EU Must Go Beyond Carbon Pricing — For Economy, Climate, EU

WWF has released a briefing paper on post-2020 renewable energy targets. The EU has had some of the most aggressive renewable energy and energy efficiency policies and programs for over two decades now. However, its fuel imports have still risen considerably. Already-established renewable energy and energy efficiency leadership will help the EU to curtail that growth in fuel imports, and if it strengthens such policies, that is even more true.

Such policies are very helpful to Europe’s overall economy. The “20-20-20” targets have the potential to save the EU “hundreds of billions of euros a year,” WWF writes in the briefing paper.

EU fuel imports

“The argument is often made that investment in renewable energy will increase energy costs, further compromising the EU’s competitiveness. In fact, investment in renewable energy, coupled with energy savings, is a smart choice, even in difficult economic times. Under the World Energy Outlook 2012’s current policies scenario, Europe and the world face rising energy prices at least up to 2030. It is only with the implementation of concerted decarbonisation policies that prices start to come down,” WWF writes.

“The more renewable capacity there is in Europe, the less there is a need for increasingly expensive energy imports. Furthermore, support to renewables is affordable. Renewable energy support is not one of the structural causes of energy price rises recently identified by the European Commission. Instead, increasing demand from developing countries, limited fossil fuels resources and overall increasing exploration costs were singled out. Indeed, In the UK, up to 90% of price rises since 2004 are unrelated to renewable energy support. Only a third of German energy price increases have been due to support for renewables since 2000, and exemptions for the 1000 industrial players who use 19% of Germany’s energy mean they only pay for 0.3% of renewable energy support.”

If you see claims about renewable energy jacking up the price of electricity in the EU (or anywhere) you can now know that they are rubbish. And feel free to direct them to this article or to the ones linked above.

Furthermore, the shift to renewable energy and greater energy efficiency means more jobs are created within Europe; European countries, cities, and communities see more tax and public benefits; and a large number of households save or generate money through cuts in energy waste and decentralized solar or even wind power projects. If you live in Europe, these clear benefits should make you a strong supporter of ambitious post-2020 renewable energy and greenhouse gas reduction targets.

More specifically, WWF advocates that the EU go far beyond a simple carbon pricing policy. It urges the EU to also adopt:

  • Cost effective energy efficiency policies; and
  • RD&D (research, development and demonstration) and technology deployment policies (which can include targets and support measures for renewables).

For a more thorough discussion of the failings of a singular focus on carbon pricing, see page 3 of the WWF briefing paper. However, generally, I think these lines from WWF are a good summary:

“Carbon pricing as the main energy decarbonisation tool is most attractive in a theoretical world where the perfect carbon price can be both judged and implemented. In reality this is extremely difficult to achieve, as both damage and abatement costs of climate change are extremely uncertain…. Furthermore, even with a carbon price that advantages renewable energy, the historic structural support enjoyed by fossil fuelled power plants means investors may still choose to build these traditional generators instead.”

In other words, models are only as good as their assumptions — and assumptions in this arena are likely to be considerably off — and even with a good carbon price, historical support for fossil fuels continues to advantage these polluting fuels unless strong efforts are made to reverse or at least balance out that trend.

Going on, WWF writes:

In contrast to the problems facing carbon pricing as a decarbonisation instrument, renewable energy technologies have consistently demonstrated the benefit of targeted support in accelerating their progress down the cost and learning curves. In the solar PV market, price reductions have averaged 22% per doubling of sales since 1979.

Furthermore, the ‘proposition that mass deployment… should be driven by technology neutral carbon pricing…’ fails to understand that, since carbon prices only affect the marginal price of fuel and power, they will encourage fuel switching and efficiency before renewable deployment. Setting carbon prices high enough to drive investment in renewable energy is far more economically disruptive and less likely to be effective than targeted support for markets in emerging technologies, using measures which investors can have confidence in.

Raising the Target

Unfortunately, current EU policies are only projected to reduce the EU’s greenhouse gas emissions 40% by 2050. Its target is 80–95%.

“Energy savings are the key enabler of energy sector decarbonisation, but this area of policy remains the weakest and least stable element energy policy,” WWF notes.

Other key summary points (with more details provided in the WWF briefing paper) include:

  • “A significant proportion of Europe’s current energy generation capacity is due to close in the coming years, raising the question of what it will be replaced by.”
  • “The Roadmap scenarios envisage gas making up a stable proportion of the energy mix, but a falling absolute amount of power generation capacity.”
  • “Both the International Energy Agency and the World Bank have recently stated that without significant additional action the world will warm beyond the 2 degree maximum agreed by world leaders.” (And that would spell unprecedented, societally catastrophic effects on populations across the globe.

WWF’s Conclusion?

Here’s WWF’s overall conclusion:

The EU needs comprehensive post-2020 climate and energy legislation that ensures the delivery of energy savings, renewable energy, and emissions reductions. A carbon price only approach would not be sufficient, since it is based on a theoretical view of neo-classical economics that fails to deliver the intended outcomes in real world settings. Renewable energy must be prioritised and supported beyond that which is currently envisaged if the EU is to minimise the risk of dangerous climate change because:

● Carbon pricing is only the most cost-optimised option if the price is set at the optimum level – something that is extremely different to achieve;
● Carbon pricing also fails to address other important concerns of the investment community, such as predictability;
● Targeted support is gaining a track record of success in real-world settings, but the EU ETS is not giving adequate investment signals for decarbonisation.
● WWF’s research shows that much more ambitious levels of energy savings and renewable generation could be achieved than that envisioned by the Commission’s Roadmap scenarios.

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