Last Thursday, the 28 Heads of State of the European Union meeting at the European Council reached a political agreement on the EU’s climate and energy framework for 2030.  The compromise is intended to send a signal in anticipation of the next United Nations Framework Convention on Climate Change (“UNFCCC”) Conference of Parties scheduled for December 2015 in Paris (“COP 21”) and sets the scene of the legislative negotiations that should take place in Brussels in 2015-2017.  The European Council agreed on the following targets for 2030:

• 40% Reduction of Greenhouse Gas Emissions: The compromise sets a binding target of 40% reduction of GHG emissions compared to 1990.  It further tightens the target of 20% reduction by 2020 and is intended to keep the EU on track to achieve a minimum 80% reduction by 2050.  In a clear signal to the rest of the world, the agreed text calls “on all countries to come forward [to the UNFCCC COP 21] with ambitious targets and policies” and commits to a review of the EU target after COP 21.

• 27% of Power Consumption from Renewable Energies: The compromise sets a binding target of at least 27% for the share of renewable energies of all energy consumed in the EU.  The agreed target is in line with the target proposed by the Commission, but lower than called for by the European Parliament.  However, the agreed text also emphasizes that the EU 27% target should not prevent Member States from setting their own more ambitious national targets and supporting them provided that this is “in line with state aid guidelines, as well as taking into account their degree of integration in the internal market.”  Importantly, the agreed text also calls for a “fully functioning and connected internal energy market” and calls on the Commission and Member States to take urgent measures in order to ensure a minimum target of 10% of existing electricity interconnections not later than 2020, at least for the Baltic States, Portugal and Spain, and to aim for a 15% interconnection target by 2030.

• 27% Improvement in Energy Efficiency: As opposed to the Commission’s proposal for a 30% target and the Parliament’s request for a binding 40% target, the European Council only agreed to an indicative target of “at least” 27% of energy efficiency improvement compared to projections for future energy consumption based on the current criteria.  The compromise also calls for the review of this target by 2020 “having in mind an EU level of 30%.”  While the agreed target is less ambitious than what Parliament hoped for, it may have a significant impact on the environmental design requirements of specific product categories as the agreed text also calls the Commission to “propose priority sectors in which significant energy efficiency gains can be reaped and ways to address them.”

The Greenhouse Gas Emission Reduction Target in More Detail

The 40% GHG emission reduction target is based on a complex patch of measures that reflect a compromise between the aim to achieve ambitious climate target for the EU as a whole and the demand for flexibility from poorer and carbon energy dependent Member States.

In order to achieve the 40% reduction target, the European Council agreed that the industrial sectors covered by the EU Emissions Trading System Directive (“ETS Directive”) should reduce their emissions by 43% by 2030 compared to 2005, while sectors not covered by the ETS, such as buildings, agriculture and transport, (i.e., sectors covered by the Effort Sharing Decision) should reduce their emissions by 30%.

EU ETS Directive

To achieve the 43% GHG emission reduction by 2030, the European Council signaled that the ETS Directive should be amended to achieve the following as of 2021

• The annual factor to reduce the cap of emission allowances should be increased from 1.74% to 2.2%.

• The free allocation of allowances to avoid carbon leakage should continue “as long as no comparable efforts are undertaken in other major economies.”

• Member States with a GDP per capita below 60% of the EU average (mainly Central and Eastern European countries) should continue to be able to give free allowances to their energy sector until 2030.

• 2% of all EU ETS allowances should be set aside to finance additional investment in Member States with a GDP per capita below 60% of the EU average.  The proceeds obtained from the allowances must be used in projects to improve energy efficiency and modernize energy systems in recipient Member States.

• 10% of all EU ETS allowances to be auctioned should be distributed among those Member States with a GDP per capita not higher than 90% of the EU average.

Effort Sharing Decision

The European Council agreed that allocation of emission reduction targets for the national sectors not covered by the EU ETS should continue on the basis of national GDP, as is currently the case under the EU Effort Sharing Decision.  However, the compromise also calls for an allocation of targets that ensures compensatory measures for Member States with large emission reduction commitments or that are wealthier, and for the enhancement of the availability and use of flexibility mechanisms.

• Concerning the transport sector, the compromise invites the Commission to consider measures for “a comprehensive and technology neutral approach,” to promote emission reductions and energy efficiency, electric transportation, and renewable sources after 2020.

• Importantly, the text also calls for the inclusion of Land Use, Land Use Change and Forestry (“LULUCF”) into the 2030 greenhouse mitigation framework before 2020.  This paves the way for the inclusion of forest carbon offsets as a means of facilitating Member States’ compliance with the 30% target (in comparison to the 2005 level)  for sectors that are not subject to the EU ETS.

The Upcoming Climate Change Legislative Package and Procedure

While the European Council’s compromise is not legally binding, politically it will certainly define the legislative proposals to amend the EU’s climate and energy legislation that the new European Commission is expected to present by the end of 2015.  This legislative package is likely to affect the EU ETS Directive, the Effort Sharing Decision, the Renewable Energies Directive and the Energy Efficiency Directive.

Once the Commission presents its legislative proposals, the European Parliament and Council will have to consider them for adoption in a legislative process — the ordinary legislative procedure — that is likely to take at least 18 months.