EU

In 2017, the EU’s emissions (excl. LULUCF) were 23.6% below 1990 levels – a slight increase in comparison to 2016 largely because of increased emissions from the industry (2.1%) and transport sectors (1.6%). Emissions from electricity generation decreased by 0.8% (European Environment Agency 2018b). Early estimates indicate that CO₂ emissions from fossil fuel combustion (which also includes electricity generation and transport) decreased by 2.5% in 2018 (Eurostat 2019a).

For our analysis we used two scenarios: the “With Existing Measures” or WEM Scenario published in November 2018 by the European Environment Agency - based on biannual reporting from the member states. For the most recent scenario, only Ireland and Cyprus provided updated projections. For other EU members states, the projections reflected the policies adopted as of 2017.

The other scenario, developed using the PRIMES model (also published in November 2018), was prepared and used for the Commission’s long-term strategy. However, this scenario reflects the adoption of the renewable energy and energy efficiency directives. As a result, the discrepancy between these two scenarios reflect the gap between the policies adopted at the European level and their implementation at the national level. Both scenarios lead to emissions reductions in 2030 of between 30.6% (EEA scenario) and 48% (PRIMES scenario) below 1990 levels.

While the respective sectoral policies are described in more detail below, three major policies affect emissions from several sectors: the reform of the EU ETs, the Renewable Energy Directive and the Energy Efficiency Directive.

The reform of the EU ETS, described in more detail in the earlier version of the assessment, resulted in a significant increase in the price of emissions allowances – from an average of €5.84 in 2017 to €15.82 in 2018 (ICAP 2019). In the first five months of 2019 the price mostly remained above €20 and has even briefly exceeded €27 (EEX 2019). Further increases can be expected as, every year until 2023, 24% of the oversupply of allowances will be transferred to the Market Stability Reserve (MSR) and taken off the market. After 2023 this rate will decrease to 12%.

The first such transfer will take place between September 2019 and August 2020 when a total of 397 million allowances will flow into the MSR instead of being auctioned (European Commission 2019). Another important element of the reform is that Member States may now voluntarily cancel allowances to account for national climate and energy policies that lead to a reduction of their electricity generation capacity (European Parliament and the Council of the European Union 2018a). This is important because, in the absence of such a cancellation with an accelerated coal phase out, some analysts predict the possibility of another collapse in allowance prices after 2023 (AgoraEnergiewende & Öko-Institut e.V 2018).

Along with the reform of the EU ETS, in 2018 the EU adopted other legislation with important repercussions for emissions reduction in different sectors. The Renewable Energy Directive (RED II) sets a binding EU 2030 goal of generating 32% of the EU’s gross final energy consumption from renewable sources. In 2023, the Commission must assess if this goal should be revised upwards based on falling costs of renewables.

The main weakness of the directive is that, contrary to its predecessor, the 2009 Renewable Energy Directive with 2020 targets, it doesn’t include specific, national targets. In a bottom-up process the member states will set national contributions to meet this goal collectively. However, the Directive also give the Commission the possibility of taking measures at Union level to achieve this target (European Parliament and the Council of the European Union 2018c).

When it adopted RED II, the EU also adopted the Energy Efficiency Directive that has the goal of increasing energy efficiency by 32.5% by 2030. This would result in reducing EU energy consumption in 2030 from 1,641 Mtoe in 2016 to 1,273 Mtoe of primary energy and from 1,108 Mtoe in 2016 to 956 Mtoe of final energy consumption. As with the renewable energy target, the energy efficiency goal has no specific binding goals for different member states. Instead, member states should take the EU goal into consideration when adopting their indicative efficiency goals. Also, as in the case of RED II, additional measures can be adopted at the Union level to achieve the energy efficiency goal (European Parliament and the Council of the European Union 2018d).

The bottom-up processes that should lead to the EU achieving its renewable energy and energy efficiency goals created the need for regular reporting by the member states. The Governance Regulation introduced the obligation for each member state to notify the Commission of its integrated national energy and climate plan. The first such plan for the period 2021-2030 is to be submitted by the end of 2019 and includes member states’ contribution to achieving the renewable energy and energy efficiency goals. By 1 January 2020, member states must also submit to the Commission their long-term strategies with a perspective of at least 30 years. These strategies are to be updated at least every five years (European Parliament and the Council of the European Union 2018e).

Whereas in 2018 two thirds of emissions in the EU’s power sector still came from coal-fired power plants (Agora Energiewende and Sandbag 2019), the role of this source of energy has been decreasing: emissions from hard coal fell by 9% and from lignite by 4% from 2017 (Sandbag 2019a). However, to be compatible with the Paris Agreement’s temperature limit the EU needs to significantly reduce the role of coal in the coming decade (Climate Action Tracker 2016b; Climate Analytics 2017).

In 2018 an additional 11.7 GW of wind energy were installed in the EU – 32% less than in 2017 and the lowest annual growth since 2011 (WindEurope 2019). New solar energy installations rose from 6 GW in 2017 to 8.2 GW in 2018, with the largest growth in Germany (2.95 GW) and the Netherlands (1.5 GW). According to SolarPower Europe, this growth largely results from countries striving to reach their 2020 renewable energy targets. It estimates that by 2023 the additional annual installed capacity will increase fourfold and reach 32.7 GW (SolarPower Europe 2019).

The share of renewables in power generation increased from 30% in 2017 to 32% in 2018. This increase resulted equally from increasing generation from wind, solar and bioenergy (combined additional 34.6 TWh) and hydro energy (39.4 TWh). Overall electricity consumption increased only slightly – by 0.2% (Agora Energiewende and Sandbag 2019). Combined with GDP growth of 1.9%, this indicates an increasing efficiency of the European economy (Eurostat 2019d).

Increased electricity generation from renewables replaced hard coal (-34 TWh), natural gas (-35 TWh) and to a lesser degree lignite (-8 TWh). As a result, the share of coal, both lignite and hard coal, shrunk from 20.5% in 2017 to 19.2% in 2018 (Agora Energiewende and Sandbag 2019). The slow decrease in generation from the most polluting source of energy makes it clear that a more planned approach is needed to phase out coal in the power sector.

Since our last assessment (November 2018), Finland and the Netherlands have accelerated their coal phase-out from 2030 to 2029 and the Austrian Minister of Environment has announced a coal phase-out by 2020 instead of 2025 (CAN Europe 2019). In January 2019, the German “Coal Commission”, consisting of representatives from the government, academia, NGOs, regional and local authorities, and the coal industry, called for a closure of the last coal power plant by, at the latest, 2038 – possibly 2035 – with 60% of the existing capacity phased-out by 2030 (Kommission Wachstum Strukturwandel und Beschäftigung. 2019). However, no legislation to this affect has yet been adopted or introduced to parliament. Implementation of these plans would potentially result in almost halving Germany’s installed coal capacity. A coal phase-out is currently being discussed in Spain, Slovakia and Hungary (CAN Europe 2019).

In Poland, a recently created political party - “Spring” - has called for a coal phase-out by 2035 (Reuters 2019). However, the Polish government plans to build a new coal-fired power plant in Ostrołęka, which, if built, is expected to generate a €1.7 bn loss (Carbon Tracker 2018). Its construction could also be made possible with subsidies provided in the framework of the capacity markets. Whereas the May 2018 EU Electricity Regulation excludes installations that emit more than 550gCO₂/kWh from receiving capacity payments, contracts signed until the end of 2019 are excluded from this limit (European Parliament 2019a).

While the role of coal in the EU is shrinking, its member states must avoid increasing and locking in reliance on natural gas. While, in the short-term, replacing coal with natural gas can contribute to emissions reductions (depending on methane leakage), even relying on abated natural gas in the longer term is not compatible with the Paris Agreement’s temperature limit (Climate Action Tracker 2017). Also, contrary to projections, gas consumption in the EU decreased by 1.8% in 2018 (DG Energy 2019).

This casts doubts on the fiscal prudence of using EU resources to co-finance the construction of new natural gas pipelines and LNG terminals (European Commission 2018b), as well as the support of some member states—especially Germany—for the Nord Stream 2 pipeline, which is built on the premise that natural gas use will continue for decades (DIW 2018). A complete divestment from fossil fuels, including a commitment to refrain from new investment in natural gas infrastructure, as recently adopted by the Irish government (Reuters 2018), is an example to be followed not only by the EU member states but also the European institutions.

The EU ETS covers all installations with annual emissions exceeding 25 ktCO₂ which, apart from power plants, also includes emissions from energy intensive industries such as cement, steel and chemicals. This represents around 40% of all emissions covered by the ETS (Sandbag 2019a). However, companies producing products on a so-called “leakage list” receive free allowances up to the average emissions of the 10% most efficient installations in the sector or subsector in the years 2007–2008 (European Parliament and the Council of the European Union 2014a). Even if these free allowances didn’t cover the industry’s full emissions, their low price failed to provide an incentive to invest in improving energy efficiency leading to a lack of significant reductions between 2012 and 2018 (Sandbag 2019a).

The EU ETS reform post 2020 adapts the benchmarks for free allocation of allowances to reflect the technological improvements since 2007–2008 (European Commission 2015b). Reflecting more recent improvements in the energy efficiency of the best 10% of installations will also decrease the number of free allowances received, which, depending on allowance prices, will incentivise investment in energy efficiency.

At the same time, some of the Innovation Fund resources must be spent on “industrial innovation in low-carbon technologies and processes”. This includes deployment of carbon capture and storage (CCS) as well as utilisation (CCU) (Council of the European Union 2017).

The 2010 Industrial Emissions Directive (IED) also plays a role in reducing emissions from large industrial installations. The IED aims at reducing the emissions of a number of pollutants, including greenhouse gases, by requiring around 50,000 installations undertaking industrial activities to receive a permit showing they operate according to the Best Available Techniques (BAT) (European Parliament and the Council of the European Union 2010c). This results in higher energy efficiency and lower emissions. While around 11,000 installations covered under the EU ETS are exempt from complying with standards relating to GHG emissions, it does influence emissions from the almost 40,000 remaining installations that—according to the EID—require a permit to operate.

Between 2016 and 2017, emissions from the transport sector increased by 1.6% (European Environment Agency 2018b), reflecting a continuation of a troubling trend which – contrary to the overall emissions - resulted in emissions growth of around 28% above 1990 levels.

The fastest increase has been in aviation, which more than doubled in this period (European Environment Agency 2018a). As a result, with almost 10 MtCO₂ emitted in 2018, Ryanair joined the list of the EU’s ten biggest greenhouse gas emitters. Notably, the EU sustainable transport strategy has not been updated since 2009. The European Investment Bank’s transport policy dates from 2011. Both will require updating to address the current emissions growth trend.

As the transport sector—with the exception of intra-European aviation—is not covered by the EU ETS, the European Union and its member states are trying to reduce emissions from the sector in three ways: (i) adopting sectorial renewable energy targets, (ii) introducing CO₂ emissions standards for new vehicles, and (iii) increasing the share of zero and low emissions vehicles, and (iv) encouraging a modal shift, which also has an important role to play, particularly from road and air to rail transport.

Sectoral renewable energy targets

The 2009 Renewable Energy Directive introduced a 10% target for energy from renewable sources in transport by 2020 (European Parliament and the Council of the European Union 2009b). Due to the impact that the first generation of biofuels may have on emissions from the LULUCF sector in other countries, in 2015 the role of first generation biofuels and bioliquids in achieving this target was limited to 7%, with the rest having to be met by advanced biofuels and greater use of electricity in the transport sector (European Parliament and the Council of the European Union 2015).

In 2017 – the latest year for which data are available - EU member states were far from achieving this goal, with only 7.1% of energy consumed in the sector coming from renewable sources – an increase by 0.1% from the preceding year. Only Austria and Sweden have already met the 10% goal (European Environment Agency 2018a).

The 2018 Renewable Energy Directive (REDII) introduced a new goal of a 14% share of renewables in the transport sector by 2030. This target has been flanked by limiting the share of first-generation biofuels at no higher than 1% above their 2020 share. REDII states that uncertified biofuels that may create the risk of high indirect land-use change emissions cannot be counted toward meeting the 2030 target.

The directive encourages use of energy from second-generation biofuels and electricity. Energy from second-generation biofuels can be counted at twice their energy content and should amount to at least 1% in 2025 and 3.5% in 2030. While there is no specific sub-target for electricity in the transport sector, the contribution of renewable power is to be considered at four times its energy content (European Parliament and the Council of the European Union 2018c).

CO2 emissions standards for vehicles

After lengthy negotiations, in December 2018 the representatives of the European Parliament and the Council agreed on a regulation with the goal of reducing CO₂ emissions from new passenger cars by 37.5% in 2030 below 2021 levels. The emissions standards for new vans are to improve by 31%. For both types of vehicles there should also be an intermediary improvement of 15% by 2025 above 2021 levels. Member states with a low share of electric vehicles will be encouraged to accelerate their uptake by granting such cars a bonus multiplier of 0.7 for clean vehicles. This bonus expires when the share of electric vehicles exceeds 5% of a country’s fleet (European Parliament 2019b).

These emissions reductions cannot be directly compared to the 95 gCO₂/km limit for passenger cars for 2021 and 147 gCO₂/km limit for vans in 2020: due to numerous exceptions and different methodology, the real average emissions of new vehicles will very likely be higher. It has recently become clear that the increasing stringency of the emissions standards was accompanied by an increasing gap between test results and real-world performance: according to some estimates in 2015 this gap reached 42% or 31 gCO₂/km per vehicle (Transport&Environment 2018). To limit and possibly remove this gap, the law replaces the current testing regime the Worldwide Harmonised Light Vehicles Test procedure (WLTP) and empowers the Commission to introduce the acts necessary to implement this procedure (European Commission 2017b).

In February 2019 European Parliament and the Council agreed on emissions standards for heavy duty vehicles. Emissions from new vehicles should decrease by 15% in the period 2025-2029 and by 30% from 2030 onwards, in comparison to emissions of the new vehicles sold between July 1, 2019 and June 30, 2020. The regulation also includes a 2% benchmark for the share of zero and low-emission vehicles (ZLEV). Whereas failing to meet this benchmark doesn’t result in any negative consequences, exceeding it leads to more lenient emissions standards for the remaining vehicles (The ICCT 2019).

Promoting low-carbon vehicles

One of the options available for car manufacturers to reduce the average emissions of their cars is to increase the availability and sale of zero and low-emissions vehicles (Climate Action Tracker 2016a). The emissions standards regulation also includes a mandatory quota for the share of zero- and low-emission vehicles (ZLEV) defined as emitting less than 50 gCO₂/km, for new passenger cars and light commercial vehicles. According to the regulation, in 2025 at least 15% of passenger cars and light vans must be ZLEV. By 2030 this share should increase to 35% for passenger cars and 30% for ZLEVs (European Parliament 2019b).

Support for low carbon modes of transport in some member states has led to an increase in the sale of electrically-chargeable vehicles in the first half of 2018 to over 300,000 vehicles—or 2.01 % of all new passenger cars sold in the EU. However, the share varies strongly by country, with the share of new battery and plug-in hybrids reaching 8% in Sweden, 4.7% in Finland and 6.7% in the Netherlands. The biggest car market in the EU, Germany, trails behind with 1.97% of all new cars being electric, slightly below the European average. In the first quarter of 2019 almost 2.5% of all cars sold in the EU were electrically chargeable. Interestingly, the share of hybrid plug-ins decreased from 1% in 2018 to 0.93% in Q1 2019, whereas the share of battery-only vehicles increased from 1% to 1.54% of all sold vehicles in the same period (ACEA 2019b, 2019a).

The share of newelectric vehicles in the EU – at 2% - is lower than at the global level, where it reached 2.2% on average for 2018 and 3.8% in December 2018. China’s share in 2018 was twice as high, at 4.3%. The EU was also behind the United States where the share of newelectric vehicles in 2018 was 2.1% (EV-Volumes 2019). The EU would need to take much more decisive action to meet the Paris Agreement-compatible emissions trajectory, that requires the last combustion vehicle to be sold by 2035 (Sterl et al. 2016).

Interestingly, despite lagging behind other countries in the development of e-mobility, the EU is reaping the benefits from electric vehicle exports. In 2018, the EU’s trade surplus from exporting electric and hybrid electric cars amounted to €3 billion, mainly from Germany, Sweden and the UK (Eurostat 2019b). This shows that decarbonising the transport sector may also result in significant, positive, economic effects.

Some EU member states have already announced plans to ban the sale of combustion cars in the coming decades, e.g. Denmark and the Netherlands by 2030 (Dutch Government 2017; electrive 2019), and the United Kingdom and France by 2040 (WEF 2017). For the UK, the May 2019 report by the Advisory Committee on Climate Change pointed out the need to phase out the sale of combustion cars by 2035 at the latest and, if feasible, by 2030 (Committee on Climate Change 2019).

Underdeveloped charging infrastructure remains a major hindrance to the uptake of electric vehicles. The 2014 Deployment of Alternative Fuels Infrastructure Directive obliged member states to expand publicly-available charging infrastructure by installing at least one charging station for every ten vehicles projected to be on the road by the end of 2020. It also encouraged member states to facilitate installing charging stations for maritime and inland waterways, and at airports, to allow ships and planes to use electricity while stationary instead of running their engines (European Parliament and the Council of the European Union 2014b).

More recently, the 2018 Energy Performance Buildings Directive (EPBD) introduced the requirement that all new residential buildings and those undergoing major renovations, with more than ten parking spaces, must be equipped with adequate pre-cabling or pre-tubing to enable the installation of an electric vehicle recharging point for every parking space (European Parliament and the Council of the European Union 2018b).

The European legislation, combined with the additional funding from both national and European sources, has led to a significant increase in the number of charging points, from 59,200 in 2015 to 151,700 in 2019. This includes fast chargers (>22 kW) whose share in all publicly-available chargers increased from 10.5% in 2015 to 15.4% in 2019. In total, the number of EVs per charging point increased from five in 2017 and nine in 2018 to ten in early 2019 (European Alternative Fuels Observatory 2019). This shows the number of EVs were constantly increasing faster than the number of charging points and their installation is becoming increasingly profitable for electricity utilities.

To stimulate the cleaner vehicle market, in February 2019 the EU Parliament and Council agreed on an amendment to the directive on promoting clean and energy efficient vehicles. The directive requires public authorities procuring vehicles (e.g. for public transport) to take their CO₂ emissions and the emissions of other pollutants into account.

It also sets a minimum share of clean heavy-duty vehicles (trucks and buses) in the total number of heavy-duty vehicles contracted by member states. These shares differ depending on the member states and types of vehicles. For example, in the period 2021-2025 between 24% (Romania) and 45% (majority of the EU member states) of buses procured by public communities should be clean or zero emissions. For the period 2026-2030 these shares increase to between 33% and 65% (European Parliament 2019d).

Modal Shift

European airlines continue to benefit from Valued Added Tax exemptions for flights between EU member states and continued high levels of free EU ETS allocations. As a result of a continued high growth of emissions, a Belgian proposal for further taxes on aviation has drawn support from a number of EU member states (CLEW 2019). At the same time the EU aims to strengthen the position of railways in comparison to the other modes of transport, including by increasing competition between the operators and investing in rail transport infrastructure. However, these efforts still didn’t have an impact on shifting freight transport from road to railways: between 2012 and 2017 the share of freight transported by rail decreased from 18.5% to 17.3% (Eurostat 2019c).

In the EU, the Energy Performance Buildings Directive (EPBD Directive), first adopted in 2010, regulates emissions from the buildings sector and obliges member states to introduce minimum energy performance requirements and ensure that, from 2021, all new buildings are “nearly zero energy buildings” (NZEB). While defining an NZEB as a building with a very high energy performance, whose energy needs are covered largely from renewable sources of energy, the EU left the definition of the exact energy consumption level of such building to its member states (European Parliament and the Council of the European Union 2010b).

The Commission’s estimates show the EPBD Directive has already contributed to an additional emissions reduction of 63 MtCO₂ in 2013 (European Commission 2016b). To strengthen climate action in this sector in 2018 the EU amended the EPBD Directive. It included obliging each member state to submit a long-term renovation strategy leading to fully decarbonising its building stock by 2050, with specific milestones for 2030, targeting especially the worst-performing building stock (European Parliament and the Council of the European Union 2018b).

It remains to be seen whether this will help address the issue of the low rate of deep renovation of the existing building stock which currently amounts to between 1–2% of the total stock. With 2% in France, 1.5% in Germany, to 0.12% in Poland and 0.08% in Spain, there is much variety among the EU member states in terms of the deep renovation rate of residential buildings (ZEBRA2020 2017). An increase of the renovation rate to 5% would be necessary to make emissions from the building sector compatible with the 1.5°C temperature increase limit (CAT 2016).

Since 35% of the EU’s building stock is over 50 years old and much of the overall lifetime reaches beyond 100 years, increasing the renovation rate could significantly reduce energy consumption and emissions (European Parliament 2016). A report prepared for the European Parliament noted that to increase the rate of renovation it is necessary to raise awareness about efficiency options, raise the ambition of the renovation regulations, and increase the availability of the funding instruments for deep renovation (European Parliament 2016), measures which have not found widespread use so far.

Much more effective has been European legislation dealing with the energy efficiency of household appliances. The 2009 Eco-design and the 2010 Energy Labelling directives (European Parliament and the Council of the European Union 2009a, 2010a)are set to reduce emissions by 315 MtCO₂eq in 2020 and 515 MtCO₂eq in 2030 (European Commission 2017a). The working plan for 2016–2019 includes measures that, combined, would lead to primary energy savings equivalent of over 100 TWh in 2030 (European Commission 2016a).

An important part of decarbonising the EU building stock is the phase-out of fossil fuels in heating. Some countries have already introduced such a ban (e.g. Denmark) or are planning to do so (e.g. the Netherlands and the UK) (Cambridge Econometrics 2019; Energy Saving Trust 2019; IEA 2017). The higher cost of the alternatives to natural gas, such as heat pumps or district heating, does require public support, especially in the case of replacing already existing heating installations.

LULUCF emissions have not yet been included in either the EU ETS or non-EU ETS sectors. This has changed with the adoption of the EU regulation that aims at including the GHGs emissions and removals from this sector in its 2030 climate and energy framework by allowing the use of net removals from this sector to comply with the targets in the non-EU ETS sectors by up to 280 MtCO₂ in the period 2021–2030 (European Commission 2016f). The Regulation includes a no-debit rule meaning that emissions from deforestation could be offset by either afforestation or improved management of the existing forests (European Commission 2016f). However, this target is weakened by the possibility of using 2021-2025 LULUCF emissions reductions to offset emissions in the second half of the decade.

The regulation also introduces flexibility on the accounting of emissions reductions from managed forests amounting to up to 360 MtCO₂ in the period 2021-2030. Finland will be granted additional compensation of 10 MtCO₂ for the 2021–2030 period “in view of the special circumstances of its forestry sector”. However, EU member states will only be activating this ‘managed forest land’ flexibility mechanism if the EU collectively meets the ‘no-debit’ rule (European Parliament 2018c).