New study: EU climate package to cost EU 73bn euro per year by 2020
Open Europe has produced the first independent estimate of the cost and wider effects of the EU's new package of climate change measures, currently under negotiation. The outcome of the package is of particular concern at a time when Europe stands on the brink of an economic slowdown, and in some member states, recession. The plan is the most ambitious EU programme since the launch of the euro. The package, which sets a 20% target for overall emissions reduction by 2020, includes binding targets for 20% of energy to be sourced from renewables and for 10% of transport fuels to come from biofuels. The package will also make a number of important changes to the EU Emissions Trading Scheme, raising concerns over the continuing viability of certain heavy industries in Europe . Huge economic costs. We estimate that the cost of the package as a whole will be more than 73 billion euro per year by 2020 for the EU 25. This is equivalent to 160 euro per person and 650 euro for a family of four. A full breakdown of national costs can be found on pages 43 – 44.
Unnecessarily high costs. Importantly, the study concludes that the EU's proposals are an overpriced solution to climate change. We estimate that the cost of carbon abatement under the package will be 80 - 105 euro/tonne CO2. This is more than double the UK Government's benchmark shadow cost of carbon (42 euro/tonne in 2020), and the estimate of consultants McKinsey of less than 40 euro/tonne for bringing global emissions down to safe levels. A more recent report from McKinsey on climate change policy in Germany ( Europe 's largest emitter) notes that by 2020 "A reduction of 31 percent is possible with measures that cost less than 20 euro per tonne of CO2e or are part of the already planned change in energy mix."
Cost-effectiveness of green policies is now more important than ever. At a time of financial crisis, rising energy costs and the likelihood of economic downturn in Europe , it is essential that climate change policy is cost-effective and reduces carbon emissions with the lowest possible economic impact.
Tough negotiations lie ahead over the next two months. Key elements of the plan were approved by the European Parliament's Environment Committee on Tuesday 7 October. However, the bulk of the negotiations lie ahead. EU heads of state and government will discuss the package at the European Summit next week (15 - 16 October), and it will come before EU Environment Ministers during the EU Environment Council meeting on the 20 - 22 October. The French Presidency of the EU wants to complete the entire process by the end of this year, but faces opposition from some member states such as Poland .
Hugo Robinson, Open Europe Research Director and author of the report said: "At a time of rising energy bills and worries over the economy, the EU's climate change package is the last thing that hard-pressed consumers need.
Now more than ever, it should be obvious that we need to reduce carbon emissions as efficiently and cheaply as possible - but the EU proposals are extremely bad value for money. This means we will pay far more than necessary in fighting climate change; or put another way, we could spend the same amount of money and reduce emissions by a lot more.
It is legitimate for the EU to set targets for absolute carbon emissions reductions, which should be our ultimate priority. However, it is wrong for Brussels to micromanage national energy planning by setting binding targets for renewables and biofuels. This will artificially drive investment towards very high-cost methods of cutting carbon.
The politicians who sign up to this deal will be out of office in ten years time - but pensioners and the poor will be left with the biggest bills." To view the full report, "The EU Climate Action and Renewable Energy Package - Are we about to be locked into the wrong policy?", click here: Full report: www.openeurope.org.uk/research/carep.pdf
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Footnotes
[1] European Commission, Impact Assessment to Package of Implementation measures for the EU's objectives on climate change and renewable energy for 2020 (27.02.08)
[2] BERR , UK Renewable Energy Strategy Consultation Document (26.06.08)
[3] Defra, How to use the Shadow Price of Carbon in policy appraisal; interim guidance, (August 2007)
[4] Enkvist , PA , Naucler T & Rosander J, "A cost curve for greenhouse gas reduction", The McKinsey Quarterly (No. 1 2007)
[5] McKinsey, Costs and Potentials of Greenhouse Gas Abatement in Germany (September 2007)
[6] BBC (05.09.08)
[7] Speech by Commission President Barroso (23.01.08)
[8] Unpublished study by the Joint Research Centre, cited in the FT (18.01.08)
[9] EU Commission, Strategy for Biofuels Impact Assessment (08.02.06)
[10] http://www.eea.europa.eu/highlights/suspend-10-percent-biofuels-target-says-eeas-scientific-advisory-body
[11] Doornbosch, R & Steenblik R. "Biofuels: is the cure worse than the disease?" Organisation for Economic Co-operation and Development, Round Table on Sustainable Development, Paris (11-12 September 2007)
[12] See previous Open Europe research papers on the renewables and biofuels targets at: http://www.openeurope.org.uk/research/whatworks.pdfhttp://www.openeurope.org.uk/research/environmenttargets.pdf[
13] AFP, (14.04.08)
[14]Clive Bates, blog (09.10.07)
[15] Evidence to Lords Economic Affairs Committee (28.04.08)
[16] AFP (22.09.08)
[17] BBC (05.09.08)
[18] Royal Academy of Engineering, The Severn Barrage - Transcript of Proceedings (22.05.08)
[19] AP (14.03.08)
Unnecessarily high costs. Importantly, the study concludes that the EU's proposals are an overpriced solution to climate change. We estimate that the cost of carbon abatement under the package will be 80 - 105 euro/tonne CO2. This is more than double the UK Government's benchmark shadow cost of carbon (42 euro/tonne in 2020), and the estimate of consultants McKinsey of less than 40 euro/tonne for bringing global emissions down to safe levels. A more recent report from McKinsey on climate change policy in Germany ( Europe 's largest emitter) notes that by 2020 "A reduction of 31 percent is possible with measures that cost less than 20 euro per tonne of CO2e or are part of the already planned change in energy mix."
Cost-effectiveness of green policies is now more important than ever. At a time of financial crisis, rising energy costs and the likelihood of economic downturn in Europe , it is essential that climate change policy is cost-effective and reduces carbon emissions with the lowest possible economic impact.
Tough negotiations lie ahead over the next two months. Key elements of the plan were approved by the European Parliament's Environment Committee on Tuesday 7 October. However, the bulk of the negotiations lie ahead. EU heads of state and government will discuss the package at the European Summit next week (15 - 16 October), and it will come before EU Environment Ministers during the EU Environment Council meeting on the 20 - 22 October. The French Presidency of the EU wants to complete the entire process by the end of this year, but faces opposition from some member states such as Poland .
Hugo Robinson, Open Europe Research Director and author of the report said: "At a time of rising energy bills and worries over the economy, the EU's climate change package is the last thing that hard-pressed consumers need.
Now more than ever, it should be obvious that we need to reduce carbon emissions as efficiently and cheaply as possible - but the EU proposals are extremely bad value for money. This means we will pay far more than necessary in fighting climate change; or put another way, we could spend the same amount of money and reduce emissions by a lot more.
It is legitimate for the EU to set targets for absolute carbon emissions reductions, which should be our ultimate priority. However, it is wrong for Brussels to micromanage national energy planning by setting binding targets for renewables and biofuels. This will artificially drive investment towards very high-cost methods of cutting carbon.
The politicians who sign up to this deal will be out of office in ten years time - but pensioners and the poor will be left with the biggest bills." To view the full report, "The EU Climate Action and Renewable Energy Package - Are we about to be locked into the wrong policy?", click here: Full report: www.openeurope.org.uk/research/carep.pdf
--------------------------------------
Footnotes
[1] European Commission, Impact Assessment to Package of Implementation measures for the EU's objectives on climate change and renewable energy for 2020 (27.02.08)
[2] BERR , UK Renewable Energy Strategy Consultation Document (26.06.08)
[3] Defra, How to use the Shadow Price of Carbon in policy appraisal; interim guidance, (August 2007)
[4] Enkvist , PA , Naucler T & Rosander J, "A cost curve for greenhouse gas reduction", The McKinsey Quarterly (No. 1 2007)
[5] McKinsey, Costs and Potentials of Greenhouse Gas Abatement in Germany (September 2007)
[6] BBC (05.09.08)
[7] Speech by Commission President Barroso (23.01.08)
[8] Unpublished study by the Joint Research Centre, cited in the FT (18.01.08)
[9] EU Commission, Strategy for Biofuels Impact Assessment (08.02.06)
[10] http://www.eea.europa.eu/highlights/suspend-10-percent-biofuels-target-says-eeas-scientific-advisory-body
[11] Doornbosch, R & Steenblik R. "Biofuels: is the cure worse than the disease?" Organisation for Economic Co-operation and Development, Round Table on Sustainable Development, Paris (11-12 September 2007)
[12] See previous Open Europe research papers on the renewables and biofuels targets at: http://www.openeurope.org.uk/research/whatworks.pdfhttp://www.openeurope.org.uk/research/environmenttargets.pdf[
13] AFP, (14.04.08)
[14]Clive Bates, blog (09.10.07)
[15] Evidence to Lords Economic Affairs Committee (28.04.08)
[16] AFP (22.09.08)
[17] BBC (05.09.08)
[18] Royal Academy of Engineering, The Severn Barrage - Transcript of Proceedings (22.05.08)
[19] AP (14.03.08)
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