Abby L. Harvey
GHG Monitor
10/31/2014
Many details of the Climate and Energy Policy Framework released last week by the European Commission remain unclear at this time, especially in regard to the renewal of the New Entrants Reserve funding program. The framework calls for the New Entrants Reserve 300 funding scheme to be renewed and ramped up within the Emissions Trading System. “The existing NER300 facility will be renewed, including for carbon capture and storage and renewables, with the scope extended to low carbon innovation in industrial sectors and the initial endowment increased to 400 million allowances (NER400). Investment projects in all Member States, including small-scale projects, will be eligible,” the document says.
However, Derek Taylor, former European Commission Energy Advisor, told GHG Monitor this week in written response that the wording of the document is not entirely clear. “Personally, I am not sure what this exactly means. Some people assume it means a completely new allocation of 400 million allowances, but I am not at all sure. If it is a completely new allocation, it is worth about €2.4 billion (at today’s carbon price.) Or, it may mean the initial 300 million is increased to 400 million – which would only be worth €600 million,” he wrote. “Of course, the difference between the two is very important. If it is the former interpretation we could expect two or even three new CCS projects to be funded. If the latter, it would probably mean no more than one large scale project (if that.) I very much hope that it the larger amount.”
The NER300 funding scheme was implemented in two rounds with the sale of 200 allowances in the first and 100 in the second. The European Investment Bank announced the completion of the second round of emissions allowance sales under the NER300 program in mid-April, reportedly raising approximately €548 million from the sale of 100 million allowances. The first 200 million allowances were sold from 2011 to 2012 and generated €1.5 billion in funding. Of that, €1.2 billion was awarded to 23 renewables projects. At the onset of the NER300 program, it was hoped that the funding scheme would spur up to 12 large-scale CCS demonstration projects across Europe. However, the White Rose project, a CCS project run by British utility Drax, is the only CCS project to receive funds through the scheme at a total of €300 million.
Targets in Framework Send Strong Signal
The framework calls for a reduction in greenhouse gas emissions by 40 percent from 1990 levels by 2030. Other targets called for in the framework include a binding target of at least 27 percent of renewable energy used at EU level, an energy efficiency increase of at least 27 percent and the completion of the internal energy market by reaching an electricity interconnection target of 15 percent between member states. “The European Council endorsed a binding EU target of at least 40 [percent] domestic reduction in greenhouse gas emissions by 2030 compared to 1990. To that end the target will be delivered collectively by the EU in the most cost-effective manner possible, with the reductions in the [Emissions Trading System] and non-ETS sectors amounting to 43 [percent] and 30 [percent] by 2030 compared to 2005, respectively; all Member States will participate in this effort, balancing considerations of fairness and solidarity,” says the council’s Conclusions on 2030 Climate and Energy Policy Framework, published late last week.
This amount is in line with current goals Taylor wrote. “I am pleased with the at least 40 [percent] reduction (43 [percent] in the ETS sector.) I certainly do not think it is too stringent. We need it to be at least 40 [percent] in order to not fall (too far) behind in our near zero by 2050 strategy (and leave ourselves a hopeless amount in the last 10-15 years.) This already sends a strong message to the Paris [Conference of Parties] – hopefully others respond,” Taylor wrote, referencing the United Nations Climate Change Conference to be held in Paris in 2015 during which a legally binding agreement on climate is hoped to be made.
Reformed Emissions Trading System Desirable
The document states that a “well-functioning, reformed Emissions Trading System (ETS) with an instrument to stabilise the market in line with the Commission proposal will be the main European instrument to achieve this target; the annual factor to reduce the cap on the maximum permitted emissions will be changed from 1.74 [percent] to 2.2 [percent] from 2021 onwards.” This will be key in reaching EU climate goals, Taylor said. “The need for a ‘well-functioning reformed ETS’ is important,” Taylor wrote. “We must hope that the forthcoming reforms might give us a well-functioning one. This will be critical.”
