EU

Developments during 2018 in the European Union’s climate and energy policy are steps in the right direction towards re-establishing the EU’s position as a global leader on climate action. While the level of currently implemented climate action is not yet compatible with the Paris Agreement’s 1.5°C limit, the CAT estimates that the more ambitious renewable energy and energy efficiency targets adopted in June 2018 would result in emissions reduction of 47.5%-49.7% below 1990 levels (the European Commission has referred to about 45%). This is significantly higher than the present NDC target of 40% below 1990 levels.

The European Parliament has called for increasing the EU’s NDC emissions 2030 reduction goal to 55% below 1990 levels. Adopting this as a target would move the EU much closer to “2°C compatible” action”, but would still be far from 1.5°C compatible action. Achieving this would need to build on the reform of the EU ETS, the adoption of the Energy Performance of Buildings Directive (EPBD), as well as the political agreement on increasing renewable energy and energy efficiency targets for 2030.

In November 2018, the European Commission presented its proposed 2050 climate strategy. The document contains eight different scenarios, with the Commission clearly stating its preference for two scenarios which reach net zero emissions by mid-century. This is a step in the right direction and Denmark, Finland, France, Italy, Luxembourg, Portugal, Spain and Sweden support this goal. The goal of emissions neutrality by 2050 has also been suggested by different stakeholders, including the European Parliament, along with some of the largest EU cities, and adopted independently by Sweden and Denmark, with the Netherlands adopting a 95% reduction target and Germany an “extensive greenhouse gas neutrality” goal.

Despite the political discussion about more ambitious renewable energy, energy efficiency and emissions reduction goals, the EU’s emissions began increasing again in 2017, driven by lignite and natural gas-based electricity generation and the industrial sector. Of special concern is the increase in emissions in the EU ETS sector—for the first time since the economic recovery in 2010. This change in trend underlines the need to accelerate the coal phase-out and development of renewables.

Ten EU member states representing 26% of the EU’s installed coal capacity have already committed to closing their power plants by 2030 at the latest, and others, including Germany, are debating coal phase-out dates. In addition to the phase of out of coal in the power sector in Europe needed by 2030, natural gas use will need to be constrained to within Paris Agreement compatible level. However European institutions and some EU member states are increasing their support for the development of natural gas infrastructure that will likely increase EU dependency on energy imports, risk creating stranded assets and jeopardise meeting Paris Agreement goals.

The adoption of the more ambitious renewable energy and energy efficiency targets must be followed by measures and policies that will accelerate emissions reductions. Over recent years the EU’s emissions trend has been concerning, as overall emissions stagnated between 2014 and 2016 and increased in 2017 (European Environment Agency 2018a; Eurostat 2018a) (European Environment Agency 2018a ). This will make it more difficult for the EU to reach its—insufficient—emissions reduction targets for 2030 and 2050. Slowing down now will require much faster—and therefore more expensive—action than would otherwise be necessary in the post 2030 period.

This illustrates the need to accelerate the phase-out of the most carbon-intensive source of energy: coal. The CO2 emissions from coal-fired power plants accounted for 66% of EU power sector emissions in 2017, a decrease by 2% points from 68% in 2016, however within this overall reduction emissions from the most carbon-intensive coal, lignite, rose by 2%. A much faster decrease in coal emissions is needed: analysis suggests that an almost complete coal phase-out by 2030 is necessary to meet Paris Agreement-compatible emissions levels (Climate Analytics 2017b).

Right now, only Austria, Denmark, France, Finland, Ireland, Italy, Portugal, Sweden, the Netherlands and United Kingdom—accounting for 26% of EU coal capacity—have set phase-out goals that would achieve this. In Germany, the largest emitter of CO2 from coal in the EU, a newly-created commission is addressing this issue and will propose the date for coal phase-out. The second largest coal emitter, Poland, is instead planning the construction of new coal-fired power plants.

Two factors at work in the EU will continue to undermine the competitiveness of coal. Firstly, the reform of the EU ETS agreed in November 2017 has already resulted in higher prices of the emissions allowances, topping €25 in September 2018. An increase above ~€28 is expected to support a switch from coal to gas also in countries which didn’t set a coal phase-out date (Carbon Tracker 2018). Secondly, the role of coal in the European power sector may also decrease due to the adoption of the new local air pollution regulations which all coal-fired power plants in the EU need to meet by 2021. The high costs of compliance and increasing competition from renewables, may cause many operators to shut down their plants instead of upgrading them.

The decreasing role of coal in the EU stands in contrast to a trend of increased investment in new gas infrastructure. Not only does the achievement of the Paris Agreement’s temperature goal imply a significant decrease and eventually complete phase out of all unabated fossil fuels (Climate Action Tracker 2017), but the projected decrease in the natural gas consumption (E3MLab & IIASA 2016) will make it impossible for the new investments to provide the expected return on investment. This is especially the case for the Nord Stream 2 pipeline, which is built on a premise of continuing gas use for decades (DIW 2018). A complete divestment from fossil fuel investments, including in new natural gas infrastructure, as recently adopted by the Irish government (Reuters 2018b), is an example to be followed not only by the EU member states but also the European institutions.

In 2017 the new additional installed capacity in renewables was 14% higher than in 2016 but it remains to be seen whether this acceleration continues (WindEurope 2017, 2018). Due to the significant decrease in the costs of renewables this increase in installed capacity could be achieved despite a decrease in renewables investment, which in 2017 fell to its lowest level since 2006 and was less the half the investment in renewable energy in China (BNEF 2018).

Along with measures to accelerate development of renewables in the power sector, there also needs to be a step-change in meaningful action in the transport and buildings sectors. On electric vehicles for example, only three member states—France, the United Kingdom and the Netherlands—have set goals, but the EU as a whole has not yet addressed this issue, and now appears to be falling behind developments in China, India, Norway and California. Also, despite the adoption of the buildings directive and significant emissions reduction potential, renovation rate in the EU remained at the very low level between 1 and 2% annually (European Parliament 2016) with significant differences between different EU member states (ZEBRA2020 2017).