Commission staff working document - Accompanying document to the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on investing in the development of low carbon technologies (SET-PLAN) - Summary of the impact assessment {COM(2009) 519 final} {SEC(2009) 1295} {SEC(2009) 1296} {SEC(2009) 1297}
Date: 2009-10-07
Institutions: European Commission
Subjects: EU industrial policy, action programme, climate change, energy policy, energy research, environmental policy, impact study, reduction of gas emissions, renewable energy

EN 

EN 

   EN 

 
 
COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 7.10.2009 
SEC(2009) 1298 

COMMISSION STAFF WORKING DOCUMENT 

Accompanying document to the  

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

on Investing in the Development of Low Carbon Technologies  
(SET-Plan) 

SUMMARY OF THE IMPACT ASSESSMENT 

{COM(2009) 519 final} 
{SEC(2009) 1295} 
{SEC(2009) 1296} 
{SEC(2009) 1297} 

EN 

   EN 

 
 
 
  
 
 
 
 
 
 
 
COMMISSION STAFF WORKING DOCUMENT 

SUMMARY OF THE IMPACT ASSESSMENT 

for the Communication on Investing in the Development of Low Carbon Technologies 
(Set-Plan) 

1. 

PROBLEM DEFINITION: 

Climate change is an  international  concern  that if left unchecked would result in significant 
and lasting damage on a world wide scale. In response to this the EU (under its Energy and 
Climate Policy) adopted goals of reducing greenhouse gas emissions by 20%, and increasing 
the  proportion  of  European  Energy  which  comes  from  renewable  sources  to  20%  by  2020. 
Following on from this CO2 emissions should have fallen by 80% from their current levels by 
2050.  A  variety  of  initiatives,  most  prominent  amongst  which  is  the  European  Emissions 
Trading System have arisen in order to help meet these goals. 

One track being pursued is the development of low carbon technologies, essential both to the 
achievement of the goals set out under the Energy and Climate Policy, but also as a means to 
ensuring Europe's future competitiveness. The European Strategic Energy Technology (SET) 
Plan adopted within the Energy and Climate Policy aims to accelerate the development of key 
low  carbon  technologies,  so  as  to  bring  them  to  the  market  more  quickly  than  would 
otherwise be the case. 

This  impact  assessment  aims  to  investigate,  outline  and  recommend  the  specific  measures 
which should be taken in order to finance the development and deployment of the low carbon 
technologies identified within the SET-Plan. 

2. 

SUBSIDIARITY 

This section will outline the justification for EU intervention in terms of  

•  Helping to attract needed additional finance 

•  Helping to co-ordinate a range of fragmented, disparate instruments.  

Financial Gap 

Low carbon technologies emerging into the European Energy market confront many market 
and regulatory failures. Above all low carbon technologies are beneficial largely because of 
their  lower  CO2  emissions;  but  reducing  emission  is  a  public  good  suffering  from  severe 
environmental  externalities  that  are  not  accounted  for  in  the  energy  bill.  Similarly  basic 
research  produces  public  benefits  far  outweighing  the  private  gain  to  the  research  institute 
(spill-over  effect).  As  a  result,  in  neither  case will the market provide the socially optimum 
level of funding; and therefore public intervention is justified. Other critical flaws hindering 
the development of low carbon technologies include:  

EN 

2 

   EN 

 
 
–  the high technological, regulatory and market risks which lead to sub-optimal investment 

in low carbon technologies 

–  a number of failures specific to the energy market, in particular high transaction costs and 
barriers  to  entry;  as  well  as  limited  competition,  a  fragmented  regulatory  framework  for 
new infrastructural development, and the inherent inertia of the energy infrastructure. 

In  order  to  combat  these  failures  and  achieve  our  climate  changes  goals,  the  SET-Plan 
identified  a  number  of  strategic  technologies  which  it  aims  to  promote.  An  estimate  of  the 
additional financing required by each technology in order to attain the goals of the SET-Plan 
reveals that additional financing of around 50 billion Euros will be necessary.  

Coordination Failures 

On the other hand, the barriers to achieving the objectives set out in the SET-Plan can be seen 
not  only  in  terms  of  financing,  but  also  in  terms  of  the  structure  and  co-ordination  of  the 
available  instruments.  At  present  a  wide  array  of  instruments  exist  including  both  Research 
and Innovation programmes, and financial instruments under the European Investment Bank 
Group.  Yet,  in  many  cases,  general  co-ordination  and  funding  levels  are  inadequate; 
particularly  with  regards  to  large  scale  demonstration  projects,  and  research  and  innovation 
programmes. 

Overall 

The transition to a low carbon economy is both necessary and beneficial for the community. 
Yet, given the complexity and level of effort required; few Member States have the capacity 
to  bring  about  the  required  change.  Furthermore,  significant  EU  level  synergies  exist  with 
regards  to  the  co-ordination  of  the  various  support  schemes  and  the  consolidation  of  the 
currently  fragmented  market.  Action  is  needed,  European  level  action  would  produce 
significant benefits above and beyond that which could be achieved by Member States acting 
alone, it therefore follows that action at EU level is justified. 

3. 

OBJECTIVES  

This impact assessment aims to examine the financial measures which might be taken in order 
to ensure the delivery of the objectives stated in the SET-Plan. In light of the above these will 
include the following specific objectives: 

–  To  stimulate  a  substantial  increase  in  private  investment  in  research,  technological 

development, demonstration, and market replication of SET-Plan technologies. 

–  To  ensure  the  provision  of  sufficient,  appropriate  and  efficient  financial  resources  in 
support of the development of the low carbon technologies identified in the SET-Plan, so 
as to secure a level of innovation in live with EU policy goals. 

Operationally this will involve  

–  At least a doubling of the financial resources dedicated to the SET-Plan technologies; 

–  A more flexible and effective use of current instruments;  

EN 

3 

   EN 

 
–  The establishment (where appropriate) of new or modified instruments. 

4. 

POLICY OPTIONS 

In order to determine the most effective manner in which these objectives might be achieved 
it  was  decided  to  split  the  alternatives  into  four  distinct  policy  options  which  illustrate  and 
exemplify the full continuum of choices available: 

(1) 

(2) 

(3) 

(4) 

the  continuation  of  the  existing  investment  vehicles  within  the  current  institutional 
arrangements (BAU – Business as usual) 

increased  funding  channelled  through  the  existing  investment  vehicles  within  the 
existing institutional arrangements (option 1) 

a  strengthening  of  the  existing  investment  vehicles  within  modified  institutional 
arrangements (option 2) 

new investment vehicles, taking specific institutional arrangements, filling in gaps and 
removing recurring weaknesses of the existing portfolio of investment vehicles (option 
3). 

Each one of these policy options constitutes a specific, practicable way forward; and include 
suggestions pertaining to research, innovation, debt, equity, and venture capital instruments. 
The conjunct of all four options together are viewed as sufficient to illustrate and exemplify 
the alternatives available. 

5. 

ASSESSMENT OF IMPACTS 

Importantly,  although  measures  sufficient  to  obtain  the  objectives  outlined  above  are 
considered  necessary,  it  is  acknowledged  that  the  overall  Energy  Policy  (of  which  these 
actions form a part) may well come at a slight overall cost to society in terms of GDP growth. 
These  costs  might  be  mitigated,  however,  or  even  reduced  through  full  use  of  the 
complementarities  which  exist  between  the  good  implementation  of  these  policies  and  the 
already existing emissions reduction mechanisms, particularly the Emissions Trading Scheme.  

It  should  be  noted  that,  in  terms  of  economic  or  social  benefits,  while  all  policy  options 
analysed  are  clearly  superior  to  the  BAU  option,  the  main  difference  between  the  policy 
options  lies  in  the  timing  of  the  impacts  rather  than  their  ultimate  magnitude.  The  pace  at 
which  the  expected  environmental  benefits  may  come  to  pass  is  linked  to  the  speed  of 
implementation of the SET-Plan. The different policy options will impact on the speed with 
which  low  carbon  technologies  are  adopted,  and  therefore  also  on  total  European  CO2 
emissions. 

EN 

4 

   EN 

 
6. 

COMPARISON OF POLICY OPTIONS 

Technology Grouping  

In order to perform a satisfactory analysis the SET Plan technologies were divided into three 
groups, so as to better cater for the specificities and needs of each technology segment. These 
technology groups were: 

(1) 

(2) 

(3) 

Group I: Close to market competitiveness 1 

Group II: Emerging technologies on the verge of mass market penetration2 

Group III: New technologies3 

Assessment Criterion 

With regards to the specific policies to be adopted, each of the four policy options identified 
was analysed under a specific criterion, examining their characteristics in terms of: 

•  Mobilisation- ability to mobilise sufficient finance 

•  Suitability-  the  degree  to  which  the  envisaged  arrangements  correspond  to  the 

requirements of the technologies concerned.  

•  Flexibility-  degree  to  which  the  envisaged  arrangements  are  able  to  respond  to  changing 

situations. 

•  Effectiveness- degree to which the envisaged arrangements impact on the European energy 

sector.  

Analysis and Conclusions 

In our analysis we (i) examined each of the four policy options individually in terms of their 
overall strengths and weaknesses with respect to each of the four criteria (without making any 
effort  to  compare  the  options  directly  or  taking  any  account  of  the  technology  groupings); 
before (ii) separating the technologies into their three technology groups, and rating all of the 
policy options individually, under each of the four criteria listed above. 

Our conclusion was that: 

•  Policy  option  two,  which  included  "a  strengthening  of  the  existing  investment  vehicles 
within modified institutional arrangements" was appropriate for all technology groups, and 
would constitute a strong way forward.  

1 

2 

3 

On-shore  wind,  solar  heating,  solar  photovoltaics  (c-Si),  1st  generation  biofuels,  electricity  networks 
(transmission),  nuclear  fission  (G  III+),  combined  heat  and  power  (CHP),  energy  efficiency  in 
buildings, transport and industry. 
Offshore wind, solar photovoltaics (thin film), concentrated solar power generation, carbon capture and 
storage, 2nd generation biofuels, electricity networks (distribution). 
Nuclear fission - G IV, hydrogen and fuel cells, ocean energy, geothermal. 

EN 

5 

   EN 

 
                                                 
•  Policy option one, which included increased funding but little institutional change, could 
(due  to  its  flexibility  and  immediate  effectiveness)  be  considered  as  a  serious  candidate; 
but was generally only adequate to support those technologies which were close to market 
competitiveness. 

•  Policy  option  three  would  be  suitable  (due  to  its  increased  mobilisation  of  funding,  and 

ability to effectively co-ordinate instruments) for group three technologies.  

•  The Business as Usual option would be severely inappropriate for all technology groups. 

It should be noted that these conclusions do not rule out any hybrids of the different policy 
options groups; neither do they make any comments with respect to the manner or speed with 
which an implement might be introduced.  

Recommendations 

As a result it is our recommendation that resources be increased to the necessary levels and 
that the appropriate avenues for institutional change be explored. That being said, the need for 
urgent action would suggest a rapid implementation of policy option 1 across the board, with 
a  phased  and  targeted  introduction  of  the  appropriate  actions  under  policy  options  2  and  3 
being introduced as and when appropriate.  

When formulating a strategy the following should be taken into account: 

•  In  many  cases  it  might  be  appropriate  to  pursue  a  hybrid  strategy  borrowing  alternatives 

from different policy options. 

•  Many of the Group 1 technologies, and particularly energy efficiency contain a short term 

potential, which might argue for an expedited full introduction of policy option 2. 

•  With regards to Group 3 technologies, it should be noted that many of them already benefit 

from the kind of alternatives proposed under policy option 2. 

7. 

MONITORING AND EVALUATION 

The  proposed  financing  effort  will  benefit  from  the  SET-Plan  monitoring  and  evaluation 
information system (SETIS), which has recently been established. SETIS is operated by the 
EU's  Joint  Research  Centre  (JRC),  which  secures  its  independence  and  objectivity.  In 
particular, the monitoring of financial research investment in low carbon energy technologies 
will be done continuously and reported annually in the Capacities Map published by SETIS.  

The  impact  of  research  financing  on  technology  development  and  deployment  will  be  also 
closely monitored by SETIS on a continuous basis, with its analysis published bi-annually in 
the  Technology  Map.  Accompanying  this  will  be  a  review  by  SETIS  of  the  specific 
technology  developments  performed  under  the  SET-Plan  umbrella,  whether  through  the 
European  Industrial  Initiatives  or  other  programmes  in  the  context  of  the  European  Energy 
Research Alliance. This review will take place periodically and will be on the basis of Key 
Performance  Indicators  (KPIs),  devised  jointly  by  SETIS  and  stakeholders  as  part  of  the 
process  for  the  conception  and  definition  of  corresponding  SET-Plan  activities,  which  will 
address both the technology and the sector. Typically, KPIs will focus on both the costs and 
relative performance of technologies. 

EN 

6 

   EN