Report: European Union Emissions Reductions Will Cost Less Than Estimated

eu co2 emissions

A new analysis by the European Union (EU) finds that meeting a 20 percent reduction in greenhouse gas emissions from 1990 levels by 2020 will cost less than expected when the target was established in 2008. Further, the analysis finds an even greater potential reduction scenario would also cost less than forecast, and both will result in billions in environmental and health benefits.

The document, published earlier this week, was in response to a request by the EU to determine consequences for member states seeking to meet the emissions reduction goals. Staff analysts found that the target would be less costly for the EU as a whole as well as for each individual member state, with greater cost reductions in the lower income EU states.

Estimated costs fall

Costs of meeting the emissions reduction goals have now fallen to an estimated €48 billion, or 0.3 percent of total EU gross domestic product (GDP) in 2020. The report was careful to note this estimate does not predict a drop in GDP, but rather €34 billion annually in new renewable energy investments between 2016-2020.

Three factors are identified for the reduction in cost – EU climate change policies, higher energy prices, and the ongoing economic slowdown. While movement toward the EU’s 20 percent renewable energy goal has helped stimulate clean energy investments and lowered overall emissions, the economic slowdown may portend trouble for the EU’s emissions trading system (ETS).

Effect on emission allowance system

The analysis finds that these factors, while reducing emissions, have built up a large glut of banked emissions allowances and unused international emissions reduction credits. This glut could reach the equivalent of 2.4 billion allowances by 2020 and will “have a depressing effect on the price of allowances in the ETS for years to come,” even considering recent economic recovery and projected economic growth. However, potential auction revenues are still expected to total €21 billion in 2020.

Stricter targets possible

Even if the EU moves toward greater emissions reduction scenario by 2020, the trend of lower than estimated costs still holds true. Reducing emissions 30 percent by 2020 is now estimated to cost around €70 billion in direct net impact on energy consumers, with an additional energy system investment of €18 billion annually.

However, a 30 percent reduction would save an average of €20 billion in fuel costs per year between 2016-2020, reduce air pollution control costs €2.7 billion, and produce economic benefits of €3.4-7.9 billion annually due to reduced mortality.

Prospects for support?

More than 70 European companies, representing 3.4 million employees and €1 trillion in annual revenue, urged the EU to set the 30 percent emissions reduction goal in June 2011.

EU environment ministers expect to discuss the document this March, and think Denmark’s EU presidency will boost prospects for greater emissions reduction targets than during Poland’s 2011 presidency, when the coal-dependent nation blocked greater reduction targets.

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