Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - 20 20 by 2020 - Europe's climate change opportunity {COM(2008) 13 final} {COM(2008) 16 final} {COM(2008) 17 final} {COM(2008) 18 final} {COM(2008) 19 final}
Date: 2008-01-23
Institutions: European Commission
Subjects: EU environmental policy, climate change, energy policy, energy saving, energy technology, reduction of gas emissions, renewable energy, sustainable development, tradeable emission permit

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.1.2008 
COM(2008) 30 final 

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

20 20 by 2020 
Europe's climate change opportunity 

{COM(2008) 13 final} 
{COM(2008) 16 final} 
{COM(2008) 17 final} 
{COM(2008) 18 final} 
{COM(2008) 19 final} 

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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 

20 20 by 2020 
Europe's climate change opportunity 

(Text with EEA relevance) 

2007  marked  a  turning  point  for  the  European  Union's  climate  and  energy  policy.  Europe 
showed  itself  ready  to  give  global  leadership:  to  tackle  climate  change,  to  face  up  to  the 
challenge of secure, sustainable and competitive energy, and to make the European economy 
a model for sustainable development in the 21st century. Public opinion has shifted decisively 
towards the imperative of addressing climate change, to adapting Europe to the new realities 
of  cutting  greenhouse  gas  emissions  and  developing  our  renewable,  sustainable  energy 
resources. A political consensus has crystallised to put this issue at the heart of the European 
Union's political programme: a guiding theme for the Union, central to the Lisbon strategy for 
growth and jobs, and of primary importance in Europe's relations with partners worldwide. It 
won the support of both the European Parliament1 and the European Council. 

The  agreement  by  the  March  2007  European  Council  to  set  precise,  legally  binding  targets 
was a symbol of Europe's determination. This decision was not taken lightly. There is much at 
stake, with the prosperity of the European economy reliant on finding the right way forward. 
There is compelling evidence now available that the costs of inaction would be crippling for 
the  world  economy:  5%-20%  of  global  GDP,  according  to  the  Stern  Report2.  In  parallel, 
recent price rises for oil and gas have brought home how competition for energy resources is 
becoming  more  intense  every  year;  and  how  energy  efficiency  and  renewable  sources  of 
energy  can  be  profitable  investments.  This  was  the  background  to  EU  leaders'  readiness  to 
commit to a transformation of the European economy requiring a major political, social, and 
economic effort. At the same time, change offers a stepping stone to modernise the European 
economy, orientating it towards a future where technology and society will be attuned to new 
needs and where innovation will create new opportunities to feed growth and jobs. 

Two key targets were set by the European Council: 

•  A reduction of at least 20% in greenhouse gases (GHG) by 2020 – rising to 30% if there is 
an international agreement committing other developed countries to "comparable emission 
reductions  and  economically  more  advanced  developing  countries  to  contributing 
adequately according to their responsibilities and respective capabilities". 

•  A 20% share of renewable energies in EU energy consumption by 2020. 

1 
2 

European Parliament resolution on climate change adopted on 14 February 2007 (P6_TA(2007)0038) 
the  economics  of  climate  change,  2006,  http://www.hm-
HM  Treasury,  Stern  Review  on 
treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/stern_review_report.cf
m 

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The European Council agreed that the best way to reach such ambitious goals was for every 
Member State to know what was expected, and for the goals to be legally binding. This meant 
that the levers of government could be fully mobilised; and the private sector would have the 
long-term  confidence  required  to  justify  the  investment  needed  to  transform  Europe  into  a 
low-carbon, high energy efficiency economy. 

The  resolve  of  the  European  Council  was  a  signal  to  our  international  partners  that  the  EU 
was  ready  to  turn  words  into  deeds.  This  paid  dividends  at  the  United  Nations  Climate 
Change  Conference  in  Bali  in  December  2007.  The  European  Union  was  able  to  play  a 
pivotal role in securing agreement on the roadmap towards a new comprehensive agreement 
on cutting emissions to be reached by 2009. This reinforced the EU's determination to press 
on with its commitment to fighting climate change, to show that it was ready to give force to 
its conviction that developed countries can and should commit to a 30% cut in emission levels 
by  2020.  The  EU  should  continue  to  take  the  lead  in  the  negotiation  of  an  ambitious 
international agreement. 

The next step is to translate the European Union's political direction into action. The package 
of measures proposed by the European Commission represents a coherent and comprehensive 
path to preparing Europe for the transition towards a low-emission economy. It shows that the 
efforts  required  make  sense.  Measures  are  designed  in  a  way  so  that  they  are  mutually 
supportive.  They  offer  the  right  way  to  maintain  the  momentum  and  deliver  on  Europe's 
ambitions for climate change, energy security and competitiveness. 

Securing a prosperous Europe in times of change 

The  European  economy  faces  a  challenge  in  adapting  to  the  demands  of  a  low-emission 
economy  with  secure  energy  supplies.  But  the  challenge  can  be  met,  and  it  also  opens  the 
door to new opportunities. There is a real potential to make climate-friendly policies a major 
driver for growth and jobs in Europe. Europe can show that necessary change can go hand in 
hand  with  the  process  of  securing  a  competitive  and  prosperous  economy  fit  for  the  21st 
century. The process of change to a low carbon economy will also need to be accompanied by 
the appropriate involvement of social partners, in particular at sectoral level.  

A  global  commitment  remains  indispensable  to  tackling  climate  change.  But  the  case  for 
Europe to act now is compelling. The longer Europe waits, the higher the cost of adaptation. 
The earlier Europe moves, the greater the opportunity to use its skills and technology to boost 
innovation and growth through exploiting first mover advantage. The trend of global opinion 
is  clear,  and  the  EU  can  take  the  lead  in  pointing  the  way  to  an  international  climate 
agreement for the post 2012 period. 

Reducing greenhouse gases and increasing renewable energy according to the targets agreed 
by the Heads of State and Government will make the EU much less dependent on imports of 
oil and gas. This reduces the exposure of the EU economy to rising and volatile energy prices, 
inflation, geopolitical risks and risks related to inadequate supply chains that are not keeping 
up with global demand growth.  

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The opportunities offered by the transition are wide-ranging: 

•  Oil and gas imports are expected to go down by some € 50 bn in 20203, improving energy 
security  and  benefitting  citizens  and  businesses  across  the  EU:  if  current  prices  became 
standard for a barrel of oil, the saving from cutting imports would rise. 

•  Renewable energy technologies already account for a turnover of € 20 bn and have created 
300 000 jobs. A  20% share for renewables  is estimated to mean almost a million jobs in 
this industry by 2020 – more if Europe exploits its full potential to be a world leader in this 
field. In addition, the renewable energy sector is labour intensive and reliant on many small 
and medium sized enterprises, spreading jobs and development to every corner of Europe: 
the same is true of energy efficiency in buildings and products.  

•  By  encouraging  all  companies  to  use  low-carbon  technologies,  the  climate  change 
challenge can be transformed into an opportunity for European industry. In total, the eco-
industry already accounts for some 3.4 million jobs in Europe: it offers particular growth 
potential. Green technologies are not the monopoly of any one part of Europe. They are a 
growing  part  of  an  industry  that  now  accounts  for  over  € 227  billion  in  annual  turnover, 
offering real advantages to the first entrants into this market. 

This  underlying  rationale  lies  behind  the  political  consensus  in  favour  of  change,  and  the 
agreement of the European Council to act. 

The  architecture  of  the  proposals  has  been  driven  by  two  factors.  First,  the  proposals  are 
designed in such a way that the targets are reached in the most cost-effective way possible. 
Second,  the  effort  required  of  particular  Member  States  and  particular  industries  remains 
balanced  and  proportionate,  and  takes  their  own  circumstances  into  account.  Fairness  and 
solidarity have been at the heart of the Commission's thinking in developing the proposals. 

The key principles 

The  package  of  measures  responds  to  an  invitation  from  the  European  Council  for  the 
European  Commission  to  bring  forward  specific  proposals.  At  the  same  time,  EU  leaders 
developed a political understanding about the principles under which the proposals would be 
delivered.  

The architecture developed by the Commission has been designed to respect the principles set 
out  by  the  European  Council.  In  particular,  the  translation  of  overall  EU-wide  goals  into 
specific  targets  for  each  Member  State  has  been  governed  by  the  need  to  secure  a  political 
consensus to drive change and carry public opinion. 

The proposals rest on five key principles: 

•  The  targets  must  be  met:  to  assure  Europeans  of  the  reality  of  change,  to  convince 
investors to invest, and to show the EU's seriousness of intent to partners worldwide. The 
proposals must therefore be effective and strong enough to be credible, with mechanisms 
for monitoring and compliance in place. 

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This was modelled on the basis of an oil price of US$ 61 a barrel. 

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•  The effort required from different Member States must be fair. In particular, some Member 
States are more able than others to finance the necessary investments. The proposals must 
be flexible enough to take account of Member States' different starting points and different 
circumstances. 

•  The costs must be minimised: with a design tailor-made to limit the price tag of adaptation 
for  the  EU  economy.  The  costs  of  change  and  the  consequences  for  the  Union's  global 
competitiveness,  employment  and  social  cohesion  need  to  be  kept  at  the  forefront  in 
designing the right structure.  

•  The EU must drive on beyond 2020 to make even deeper cuts in greenhouse gases to meet 
the  target  of  halving  global  emissions  by  2050.  That  means  stimulating  technological 
development and ensuring that the system can take advantage when new technology comes 
on stream, using the tools available to encourage innovation and create a competitive edge 
in clean energy and industrial technologies. 

•  The EU must do everything possible to promote a comprehensive international agreement 
to cut greenhouse emissions. The proposals are conceived to show that the Union is ready 
to  take  further  action  as  part  of  an  international  agreement,  stepping  up  from  the  20% 
minimum target for greenhouse gas reductions to a more ambitious 30% reduction. 

The tools to deliver the targets 

Updating the Emissions Trading System 

The European Union Emissions Trading System has proved a pioneering instrument to find a 
market-based solution to incentivise cuts in greenhouse gas emissions. It requires companies 
to  surrender  allowances  equivalent  to  their  level  of  CO2  emissions.  This  "cap  and  trade" 
system in its present design has meant that allowances are allocated by national governments 
to  companies,  subject  to  approval  by  the  Commission  of  the  national  plans.  A  market  has 
developed in carbon allowances, because companies can sell allowances if they cut their own 
emissions,  or  buy  them  if  they  have  insufficient  allowances  to  cover  their  emissions.  So  if 
companies  invest  in  reducing  emissions,  they  can  earn  an  income  stream  from  the  sale  of 
allowances  –  at  the  same  time  stimulating  innovation  and  pushing  change  where  it  is  most 
cost-effective.  This  system  covers  some  10 000  industrial  plants  across  the  EU  –  including 
power  plants,  oil  refineries,  and  steel  mills  –  accounting  for  almost  half  the  EU's  CO2 
emissions.  

However, a review of the ETS has shown that it needs to be strengthened and updated if it is 
to meet its new objectives. The incentive effect of the current ETS has been cushioned by the 
generous  number  of  allowances  handed  out  in  the  first  phase  (2005-2007).  The  structure  of 
the  ETS,  with  national  allocation  plans,  has  raised  the  risk  of  distortions  in  terms  of 
competition  and  the  internal  market.  The  scope  of  the  ETS,  in  terms  of  the  sectors  of  the 
economy covered and the gases included, has also limited its ability to drive emission cuts.  

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An  enhanced  Emissions  Trading  Scheme  would  build  on  the  positive  experience  so  far  and 
would be designed to deliver a new drive towards a climate-friendly economy: 

4

•  The scope of the ETS would be extended with the inclusion of greenhouse gases other than 
,  and  all  major  industrial  emitters.  To  lessen  the  administrative  burden,  industrial 
CO2
plants emitting less than 10 000 tonnes of CO2 would not have to participate in the ETS, 
provided  equivalent  measures  are  in  place  to  ensure  their  adequate  contribution  to 
reduction efforts. 

•  A  harmonised  ETS  covering  the  whole  Union  will  be  best  suited  to  the  internal  market, 
with  common  rules  to  ensure  a  level  playing  field.  National  allocation  plans  would  be 
replaced by auctioning or free allocation through single EU-wide rules. The allocations put 
on the market would be reduced year-on-year to allow for emissions covered by the ETS to 
be reduced by 21% from 2005 levels by 2020. 

The  power  sector  –  representing  a  large  part  of  emissions  –  would  be  subject  to  full 
auctioning from the start of the new regime in 2013. Most other industrial sectors, as well 
as aviation, would step up to full auctioning gradually, reaching full auctioning by 2020. 

Auctioning  would  be  handled  by  Member  States,  and  the  revenues  would  accrue  to 
Member States' treasuries. However, auctions would be open: any EU operator could buy 
allowances in any Member State. The auctioning process will generate significant revenues 
for  Member  States,  which  will  help  towards  the  process  of  adjustment  to  a  low  carbon 
economy, supporting R&D and innovation in areas like renewables and carbon capture and 
storage,  helping  developing  countries,  and  helping  the  less  well-off  to  invest  in  energy 
efficiency. Member States should commit to use at least 20% of their auctioning income 
for this purpose. 

•  Under  the  Kyoto  Protocol,  industrialised  countries  can  achieve  part  of  their  emission 
reduction  commitments  by  investing  in  emission-saving  projects  overseas  –  notably  in 
developing  countries,  through  the  Clean  Development  Mechanism  (CDM)5.  This  has  the 
advantage  of  meeting  emission  reduction  obligations  at  lower  cost,  as  well  as  promoting 
the transfer of low-carbon technologies to developing countries. CDMs have proved their 
worth in cutting emissions, and offer access to more cost-effective options than sometimes 
available  within  Europe.  However,  there  is  a  risk  that  too  generous  a  use  of  CDMs  can 
dilute the effectiveness of the ETS by increasing the supply of credits and thereby cutting 
demand  for  allowances,  and  reducing  the  incentive  for  governments  and  companies  to 
promote emission reductions at home. This can also limit the ETS' capacity to act as the 
key driver to realise the target for renewable energy. 

Under  the  new  ETS,  companies  will  still  have  access  to  CDMs,  but  the  use  of  credits 
generated by such mechanisms will be limited to the levels used in the current ETS period. 
This would leave room for access to this mechanism to be increased once an international 
agreement is signed – central to allowing the EU to step up swiftly to the more challenging 
30% GHG reduction in the event of an international agreement. Freeing up access to this 
mechanism  would  also  be  an  incentive  for  third  countries  to  sign  up  to  an  international 

4 
5 

N2O from acid production and PFC emissions from the aluminium sector. 
Joint Implementation also exists to cover projects in other industrialised countries with Kyoto targets. 

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agreement,  in  the  knowledge  that  European  investment  and  technology  could  flow  as  a 
result. 

Greenhouse gas reductions beyond the ETS 

Since the revised ETS will only cover less than half of the GHG emissions, an EU framework 
is  needed  for  national  commitments  to  cover  the  remaining  emissions  –  covering  areas  like 
buildings,  transport,  agriculture,  waste  and  industrial  plants  falling  under  the  threshold  for 
inclusion in the ETS. The target for these sectors would be a 10% reduction in emissions from 
2005 levels, with specific targets for each Member State. Some of this would be driven by EU 
measures – like tougher standards on CO2 emissions from cars and fuel, and EU-wide rules to 
promote energy efficiency – but otherwise Member States would be free to determine where 
to concentrate their efforts, and what measures to bring into play to leverage change. Member 
States  would  also  have  access  to  CDM  credits  covering  almost  one  third  of  their  reduction 
effort. 

A new era for renewable energy 

The March 2007 European Council put particular emphasis on renewable energy. In choosing 
to  fix  a  specific  target  for  the  EU  as  a  whole,  and  for  this  to  be  backed  up  with  precise 
national  targets,  EU  leaders  recognised  the  special  contribution  that  renewable  energy  can 
make to the twin goals of reducing emissions and improving energy security. Today, the share 
of renewable energy in the EU's final energy consumption is 8.5%. An increase of 11.5% is 
needed on average to  meet  the  target  of 20% in 2020. This will require a major investment 
effort across the Union, but the relative costs will fall as other energy producers face the costs 
of ETS allowances and rising prices for oil and gas. 

Member  States  enjoy  different  possibilities  to  deploy  renewable  energy,  and  the  efforts 
required to reach the 20% share of renewable energy in the EU's overall energy consumption 
need  to  differ  between  the  Member  States.  The  European  Council  defined  a  number  of 
considerations  that  should  be  taken  into  account  when  setting  national  targets.  The  targets 
should be fair, and take account of different national starting points and potentials, including 
the existing level of renewable energies and the energy mix, notably low-carbon technologies.  

The  Commission's  proposal  is  based  on  a  methodology  according  to  which  half  of  the 
additional  effort  is  shared  equally  between  Member  States.  The  other  half  is  modulated 
according  to  GDP  per  capita.  In  addition,  the  targets  are  modified  to  take  into  account  a 
proportion of the efforts already made by those Member States that have achieved a certain 
increase  in  their  share  of  renewable  energy  in  recent  years.  This  allocation  methodology, 
combined  with  a  new  flexibility  mechanism,  means  that  the  European  Council  mandate  has 
been respected to the full. 

The options for developing renewable energy vary from one Member State to another. Some 
have  potential  in  wind  power,  others  in  solar  power  or  in  biomass.  Member  States  are  best 
placed  to  choose  where  to  put  the  emphasis.  But  with  lead  times  for  bringing  renewable 
energy on stream so long and investors needing certainty, it is important for Member States to 
have  a  clear  vision  of  where  they  intend  to  act.  Member  States  will  each  put  forward  a 
national  action  plan,  setting  out  how  they  intend  to  meet  their  targets  and  allowing  for 
progress  to  be  monitored  effectively.  A  specific  effort  is  needed  to  achieve  greenhouse  gas 
emissions reductions and improved security of energy supply in the transport sector, which is 

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why the European Council chose to fix a specific minimum target for sustainable biofuels of 
10% of overall petrol and diesel consumption.  

The  cost  of  exploiting  renewable  energy  potential  also  varies.  Some  investments  can  come 
swiftly  on  stream  and  be  commercially  viable,  but  as  these  options  are  used  up,  investment 
has  to  turn  to  more  costly  options.  At  the  same  time,  as  production  volumes  increase, 
production costs will fall. That is why Member States need a degree of flexibility. As long as 
the EU's overall target is met, Member States should be allowed to make their contribution by 
supporting Europe's overall renewables effort, and not necessarily inside their own borders: if 
Member  States  can  reach  their  targets  by  helping  develop  renewable  energy  in  another 
Member State, they can reduce their own compliance costs and at the same time provide the 
other  Member  State  with  a  useful  extra  income  stream.  From  a  European,  rather  than  a 
national perspective, this would shift investment to where renewables can be produced most 
efficiently in the EU, and could cut between € 2 to € 8 billion from the price tag for meeting 
the target. 

Such  investment  in  another  Member  State  does  not  require  a  physical  transfer  of  the 
resources, which face geographical and technical obstacles. It can take place with transferable 
guarantees  of  origin  (proof  that  renewable  energy  has  been  produced).  The  proposal  will 
create these tools for use alongside existing national renewable energy support schemes. This 
will allow the overall target to be met as cost-efficiently as possible.  

Any expansion of renewable energy also requires that the traditional regulatory framework for 
conventional energy is adapted: unnecessary regulatory, administrative and planning barriers 
to the promotion and development of renewable energy need to be abolished, and the proposal 
seeks to guarantee the right environment for renewables to flourish.  

Finally,  the  European  Council  also  endorsed  a  separate  minimum  target  for  the  share  of 
sustainable biofuels for EU transport. Whilst biofuels are the only viable alternative transport 
fuel  for  the  foreseeable  future,  their  growth  requires  criteria  to  be  set  for  the  environmental 
sustainability of biofuels. The proposed scheme includes minimum criteria for the greenhouse 
gas performance of biofuels, which must be respected for those biofuels that are used to meet 
the  10%  target.  Similarly,  it  sets  binding  criteria  for  biodiversity  and  bans  certain  types  of 
land  use  changes.  When  adopted,  it  will  be  the  most  comprehensive  system  of  its  kind 
introduced  anywhere  in  the  world  and  will  apply  equally  to  domestically  produced  and 
imported biofuels. The rules are critical in order to ensure that the environmental benefits of 
using  biofuels  outweigh  any  possible  environmental  disadvantages.  At  the  same  time,  the 
Commission  is  committed  to  promoting  in  all  its  policies  the  rapid  development  of  second 
generation  biofuels.  It  will  closely  monitor  market  developments  and  their  effects  on  food, 
feed, energy and other industrial uses of biomass, and take appropriate action if needed. 

The role of energy efficiency 

The EU goal of saving 20%  of  energy consumption by 2020 through energy efficiency is a 
crucial  part  of  the  puzzle.  It  would  save  the  EU  some  € 100  billion  and  cut  emissions  by 
almost 800 million tonnes a year. It is one of the key ways in which CO2 emission savings can 
be realised.  

Transport,  buildings  and  more  efficient  power  generation,  transmission  and  distribution  all 
offer  opportunities  which  need  to  be  stimulated  through  a  mixture  of  legislation  and 
information – as well as being driven by the stimulus of avoiding the impact of rising energy 

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costs for consumers. Product standards can be used to bring more efficiency to a wide range 
of  goods,  from  televisions  to  cars  and  heaters  to  streetlights.  Better  labelling  already  means 
that 75% of labelled products bought are in the "A" class. All these savings means more scope 
for households to face up to rising energy prices, and more investment in technology and jobs. 
But driving on to the 20% target for energy efficiency will require a major commitment at all 
levels from public authorities, economic operators and citizens alike.  

Looking beyond 2020: galvanising the potential for deeper cuts in emissions 

Over the past ten years, technology has developed swiftly. Renewable energy technologies are 
making wind and solar energy more commercially viable than ever before. Energy efficiency 
is  being  mainstreamed  into  products  from  the  humble  lightbulb  to  the  most  sophisticated 
production machinery. But this process must be accelerated if Europe's goals for climate and 
energy are to be met and if the commercial potential of these technologies is to be exploited to 
the full. The EU Strategic Energy Technology Plan6 will use the EU's levers to help maintain 
Europe's  leadership  in  sustainable  technologies.  Climate  change  and  energy  have  been 
earmarked as likely first areas on which the European Institute of Technology could focus its 
attention.  

Of  particular  importance  is  carbon  capture  and  storage  (CCS).  Fossil  fuels  will  remain  the 
primary  source  of  energy  worldwide  for  decades  to  come.  Stocks  of  coal  will  be  needed  to 
provide energy in Europe, and to feed the huge rise in energy demand already under way in 
many  developing  countries.  But  the  target  of  halving  1990  global  GHG  emissions  by  2050 
will  never  be  met  unless  the  energy  potential  of  coal  can  be  exploited  without  ballooning 
emissions.  That  is  why  the  European  Council  backed  early  action  to  make  CCS  the 
technology of choice for new power plants, including the setting up of up to 12 demonstration 
plants by 2015. 

European legislation is needed to provide the right framework for CCS to work in the internal 
market and factor the benefits of CCS for the ETS. This is an important part of the package: 
investors  in  CCS  can  be  clear  that  they  save  the  costs  of  ETS  allowances  faced  by  their 
competitors, and that the right safety measures are in place to justify long-term investment. A 
European  Industrial  Initiative  will  be  set  up  to  bring  together  the  key  actors  and  provide  a 
coherent drive for the new technology.  

However,  it  remains  the  case  that  significant  investment  will  be  essential  if  demonstration 
plants are to be financed and commercial deployment is to get under way - in the order of tens 
of billions of euros. Since there is no possibility of significant funding from the EU budget, 
investment  are  public-private  partnerships  fed 
the  only  possible  sources  for 
predominantly  by  national  budgets  and  private  sector  investment.  For  governments,  the 
income stream provided by the auctioning of ETS allowances is an obvious source of revenue 
for  this  purpose.  For  the  private  sector,  the  inevitability  of  moving  to  CCS  offers  a  real 
commercial benefit to power generators prepared to move early into this market. But the later 
this  process  begins,  the  more  policy-makers  will  be  obliged  to  look  at  the  option  of 
compulsory application of CCS technology as the only way forward. 

this 

6 

A  European  Strategic  Energy  Technology  Plan:  Towards  a  low  carbon  future  -  COM(2007)  723, 
22.11.2007. 

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Bringing about change  

As the European Commission has explored various options and modelled different scenarios, 
a guiding principle has been the need to develop an approach which limits the costs faced by 
the EU economy in the process of change – to ensure that it fits squarely inside the approach 
of the Lisbon  strategy  for growth and jobs.  It would be futile to pretend that change on  the 
scale envisaged requires no economic effort. But the Commission considers that with the right 
design,  the  costs  can  be  kept  to  under  0.5%  of  GDP  a  year  by  2020.  This  leaves  far  more 
scope for prosperity and growth than the price of failing to act.  

To meet the EU's goals at minimum cost, the Commission's proposals build on the experience 
of the Emissions Trading System and leave the market to drive as much as possible. It also 
retains as much flexibility for national decision as possible within the constraints of specific 
national targets.  

•  The  future  ETS  will  ensure  a  sufficiently  high  price  that  companies  have  a  strong 

commercial interest in avoiding the cost of ETS allowances. 

•  Auctioning of ETS allowances will favour more efficient installations.  

•  For  cuts  in  emissions  outside  the  ETS,  Member  States  will  be  free  to  pursue  different 
strategies  to  secure  their  reductions,  according  to  the  different  circumstances  in  the 
Member State concerned. 

•  Member  States  should  have  the  freedom  to  determine  their  own  energy  mix7  and  to 
promote  renewable  energy  in  different  ways.  The  introduction  of  a  system  to  allow 
Member  States  to  top  up  their  renewable  energy  targets  through  working  with  other 
Member  States  leaves  a  national  choice  about  how  far  to  go  in  pushing  domestic 
renewables production. 

•  State  aid  can  legitimately  be  used  to  promote  the  policy  goal  of  cutting  emissions  and 
increasing renewable energy. But the use of such state aid needs to strike the right balance 
between  generous  support  for  well-targeted  aid  for  environmental  protection,  and 
preserving  competition.  Effective  competition  is  essential  to  making  market-based 
instruments work well. New state aid guidelines will provide a framework setting out how 
Member  States  can  use  aid  to  promote  a  higher  level  of  environmental  protection, 
including in the field of energy. State aid can not only help to offset a failure of the market 
to  reflect  costs  to  the  environment,  it  can  also  encourage  undertakings  to  adopt  more 
environmentally-friendly processes or to invest in greener technologies. The newguidelines 
recognise in particular that state aid may be justified where higher production costs result 
in obstacles to market entry for renewable energies. They allow full support for renewable 
energies to be commercially viable. They also open up the possibility to consider state aid 
for carbon capture and storage, and provide legal certainty for emission trading systems. 

7 

The  European  Council  of  March  2007  recalled  that  the  Energy  Policy  for  Europe  will  "fully  respect 
Member  States'  choice  of  energy  mix"  and  confirmed  that  "it  is  for  each  and  every  Member  State  to 
decide whether ot not to rely on nuclear energy….this has to be done while further improving nuclear 
safety and the management of radioactive waste". 

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The particular needs of energy-intensive industries 

Energy-intensive  industries  are  an  important  part  of  the  EU's  economic  fabric.  They  would 
face  a  particular  challenge  during  the  transition  to  a  climate-friendly  economy.  As  well  as 
rising  costs  for  electricity,  as  major  sources  of  emissions  they  would  under  normal 
circumstances  take part in  the  auctions for ETS allowances: an additional cost not  faced by 
their  competitors  in  countries  without  low-carbon  measures.  This  not  only  has  implications 
for  competitiveness  and  jobs,  it  also  carries  the  risk  that  production  and  the  consequent 
pollution just shifts to countries with no low-carbon policies. Concerns have been expressed 
by a number of energy intensive sectors such as ferrous and non-ferrous metal industries, pulp 
and paper, and mineral-based industries. The impact of increased electricity prices on certain 
sectors has also been raised and will need to be addressed, once duly substantiated. 

A comprehensive international agreement would address this. But in the absence of such an 
agreement, or  of significant  unilateral  action by competitors  in energy-intensive sectors, the 
EU must take action to ensure a level playing field. 

The  proposals  therefore  put  in  place  provisions  to  allow  action  to  be  taken.  The  need  for 
action to be taken would be established by meeting criteria to show that the extra costs could 
not be passed on without a significant loss of market share to less carbon-efficient competitors 
outside  the  EU.  Sectors  meeting  these  criteria  would  be  given  some  or  all  of  their  ETS 
allowances free of charge. This would be followed up by a review looking at the  impact of 
international negotiations, which could lead to proposals such as adjusting the proportion of 
free  allowances  or  requiring  importers  to  enter  ETS  auctions  to  purchase  allowances 
alongside  European  competitors,  as  long  as  such  a  system  was  compatible  with  WTO 
commitments. 

The capacity to invest 

The European Council recognised that the ambition of the proposals will make real demands 
on all Member States. The Commission has therefore carefully assessed the economic impact 
of the proposals against the capacity of each Member State to make the investment required. 
With the overall cost to the European economy estimated at just under 0.5% of GDP by 2020, 
the Commission believes that no Member State should be asked to make an investment which 
diverges too far from this broad average. With this in mind, the specific requirements asked of 
each  Member  State  have  been  modulated  to  allow  for  a  realistic  level  of  investment  from 
lower-income  Member  States.  This  modulation  impacts  on  three  different  aspects  of  the 
proposals: 

•  The  national  targets  set  for  reductions  in  greenhouse  gases  outside  the  framework  of  the 

ETS. 

•  The national targets set for the share of EU energy consumption to be taken by renewables. 

•  Auctioning  rights  under  the  ETS,  with  the  distribution  of  auctioning  rights  spread  to 

increase the share for lower-income Member States.  

This approach will enable all Member States to face realistic and viable targets. It will ask all 
Member States to make a real effort. But it opens the door to delivering on Europe's ambition 
to transform itself into a truly climate-friendly economy. 

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Conclusion 

The Europe of 2050 will look very different. Nowhere will this be more obvious than in the 
way we supply our energy needs, and the respect we show to the world around us. This is a 
vision  which  inspires  many  Europeans  today.  People  recognise  that  there  are  alternatives, 
ways  of  running  our  daily  lives  which  mean  that  Europeans  can  continue  on  the  path  of 
growth  and  jobs  while  leading  global  efforts  to  tackle  climate  change.  There  are  also  new 
opportunities,  new  technologies  which  Europe  is  well  placed  to  exploit  and  new  business 
openings for manufacturers and suppliers. 

The  European  Commission's  proposals  put  Europe  on  the  road  to  that  future.  They  seek  to 
provide  the  framework  and  the  stimulus  to  realise  the  political  ambitions  set  out  by  the 
European  Union  in  Spring  2007,  and  reinforced  at  the  Bali  Conference.  They  are  a  central 
plank of Europe's efforts to modernise its economy for the challenges of the 21st century. 

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