Esa Hyvärinen
Posted by: Esa Hyvärinen
20.1.2014

The European Commission is getting ready to publish its proposal for the EU climate and energy targets for 2030 and the supporting mechanisms. The Commission is expected to focus on the CO2 reduction target. Adopting rapidly an EU level target for greenhouse gas emissions at the level that will keep us on track with the EU 2050 decarbonisation objective, is the first priority. This would bring cost-efficiency into EU policies and thus enable the EU to reduce emissions at lower costs than in the current framework. Whatever the targets will be, it is clear that they will have an impact on the energy sector’s ability to invest in energy production and infrastructure as well as on energy prices for industries and consumers.

During the economic downturn the same amount of emissions trading allowances have been put on the market despite radically lowering demand. The system would have benefitted from a degree of flexibility where the supply of emission allowances reflects the demand. Consequently, the scheme lost its steering effect in the energy sector. As remedy, the Commission is now expected to propose a mechanism that would enable the currently inelastic supply of allowances to respond to constantly changing demand. This would bring welcome stability to the CO2 market and price without affecting the emission target as such.

European consumers pay increasingly high electricity bills
Energy prices have indeed been an integral part of the Commission’s assessment when planning the new targets. When it comes to electricity, it should be noted that currently European households and companies pay a higher price compared to their counterparts in e.g. the USA, even though wholesale prices on both continents are more or less the same. While wholesale prices in Northern Europe have remained at a fairly low level over the past few years, end user prices have increased substantially as a result of the current policy framework. The cost impact of the often blamed emissions trading is in fact very small. Instead, different taxes, levies, fees, etc. drive the increase of the end user prices.

Cost-efficiency to renewable energy sources support schemes
Part of the 2030 package includes targets for renewable energy sources (RES). Fortum has been of the opinion that a target for RES should concentrate on research and development, innovations and demonstration as well as RES market integration, not on production. This would be the most effective way to insure future investments, speed up the adoption of clean technology and as result create green growth in Europe.

Proposing an EU-level RES target instead of national ones – as the Commission is expected to do – would, nevertheless, bring better cost-efficiency to RES support schemes compared to purely national approaches. This can be considered as a step in the right direction. It is also important to pay attention to the integration of renewable electricity into the market, as its amount and share will grow in any case in the future, which, as such, is a very positive and desired development.

I trust that when the Commission comes out with its proposal for a more cost-efficient decarbonisation of Europe, political decisions will be taken accordingly without delay as implementation of the legislation may take several years. Ideally, decision should be made already at the European Council meeting in March, where the heads of states will discuss these issues in detail. After all, safeguarding Europe’s competitiveness – while taking care of the climate – should be the first priority for all member states.

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