2020.

The collective effort for the non-ETS
sector must also be allocated among the individual Member States in an
appropriate and timely way. Currently, the attribution is made on the basis of
relative wealth using GDP per capita which results in a wide spread of
obligations ranging from a 20% reduction to a 20% increase in emissions. The
analysis underpinning the Commission's Impact Assessment provides the
cost-effective allocation of effort between Member States.  It confirms that
costs and investments would be relatively higher in lower income Member States
whilst minimising costs for the Union as whole. This reflects their relatively
higher carbon intensity, lower energy efficiency as well as smaller capacity to
invest. For example, the analysis indicates that countries with a GDP below 90%
of the EU average would need to make investments in the period 2021-2030, at
levels estimated to be some €3 billion per annum higher than the EU average
increase in the period 2021-2030.

The Commission considers, therefore, that
in implementing a 2030 framework, each Member State's GHG reduction target
should continue to take into account these distributional factors while
ensuring the integrity of the internal market, for example, in relation to
energy efficiency and energy using products. Given the importance of future
investments, solutions that contribute to improved finance will also be
required (see below).

The Commission sees no merit in proposing a
higher "conditional target" ahead of the international negotiations.
Should the outcome of the negotiations warrant a more ambitious target for the
Union, this additional effort could be balanced by allowing access to
international credits.

2.2         A Renewable energy target
at EU level

Renewable energy must continue to play a
fundamental role in the transition towards a more competitive, secure and
sustainable energy system. This transition will not be possible without
significantly higher shares of renewable energy. To the extent that renewables
are generated within the EU, they can also reduce the EU's trade deficit in
energy commodities, its exposure to supply disruption and to volatile prices of
fossil fuels. They also have the potential to drive growth in innovative
technologies, create jobs in emerging sectors and reduce air pollution.

The rapid deployment of renewable energy
already poses challenges for the electricity system in particular, which needs
to adapt to increasingly decentralised and variable production (solar and
wind). Moreover, most renewables development in the EU is driven by national
support schemes, which on the one hand can address national and regional
specificities but at the same time can hinder market integration and reduce
cost-efficiency. The rapid deployment of renewable energy sources also affects
the competitiveness of other energy sources that will continue to be
fundamental for the EU's energy system and reduces investment incentives for
generation capacity that will be needed for the transition towards a more
competitive, secure and sustainable energy system (e.g. as backup to variable
renewable energy).

In the future, the benefits of renewable
energy must be exploited in a way which is to the greatest extent possible
market driven. The functioning of the ETS and the contribution to GHG
reductions from renewables are closely interlinked and complementary. A
greenhouse gas reduction target of 40% should by itself encourage a greater
share of renewable energy in the EU of at least 27%. The Commission proposes,
therefore, that this should be the EU's target for the share of renewable
energy consumed in the EU. While binding on the EU, it would not be binding on
the Member States individually but would be fulfilled through clear commitments
decided by the Member States themselves which should be guided by the need to
deliver collectively the EU-level target and build upon what each Member State
should deliver in relation to their current targets for 2020. These new commitments
for 2030 will be reviewed as part of the governance process described in
section 3 and, if necessary, they would be complemented by further EU action
and instruments to ensure delivery of the EU target.

This EU level target will drive continued
investment in renewable energy meaning, for example, that the share of
renewable energy in the electricity sector would increase from 21% today to at
least 45% in 2030. Unlike in the current framework, the EU target would not be
translated into national targets via EU legislation, thus leaving greater flexibility
for Member States to meet their greenhouse gas reduction targets in the most
cost-effective manner in accordance with their specific circumstances, energy
mixes and capacities to produce renewable energy.

The Commission does not think it
appropriate to establish new targets for renewable energy or the greenhouse gas
intensity of fuels used in the transport sector or any other sub-sector after
2020. The assessment of how to minimise indirect land-use change emissions made
clear that first generation biofuels have a limited role in decarbonising the
transport sector. The Commission has already indicated, for example, that
food-based biofuels should not receive public support after 2020[9]. A range of alternative
renewable fuels and a mix of targeted policy measures building on the Transport
White Paper are needed to address the challenges of the transport sector in a
2030 perspective and beyond. The focus of policy development should be on improving
the efficiency of the transport system, further development and deployment of
electric vehicles, second and third generation biofuels and other alternative,
sustainable fuels as part of a more holistic and integrated approach. This is
in line with the alternative fuels strategy[10]
and should be considered in future reviews and revisions of the relevant
legislation for the period after 2020.

Increased flexibility for Member States
must be combined with an increased emphasis on the need to complete the
internal market in energy. Different national support schemes need to be
rationalised to become more coherent with the internal market, more
cost-effective and provide greater legal certainty for investors. Attainment of
the European target for renewables would be ensured by a new governance
framework based on national plans for competitive, secure and sustainable
energy prepared by the Member States as described later. Some Member States
have already established ambitious objectives for renewables for 2030 and
beyond that will deliver substantial progress towards the EU target. Each
Member State would make clear its commitment towards renewable energy, indicating
how this would be delivered taking into account the need to comply with
competition and State aid rules to avoid market distortions and ensure
cost-effectiveness as described in section 2.5 below.

At the same time, the EU and Member States
will need to develop further their policy frameworks to facilitate the transformation
of energy infrastructure with more cross-border interconnections, storage
potential and smart grids to manage demand to ensure a secure energy supply in
a system with higher shares of variable renewable energy.

This approach means that the Directive on renewable
energy sources will need to be substantially revised for the period after 2020
to give the EU the means of ensuring that the 2030 EU level target is met. An
improved biomass policy will also be necessary to maximise the resource
efficient use of biomass in order to deliver robust and verifiable greenhouse
gas savings and to allow for fair competition between the various uses of biomass
resources in the construction sector, paper and pulp industries and biochemical
and energy production. This should also encompass the sustainable use of land,
the sustainable management of forests in line with the EU's forest strategy[11] and address indirect
land use effects as with biofuels.

2.3         Energy efficiency

Improved energy efficiency makes an
essential contribution to all of the major objectives of EU climate and energy
policies: improved competitiveness; security of supply; sustainability; and the
transition to a low carbon economy. There is broad political consensus about
its importance. The EU target for energy efficiency is not binding and progress
is being delivered by specific policy measures at Union and national levels
including for domestic and industrial appliances, vehicles, and for the
building stock. The Energy Efficiency Directive takes a more holistic approach
to energy savings in the EU. While the transposition deadline is not until June
2014 (and not all Member States have yet implemented it) an assessment was
requested by the Council and European Parliament by mid-2014. This assessment
will look at the progress made towards reaching the 2020 target. Currently, a
shortfall against the 20% target is predicted.  Once the review has been
carried out, the Commission will consider whether it is necessary to propose
amendments to the Energy Efficiency Directive.

While this review will be necessary to
establish the exact ambition of future energy savings policy and the measures
necessary to deliver it, it will build on the analysis underpinning this
Communication and the targets and objectives for greenhouse gas reductions and
renewable energy. Energy savings should complement the deployment of renewable
energy by the Member States as part of their plans to deliver greenhouse gas
savings which should also identify national measures to improve energy efficiency.
The Commission's analysis shows that a greenhouse gas emissions reduction
target of 40% would require an increased level of energy savings of
approximately 25% in 2030.

In some sectors, such as industry and passenger
vehicles, the improvements observed in recent years will have to continue;
while in sectors such as housing, other transport modes, and electrical
equipment there will be a need for a significant acceleration of current efforts
to tap the significant unexploited potential. This will require large
investments in the building sector (that lead to lower running costs),
framework conditions and information that encourage consumers to take up
innovative products and services and appropriate financial instruments to
ensure that all energy consumers benefit from the resulting changes.

The EU needs to continue to complement
national efforts with ambitious EU-wide energy efficiency standards for
appliances, equipment, buildings and CO2 standards for vehicles.
Making use of the economies of scale of the internal market, this can benefit EU
manufacturers and help them to maintain technological leadership.

The review will also consider whether
energy intensity improvements of the economy and economic sectors, or absolute energy
savings or a hybrid of the two represents a better benchmark upon which to
frame a 2030 objective.

2.4         Reform of the Emissions
Trading System

In 2012, the Commission published a report
on the functioning of the carbon market along with several options to address
the accumulated surplus of allowances. This surplus has arisen because of the
downturn in economic activity during the crisis, the ready access to
international credits and, to a lesser extent, the interaction with other
climate and energy policies. In 2012, the Commission also presented a proposal
to empower the Commission to postpone auctioning of 900 million emission
allowances until 2019/2020. The European Parliament and the Council agreed on this
proposal in December 2013.

While this is a significant step forward,
the structural surplus will remain well into the trading period after 2020 (phase
4) in the absence of further measures to reform the ETS, and this is expected
to continue to erode its role as a technology neutral, cost-effective and
EU-wide driver for low-carbon investment. In their responses to the
Commission's Green Paper, there was a broad consensus among stakeholders that
the ETS should remain the central instrument to bring about the transition to a
low carbon economy.  For the ETS to be effective in promoting low-carbon
investments at the least cost for society an early decision is needed to
restore the ETS as a more robust instrument. The Commission is of the view that
the best way to achieve this is to establish a market stability reserve at the
start of phase 4 trading in 2021. A proposal for legislation is presented in
parallel to this Communication[12].
The market stability reserve would provide an automatic adjustment of the supply
of auctioned allowances downwards or upwards based on a pre-defined set of rules
and would improve resilience to market shocks and enhance market stability. There
would be no element of discretionary supply management. The reserve would also
provide a flexible tool to increase supply of allowances in case of sudden,
temporary increases in demand thereby mitigating impacts on industry and
sectors at risk of carbon leakage.

As the stability reserve would only start
operating in 2021, specific provisions are necessary to tackle a potential
supply peak that could result in 2020 from the return of back-loaded allowances
late in the third trading period as well as other effects related to the
transition between trading periods.

2.5         Ensuring competition in
integrated markets

The completion of the internal energy
market for both electricity and gas remains an immediate priority for the
Commission. A competitive and integrated internal energy market provides the
necessary environment and cost signals for the achievement of energy policy objectives
in a cost-efficient manner.

The Commission has recently adopted
guidance on public intervention in electricity markets in order to minimise
distortive impacts[13].
State aid guidelines for energy and environment also have to evolve to promote
more market oriented approaches that reflect the evolving cost structure of
energy technologies and increasing cost competitiveness in the internal market.
As such, subsidies for mature energy technologies, including those for
renewable energy, should be phased out entirely in the 2020-2030 timeframe.
Subsidies for new and immature technologies with significant potential to
contribute cost-effectively to renewable energy volumes would still be allowed.
The Commission is currently consulting on a revision to the state aid
guidelines for environment and energy for the period up to 2020[14].

The internal energy market has helped keep
the wholesale price of energy in check (particularly electricity) during last
five years compared to the increased underlying costs of fossil fuels.
Increasing amounts of electricity generated from wind and solar have also exerted
downward pressure on wholesale prices particularly in regions with high shares
of these renewable energy sources while also contributing to higher prices in
the retail market as the costs of support schemes are passed on to consumers.
Moreover, the retail segment is still characterised by high levels of market
concentration and price regulation in most Member States, effectively limiting
competition and consumer choice. Distribution of gas and electricity is also a
natural monopoly and concessions must be awarded in a non-discriminatory and
competitive way.

High levels of competition in the internal
energy market will be pivotal to deliver progress towards all objectives of the
Union's energy policy in the 2030 timeframe. It will provide the key tools to contain
energy prices for business and households. A fully integrated and competitive
energy market could result in cost savings of between €40-70 billion up to 2030
as compared to today. For consumers to take full benefit of deregulated energy
markets, the retail markets for both electricity and gas must become more
dynamic and competitive. Consumers must be in control of consumption data and
be free to select energy service providers or to produce their own sustainable
energy. The Commission will continue to monitor the concentration on
electricity and gas retail and wholesale markets and ensure effective antitrust
and merger control.

Box 2: Changes in EU weighted average retail electricity prices for households and industrial consumers in the period 2008-2012. Gas and electricity prices (including taxes and charges) for industrial consumers have increased by 3.3% and 15% respectively during the period 2008 to 2012 whilst those for households have increased by 13.6% and 18%.

Source: Eurostat. Includes taxes in the case of households; excludes VAT and other recoverable taxes in the case of industry, other industry exemptions are not included (not available). Taxes and levies represent about 30% of final electricity prices for households (up from 26% in 2008) and about 18% for industrial consumers. The taxes and levies component of industry's electricity costs increased by 127% over the period expressed as an EU weighted average. (Whilst consistent national data is unavailable, several Member States provide significant exemptions from taxes and levies). Underlying energy costs remained relatively stable at about half of the overall electricity bill for households and industrial users while underlying network costs comprise the remaining part of the electricity bill. There is substantial divergence across the Member States for each of the various components of electricity costs which present a challenge for the energy internal market. For example, in 2012 the contribution of taxes and levies to household electricity prices spanned the range 5% to 56%.

2.6      Competitive and affordable energy for all consumers

Energy is important for the competitiveness
of Member State economies as it affects production costs of industries and
services and the purchasing power of households. In recent years the energy
price gap between the EU and many major economic partners has increased. The
availability of shale gas in the USA has substantially lowered natural gas
prices there as well as electricity generated from natural gas. Price
differentials with countries such as China and Korea are not increasing but
comparative disadvantages still exist. Such energy price disparities may reduce
production and investment levels and shift global trade patterns unless
compensated by improvements in energy efficiency.

This risk is particularly high for
industries that have a high share of energy costs and which are exposed to
international competition. At the same time, manufacturing in the EU exhibits a
low operational energy cost relative to both output and value added. This is
mainly due to the low energy intensity of industrial production and to the focus
on products with higher added value. Manufacturing industries have responded to
energy price increases through sustained energy intensity improvements and
thereby maintained a relatively favourable position. Since 2005, however,
restructuring towards sectors with lower energy costs has occurred. In respect
of the relative position of the USA and the EU, whilst the US has improved its
energy trade balance there is as yet no major shift in the EU-US trade balance
in goods or significant changes in the overall structure of manufacturing
industries.  This should not be taken to mean that effects might not appear due
to a widening gap in energy prices particularly as improvements in energy
efficiency may slow down.

The analyses of energy prices and costs (which
are published alongside this Communication)[15]
show that there has been little impact on the EU's relative competitiveness which
could be directly attributed to higher energy prices and the carbon price under
the ETS, due to improvements in energy efficiency. However, this varies from
sector to sector and indirect effects such as rises in electricity costs have
had an impact on intensive users of electricity such as aluminum producers. Current
policies to prevent carbon leakage, such as the allocation of free allowances
in the ETS, have also been successful. All future scenarios suggest there will
be upward pressure on energy costs in the EU, not least because of the need to
replace aging infrastructure, upward trends in fossil fuel prices,
implementation of existing climate and energy policies and any impacts from a
higher carbon price.

It is prudent, therefore, to maintain the
existing policy framework for those industrial sectors most at risk of carbon
leakage until the end of trading in phase 3.  Therefore, the Commission intends
to present a draft decision on the review of the carbon leakage list to the
appropriate Regulatory Committee which would maintain the current criteria and
existing assumptions. This would guarantee continuity in the composition of the
list.  As long as there are no comparable efforts undertaken in other major
economies, similar policies (including an improved system of free allocation of
allowances with a better focus) will also be needed after 2020 in order to
ensure the competitiveness of Europe's energy-intensive industries. The
Commission will continue to monitor the application  of the existing carbon
leakage rules and other relevant measures to implement this Framework to take
account of the general economic situation and the progress achieved in the international
climate negotiations.

2.7         Promoting security of energy
supply

Security of energy supply means ensuring
continuous and adequate supplies of energy from all sources to all users. For
fossil fuels, the International Energy Agency projects an increasing EU
reliance on imported oil from around 80% today to more than 90% by 2035.
Similarly, gas import dependency is expected to rise from 60% to more than 80%.
Rising demand for energy at global scale and insufficient competition in EU energy
markets has sustained high commodity prices. In 2012, Europe's oil and gas
import bill amounted to more than €400 billion representing some 3.1 % of EU
GDP compared to around €180 billion on average in the period 1990-2011. This
increases the EU's vulnerability to supply and energy price shocks.

Policies to improve the Union's security of
supply must follow a three-pronged approach. First, declining EU oil and gas
production makes further exploitation of sustainable indigenous energy sources
a necessity. Contributions may come from renewable energy sources, domestic
reserves of conventional and unconventional fossil fuels (primarily natural
gas) and nuclear according to Member State preferences over their energy mix
and within the framework of an integrated market with undistorted competition. Where
indigenous sources are exploited, this should respect the framework of existing
Union legislation and international commitments such as that adopted by the G20
for the phase out of fossil fuel subsidies. The Commission has set out a
framework accompanying this Communication for the safe and environmentally
secure exploitation of shale gas[16].

Second, Member States must act collectively
to diversify their supply countries and routes for imported fossil fuels.
Competition on energy markets must also be enhanced through greater liberalization,
completion of the internal energy market including the development of energy
transport infrastructure including cross-border interconnectors that may be more efficient in ensuring security of supply than
support for domestic generation capacity. The agreed
projects of common interest under the Energy Infrastructure Regulation should
result in most Member States meeting the 10% level of interconnectors agreed in
2002 as a share of installed production capacity.

Third, greater efforts are required to improve
the energy intensity of the economy cost-effectively and to generate energy
savings from the improved energy performance of buildings, products and
processes. The review of energy savings policies in 2014 will provide more
clarity on future actions and objectives in this area.

3.           European governance for
the 2030 framework

3.1         National plans for
competitive, secure and sustainable energy

While Member States need flexibility to
choose policies that are best-matched to their national energy mix and preferences,
this flexibility must be compatible with further market integration, increased
competition and the attainment of Union-level climate and energy objectives.

The Commission considers that there is a
need to simplify and streamline the current separate processes for reporting on
renewable energy, energy efficiency and greenhouse gas reduction for the period
after 2020, and to have a consolidated governance process with Member States.
Meeting the relevant targets would be met by a mix of Union measures and
national measures described in Member States' national plans for competitive,
secure and sustainable energy which would:

– 
Ensure that EU policy objectives for climate and
energy are delivered

– 
Provide greater coherence of Member States'
approaches

– 
Promote further market integration and
competition

– 
Provide certainty to investors for the period
after 2020.

These plans should set out a clear approach
to achieve domestic objectives regarding greenhouse gas emissions in the
non-ETS sector, renewable energy, energy savings, energy security, research and
innovation and other important choices such as nuclear energy, shale gas, carbon
capture and storage. The explicit aim should be to create more investor
certainty and greater transparency; to enhance coherence, EU coordination and
surveillance, including assessment of such plans against Union level climate
and energy objectives, and progress towards the objectives of the internal energy
market and state aid guidelines. There would need to be a clear governance structure
with an iterative process led by the Commission to assess the Member States'
plans regarding these common issues and to make recommendations as appropriate.

Three steps can be envisaged to implement
this process.

Step 1:
Detailed guidance would be developed by the Commission on the operation of the
new governance process and the content of national plans in particular.

It will be important to define the scope
and objectives of the plans and the framework conditions within which they
should operate. The content should cover important aspects for a competitive,
secure and sustainable energy system and demonstrate their contribution to the
delivery of EU-level objectives for climate and energy. In particular, the
plans would describe how a Member State intends to deliver the necessary
reductions in greenhouse gas emissions as well as indicating the amount of
renewable energy and energy savings the Member State intends to attain in 2030
taking into account existing Union legislation and policies. In addition, the
plans should describe policies affecting the national energy mix such as new
nuclear capacity, deployment of carbon capture and storage, switch to less
carbon-intensive fuels, development of indigenous energy supplies,
infrastructure plans such as new interconnectors, national taxation and support
schemes which have a direct or indirect effect and the roll out of smart grids
etc.

Step 2:
Preparation of Member State plans through an iterative process.

Consultation with neighbouring countries should
be a key element in the preparation of the plans. Regional approaches (based
around regional electricity groups for example) should be promoted as they will
contribute to further market integration from joint decisions on renewables
deployment, balancing markets, generation adequacy and construction of
interconnectors. Cooperation between Member States will also improve the
cost-effectiveness of investments and enhance grid stability.

Step 3:
Assessment of the Member States' plans and commitments.

In a third step, the Commission would
undertake a review of the national plans to assess if the individual Member
State actions and pledges are sufficient to deliver the Union's climate and
energy targets and objectives. If the plan is deemed insufficient, a deeper
iterative process would take place with the Member States concerned with the
aim of reinforcing its content.

In general, the Commission considers that
national plans should be operational well before 2020 in order to guide Member
State actions in good time for the 2020-2030 period and to encourage
investments. Updating of national plans should also be envisaged at least once
in the period up to 2030 to take account of changing circumstances but taking
account of investors' legitimate expectations.

While there will be clear links and
complementarities between this governance process and the national policies
reported under the European Semester, the Commission believes that the two
processes, while complementary, should be managed separately given the
different and specific character of the energy and climate fields and the
different periodicity of the two processes. The governance structure may need
to be set in legislation at a later date if the envisaged cooperative approach
is not effective.  The Commission will develop its proposals for such a
governance structure taking into account the views of the European parliament,
Member States and stakeholders.

3.2         Indicators and objectives
for competitive, secure and sustainable energy

While higher shares of renewables and a
more efficient energy system will contribute to both competitiveness and
security of energy supply (in addition to the positive impact on GHG and
pollutant emissions), they are not in themselves enough to ensure sufficient
progress towards all aspects of these objectives in a 2030 perspective.
Systematic monitoring with key indicators is needed to assess progress over
time and to inform any future policy intervention. These indicators would include:

· 
Energy price differentials between the EU and
major trading partners, building on the report on energy prices and costs.

· 
Diversification of energy imports and the share
of indigenous energy sources used in energy consumption over the period up to
2030 should also be monitored.

· 
Deployment of smart grids and interconnections
between Member States, with particular urgency between those that are furthest away
from meeting the already agreed objective for Member States to ensure a
level of electricity interconnections equivalent to or beyond 10% of their
installed production capacity.

· 
Intra-EU coupling of energy markets, building on
the liberalisation of gas and electricity markets achieved already by EU
legislation.

· 
Competition and market concentration on energy
markets at the national level and in regions with functioning coupling at the
wholesale level.

· 
Technological innovation (R&D expenditure,
EU patents, competitive situation on technologies compared to third countries).

The Commission will come forward with
periodic reporting and, where appropriate, accompanying measures, on these
indicators.

4.           Key complementary policies

4.1         Transport

The Transport White Paper[17] established a goal to
reduce the greenhouse gas emissions from the transport sector by 60% by 2050 compared
to 1990 and by around 20% by 2030 compared to emissions in 2008. Greenhouse gas
emissions increased by 33% during the period 1990 to 2007 but have since fallen
on the back of high oil prices, increased efficiency of passenger cars and
slower growth in mobility. This trend is expected to continue up until 2020 but
greater efforts will be needed after 2020 to reach the White Paper's targets.

Further reduction of emissions from
transport will require a gradual transformation of the entire transport system
towards a better integration between modes, greater exploitation of the
non-road alternatives, improved management of traffic flows through intelligent
transport systems, and extensive innovation in and deployment of new propulsion
and navigation technologies and alternative fuels. This will need to be supported
by a modern and coherent infrastructure design and smarter pricing of
infrastructure usage. Member States should also consider how fuel and vehicle taxation
can be used to support greenhouse gas reductions in the transport sector in line
with the Commission's proposal on the taxation of energy products[18].

Internationally, the EU should participate
actively within the International Civil Aviation Organisation with the aim of
creating by 2016, a global market-based-mechanism in the aviation sector that
will operate from 2020. On maritime emissions, the Commission will implement
its strategy to integrate the sector in the EU’s greenhouse gas reduction
policies[19],
and work with International Maritime Organisation on a global approach to achieve
the necessary emissions reductions through the most appropriate measures.

4.2         Agriculture and land use

The agriculture,
land use change and forestry sectors serve multiple objectives such as the
production of food, feed, raw materials and energy, raising environmental
quality and contributing to climate mitigation and adaptation. The combined
sectors both
emit and remove greenhouse gases from the atmosphere. For example, emissions
are associated with livestock production and fertilizer use while grassland
management or agro-forestry measures can remove CO2 from the
atmosphere.

Currently these
emissions and removals are treated in different parts of the EU's climate
policy. Non-CO2 emissions from agriculture are treated in the Effort
Sharing Decision while CO2 emissions and removals related to land-use
and forestry are excluded from the EU's domestic reduction target but are
accounted for under international commitments. To ensure that all sectors
contribute in a cost-effective way to the mitigation efforts, agriculture,
land-use, land-use change and forestry should be included in the GHG reduction
target for 2030. Further analysis will be undertaken with the aim of assessing
the mitigation potential and most appropriate policy approach which could, for
example, use a future Effort Sharing Decision governing the non-ETS GHG
emissions or an explicit separate pillar, or a combination of both.  Accompanying
policy measures should also build on the experiences from "greening"
under the Common Agricultural Policy and ensure coherence with other Union
policies.

4.3         Carbon Capture and Storage
(CCS)

Greenhouse gas emissions from the EU's
energy and carbon-intensive industries must come down significantly to be
compatible with the EU's long term GHG objective. As theoretical limits of
efficiency are being reached and process-related emissions are unavoidable in
some sectors, CCS may be the only option available to reduce direct emission
from industrial processes at the large scale needed in the longer term.
Increased R&D efforts and commercial demonstration of CCS are, therefore,
essential over the next decade so that it can be deployed in the 2030 timeframe.
 A supportive EU framework will be necessary through continued and strengthened
use of auctioning revenues.

In the power sector, CCS could be a key technology
for fossil fuel-based generation that can provide both base-load and balancing
capacity in an electricity system with increasing shares of variable renewable
energy. Member States with fossil reserves and/or high shares of fossil-fuels
in their energy mix should support CCS through the pre-commercialisation stage
in order to bring down costs and enable commercial deployment by the middle of
the next decade. This must include the development of an adequate CO2
storage and transport infrastructure that could benefit from EU funding such as
the Connecting Europe Facility and any potential successor.

4.4         Innovation and finance

Under the 2020 Framework, the Strategic
Energy Technology Plan (SET Plan) has increased R&D investments across the
Union from €3.2 to €5.4 billion per year and is progressing towards a single,
integrated roadmap to guide future investments. For the 2014-2020 period, the
Union is ramping up investment in energy and climate related research and
development and under Horizon 2020, the new Union research and innovation
programme, close to €6 billion will be dedicated to energy efficiency and to secure,
clean and low carbon technologies  and to smart cities and communities. Increased
funds will also be available for financial instruments, public private
partnerships and SME projects.

Nonetheless, the
EU will have to step up its efforts on research and innovation policy to
support the post-2020 climate and energy framework. Building on the progress
under the current SET-Plan, reflections should already start on how best to do
this and what the priorities ought to be. A particular emphasis should be on
accelerating cost reductions and market uptake of low carbon technologies
(renewables, energy efficiency, and low carbon industrial processes across a
range of sectors). This should focus on scaling up investments in large scale
demonstrators, stimulating the demand for innovative technologies, and ensuring
appropriate regulatory frameworks across the single market. Evidence shows that
cost reductions of between 30 and 80% are expected as new energy technologies
mature.

These
activities could involve the use of revenues generated through the ETS to
finance low-carbon demonstration projects covering, for example, renewables and
energy efficiency, and leveraging greater private investment via the European Investment
Bank. Low Carbon Roadmaps elaborated by industrial sectors showed a clear need
for the development and large scale demonstration of innovative low carbon industrial
processes, as well as new high added value low carbon products. In line with
the Union's innovation and industrial policies, the concept of an expanded
NER300 system will, therefore, be explored as a means of directing revenues
from the ETS towards the demonstration of innovative low carbon technologies in
the industry and power generation sectors. A share of auctioning revenues could
also be used to incentivise further GHG mitigation measures, for instance
leveraging convergence and consistency of national incentive schemes for
renewables, or for extending interconnections and deploying smart grids,
focussing on those Member States which have less capacity to invest.

It is clear that there are considerable
opportunities for Member States under the newly agreed Union programmes to
promote renewable energy and for improving minimum levels of energy efficiency.
EU funding during the period 2014–2020 is available under the European
Structural and Investment Funds, where a minimum of EUR 23 billion has been
ring-fenced for the "Shift to low-carbon economy" Thematic Objective.
This represents a significant increase in EU support for mass-deployment of
renewables, energy efficiency, low-carbon urban transport and smart grids
solutions in the EU. A much stronger focus should be given to the structuring
and deployment of new (or recapitalisation of existing) financial instruments,
which will foster investor confidence so that public finance can be used to leverage
private capital more effectively.

Reflections need to start, however, on the instruments
that will be necessary for the period after 2020 to tackle climate and energy
related issues including the differing cost implications for the Member States
described in section 2.1. It will be also be important to develop financial
engineering and facilitate access to finance for SMEs. Such instruments should also
empower regional and local authorities to invest and exploit low-carbon
opportunities as is the case currently with the Union's smart cities initiative
which will support cities and regions in taking ambitious and pioneering
measures towards a 40% reduction of greenhouse gas emissions in 2020 through
sustainable use and production of energy[20].

5.           International context

The new 2030 framework must take account of
the current international situation and expected developments. The energy
landscape is undergoing far-reaching changes. It is clear that in the period
until 2030 energy demand will increase globally, in particular in Asia, with
expected strong rise in hydrocarbons imports in countries
such as China and India. Increasing energy demand is expected to be partly met
by the development of new resources made possible by technological advances
(deep offshore, enhanced recovery techniques, unconventional resources) and the
related geographical diversification of production and trade routes (notably
for Liquefied Natural Gas). Energy trade flows and
energy prices are deeply affected by these developments and will have
consequences for the EU due to its high import dependency. At the same time,
globalisation of energy flows and the increased variety of international actors
is creating momentum to develop a new approach to rule-based energy governance
worldwide.

Efforts by the Union's international
partners to reduce greenhouse gas emissions are mixed. The "bottom
up" nature of the Copenhagen-Cancun pledging process was a significant,
although inadequate, step forward towards a more inclusive regime,  which saw
China, India, Brazil, the USA, the EU and more than 100 countries (representing
more than 80% of global emissions) commit themselves collectively to specific
climate policies. In general, however, climate action has been fragmented and
customised to specific economic conditions. Thirty-eight developed countries,
including the EU, Member States and Iceland, have taken on legally-binding
emission commitments for a second period under the Kyoto Protocol amounting to
an average reduction of at least 18% below 1990 levels. While this is one more
than under the first commitment period, Japan, New Zealand and the Russian
Federation have not made new commitments.

Box 3: International progress in reducing emissions of greenhouse gases. In 2012, global emissions of carbon dioxide increased by 1.1% albeit at a rate that was lower than the annual average increase of 2.9% over the last decade. The largest emitters of CO2 are now China (29% of global emissions), the United States (16%), the EU (11%), India (6%), the Russian Federation (5%) and Japan (3.8%). Since 1990, CO2 emissions in China have grown strongly by around 290% and by about 70% since 2005. Emissions per capita are now roughly on a par with those of the EU at approximately 7 tonnes. In 2012, US emissions of CO2 decreased by 4% and have fallen by over 12% since 2005.  Emissions per capita are, however, much higher at 16.4 tonnes in 2012. The significant fall in emissions is due largely to the exploitation of domestic shale gas which has displaced coal in the power generation sector. Emissions in India grew 6.8% in 2012, 53% from 2005 to 2012 and by 200% since 1990 although per capita emissions are still much smaller than in the EU at less than 2 tonnes.  Japan's emissions remain unchanged over the period 2005 to 2012 but have increased since 1990 and are on an upward trend. Japan has recently scaled back significantly its plans to reduce greenhouse gases by 2020 in the context of an energy policy review following the Fukishima nuclear accident. So too have Australia and Canada.

China is now, together with the EU, the
largest investor in renewable energy and has launched a series of regional
emission trading systems covering major economic regions with a view to develop
a national system, with local air pollution and energy security a primary
concern. The US has seen GHG emissions reduce in line with its target to reduce
by 17% by 2020 compared to 2005, driven not only by a switch from coal to gas
but also strengthened CO2 standards for cars, increased renewables
deployment and an active private sector heavily investing in new technologies
and innovation. Brazil has made progress in halting large-scale deforestation.
Whereas the EU is at present a global leader for low carbon technologies, other
major and fast growing economies have singled out a strategic interest to
compete in these new markets. Renewed climate and
energy ambition will allow Europe to maintain its first-mover advantage in
these rapidly growing global markets.

Overall, there remains a significant
ambition gap between planned mitigation actions and what is necessary to limit
global temperature rise to below 2°C[21].
For this reason, the UNFCCC Parties launched in 2011 a process aimed at
concluding a new international agreement in Paris in December 2015 that would
be applicable to all Parties and cover the period after 2020. Parties should be ready to come forward with their contributions by
the first quarter of 2015 to allow for proper time for discussion and
assessment against the agreed goal to limit the global
temperature increase to below 2°C. The Union should
be ready to play its part and take further ambitious action to reduce its
greenhouse gas emissions and to promote renewable energy and energy efficiency.
It is in our own self-interest to do so but we should invite similar action by
our international partners to engage in the gobal challenge of fighting climate
change.  Increased international action would also help to sustain the
long-term competitiveness of the Union's industrial base.

6.           Next
Steps

In the Commission's view, the key elements of
a new 2030 climate and energy framework should comprise a Greenhouse gas
reduction target at EU level which is shared equitably among the Member States
in the form of binding national targets; a reform of the Emissions Trading
System; an EU level target for the share of renewable energy and a new European
governance process for energy and climate policies based on Member State plans
for competitive, secure and sustainable energy. Energy efficiency will continue
to play a significant role in delivering the Union's climate and energy
objectives and this will be the subject of a review to be concluded later in
2014.

The Commission invites the Council and the
European Parliament to agree by the end of 2014, that the EU should pledge a greenhouse
gas emissions reduction of 40% by early 2015 as part of the negotiations which
conclude in Paris in December 2015. The Union should also be prepared to
contribute positively to the summit hosted by the UN Secretary General in
September 2014.

The Commission also invites the Council and
the European Parliament to endorse an EU level target of at least 27% as the
share of renewable energy to be consumed in the EU by 2030 to be delivered
through clear commitments decided by the Member States themselves, supported by
strengthened EU level delivery mechanisms and indicators.

The Commission also invites the Council and
the European Parliament to endorse the Commission's approach to future climate
and energy policies and its proposal to establish a simplified but effective
governance system for the delivery of climate and energy objectives.

[1]               Eurostat data on the environmental good and services
sector.

[2]               Climate Change 2013: The Physical Science Basis;
Working Group I of the IPCC; Summary for Policy Makers, October 2013.

[3]               COM(2013) 169: Green Paper on a 2030 Framework for
climate and energy policies.

[4]               COM(2011) 885 Energy Roadmap 2050; COM(2011) 112 A
Roadmap for moving to a competitive, low-carbon economy in 2050.

[5]               http://ec.europa.eu/energy/consultations/20130702_green_paper_2030_en.htm

[6]               COM(2011) 885

[7]               COM(2014) 14

[8]               The ETS sector covers 11,000 fixed installations
involved in power generation and manufacturing and which are significant users
of energy.

[9]               COM(2012) 595

[10]             COM(2013) 17

[11]             COM(2013) 659

[12]             COM(2014) 20

[13]             C(2013) 7243

[14]             http://ec.europa.eu/competition/consultations/2013_state_aid_environment/index_en.html

[15]             COM(2014) 21; SWD(2014) 19;
SWD(2014) 20.

[16]             COM(2014) 23, C(2014) 267

[17]             COM(2011) 144

[18]             COM(2011) 169

[19]             COM (2013) 479

[20]             http://setis.ec.europa.eu/set-plan-implementation/technology-roadmaps/european-initiative-smart-cities

[21]             UNEP: The Emissions Gap Report 2013