"Four instruments may be too much"

May 29, 2012 | 00:00

Interview: EU Energy Commissioner Günther Oettinger on renewable energy targets and emission trading

"Four instruments may be too much"

In an upcoming policy paper on renewable energy, the European Commission says a "binding supportive framework" for renewable energy is needed beyond 2020. But the Commission has not yet decided whether such a framework should be primarily based on markets (i.e. on emission trading) or on a combination of EU targets and national support schemes. In an interview with EER, Energy Commissioner Günther Oettinger says he is "open" to the idea of extending the current renewable energy target by another decade to 2030. About the EU Emission Trading Scheme (ETS) he says it is not sufficient to promote renewable energy on its own. "A CO2 stand-alone target is not the guarantee for ambitious investments in renewables". He also says that "four instruments" (the 2020 targets for CO2 emission reductions, energy efficiency and renewable energy, plus the ETS) "may be too much". Sonja van Renssen reports from Brussels.

EU Energy Commissioner Günther Oettinger
(c) Jacques Griessmayer / Wikimedia

The European Commission appears to be uncertain at this moment how to move forward with its renewable energy policy. In a "Communication" on renewable energy, which is to be published in June and of which EER has obtained a draft, it says a "binding supportive framework" is needed, "be it carbon pricing based with a revision of the EU emission trading scheme, renewable energy focused or otherwise". But the Commission postpones any real choices on the matter (see the box below for an extensive report on the Communication). In an interview with EER, Energy Commissioner Günther Oettinger appears equally undecided, although he does indicate that he does not believe that emission trading will be sufficient on its own to generate adequate investments in renewable energy. He also says that the Commission increasingly wants to "coordinate" the current, widely diverging national subsidy schemes for renewable energy "at a European level".

Q: The 2050 EU energy roadmap shows renewable energy playing a central role in the future European energy mix under every scenario. What can we expect from the European Commission's new policy paper on renewables in June?

A: The line for our June communication is that renewables play a major role in European energy policy. It is about heating and transport but the most relevant sector is the power sector. The communication will be a balance of where we have come from, where we are now and what challenges we face, and where we could be in the next years.

This communication can be one foundation [of our future EU energy policy]. In addition we will come with our communication on the internal [energy] market in autumn. Both can be a part of our long-term energy roadmap 2050 and, as part of this discussion, our energy vision for 2030. We may need some new targets or additional instruments - we will have to see - but these communications can in any case provide a good level of information for the discussions we will have over the next 6-18 months.

Q: How does EU renewables policy need to evolve?

A: We have a common European renewables target of 20% by 2020 and we think it was and is a successful instrument. At the moment we at the Commission have the control step-by-step, year-by-year over what happens in the member states. Are they on track? Are they on time to realize their national target?

We can compare different instruments to achieve these targets, different regulations and different subsidies in all our member states and we think we can come to benchmarks on best practice. Now we want to coordinate more and more these state aid schemes and regulations, at a European level and at the level of best practice.

Our interest is to be as efficient as feasible. Efficient means efficient for investments – in other words for costs and therefore in the interest of consumers – and efficient for a high level of security of supply. At the moment all [renewables support] schemes are relevant for member states and their own markets. We really have no functioning developments between member states. But we have an internal market for electricity and so our vision for the next years is to coordinate more and more our internal market strategy with our schemes and subsidies for renewables and to come to bilateral or trilateral developments between member states.

Q: Can you give an example?

A: Take the North Sea – it’s not a British sea, it’s not a German sea, it’s not a sea of Denmark it’s a European sea. We need integrated solutions for subsidies, for grids, for a common European North Sea grid and for a win-win-win effect in the interests of all consumers.

Take renewables and storage – if you look to Austria and Switzerland and maybe Germany it’s clear you need the European level to integrate power production storage facilities, new capacities in a common European market from south Germany to Austria to north Italy and maybe to Slovenia and Croatia.

Then take solar power in the Mediterranean with Helios as a Greek vision or Desertec and other projects for investment in the southern Mediterranean region – all these projects make clear member states spend a lot on their own market without being connected to neighbour states. This is a disadvantage for a successful next step to more renewables in our European energy mix.

Q: When you say we need to coordinate better, does that come down to 'we need to harmonise renewables support schemes'?

A: Maybe at the end of the day, maybe, but not in the next years. To coordinate is our next step. And to

Take the North Sea: now it's time to come to a European-wide coordinated support scheme in this region, together with infrastructure investments and so on
open up member states and their own support schemes. Again take the North Sea: now it's time to come to a European-wide coordinated support scheme in this region, together with infrastructure investments and so on. Or take solar power in Spain or Greece - investments from France and Germany could be useful hence we need infrastructure, transport infrastructure, and we need coordinated schemes for state aid on a European level.

Q: Do we need a new renewables target at EU level?

A: I am open. It is a question we offered to our member states and to all stakeholders with our energy roadmap 2050. 2050 might be the long-term vision for realizing a non-carbon energy industry but the most relevant date maybe is the end of next decade, 2030.

If you remember, 2002 was the start of the debate about targets and climate change and European energy policy. The debate ended in 2007 with these three targets: CO2 emission reductions, renewables and efficiency. Now ten years later we have to start this debate again. And it must come to an end not in 2017 – that would be too late – but before 2014, under this Commission and this European Parliament, before parliamentary elections are held in June 2014.

At the moment we have four instruments - these [three] 2020 targets and our ETS [emission trading] scheme. Maybe it's too much. Maybe we can't master this. I am open. At the moment I think a new binding target for renewables for 2030 could be a good instrument. But targets mean we need all member states [on board]. And member states are very different - some are more engaged, such as Austria, Denmark and Germany, while others have a different position: France is nuclear and Poland coal.

But I think a new target for 2030, developed and decided before the European Parliament ends its 5-year period, could be a good fundament for everybody, namely for investors and their interest to get a long-term planning strategy and security.

Q: Could we meet our low-carbon economy goals with a CO2 reduction target only?

A: One target for 2050 is to have a CO2-free energy sector and maybe we should develop new [renewables] targets beyond 20% for 2030 and 2040. Or we can say our market-oriented ETS scheme can be re-activated, can be more flexible, can send out better pragmatic price signals and induce [decarbonisation] in this way.

No doubt our ETS scheme is a non-bureaucratic and market-oriented instrument. It may be in the next months we have to decide what could be done in a pragmatic manner to re-activate this scheme: a set-aside, either permanent or a set-aside for some years for example. I am sure we will have more experience to get an answer to your question before we have to decide which instrument should be used for the next decade.

But if you concentrate your politics on the CO2 issue, maybe saying this price level is what we want, it’s up to member states to choose between nuclear, coal and CCS [carbon capture and storage], and renewables. If you want more renewables in your energy mix, for transport or for power, you need a renewables target in addition because a CO2 stand-alone target is not the guarantee for ambitious investments in more renewables.

Q: And do we want more renewables?

A: I think yes but in a pragmatic manner and, as I already said, a new renewables target means you need burden-sharing and targets for all member states. All of them have to accept these and we spoke about Poland and France already - it will be a difficult challenge. We will try but it is not guaranteed that we will be successful.

Q: Is there a risk that member states will argue that setting a higher than 20% renewables target is interfering in their energy mix – which remains a national, not European, prerogative?

A: On the one hand this element is indeed relevant but if with the 20% renewables target, the [joint] competence of member states and the European parliament [in Brussels] is reduced to 80%, the 20% is still an open target for which you can use tidal, wind, solar, biomass etc so it’s a new competence under a European target.

If you go to 30% or maybe in the power sector up to 40% or 50% [renewables] then it’s up to member states to decide between nuclear and/or coal or gas, and under the target to say more wind or solar or both or hydro or more European investments outside Austria and Poland.

Our 20% target for renewables today means 10% for the transport sector and indirectly near to 35% for the power sector. If we want to have a new target, you need 40% or more in 2030 for the power sector. If you look to France with 76% nuclear for power or Poland with 90% coal to power, it’s going to be difficult to convince them to go to a higher binding target for renewables.

But maybe we have to be more flexible. Maybe we can come to an agreement for 40% or more and some of our member states go to 50% or 60% if others go to binding obligations of maybe 30% or 35%. We have to accept and we should activate different conditions for member states to set targets they can accept and realise so at the end of the day we come to a European balance with 40-45% renewables to power.

Q: So we could have a binding target but a burden-sharing system that is more flexible than in the past and allows for a greater spread of commitments among member states?

A: Yes, maybe Poland could go for 20% renewables, Denmark 60%, Austria 45-50% and Germany 40%, for example.

Q: Speaking of Poland and coal, what is the future for CCS (carbon capture and storage) in Europe with all its current financing difficulties?

A: We need CCS, but at the moment it's difficult. We have close contacts with our partners from up to six
We need CCS, but at the moment it's difficult
pilots. We have some feasible instruments to reactivate these pilots and make them a business case, with our member states and our industrial partners, and maybe the CO2 price is one of these instruments. National funding from member states is a second one and maybe a higher level of European subsidies from our EU budget is the third one.

We hope to come to a package with all these instruments before the end of the year in a communication on CCS. I hope to come to functioning demonstration projects in 2015.

Q: But the amounts needed are hundreds of millions. Especially at national level there is a lot of uncertainty. Will that kind of money, can that kind of money, materialise?

A: I think yes. There was a calculation in our European programme for six projects. We have two new developments: first, the CO2 price going down and second, the investments [required] in the technology going up. But the delta is not really impossible; it can be closed with all these instruments.

Q: Do you still believe the Danish EU presidency can reach a deal on the new energy efficiency directive?

A: We are quite optimistic and hope to come to a solution under the Danish presidency before the end of June. There is a strong debate but it is constructive and more and more member states are interested to come to a decision. The European Parliament is a strong partner for us so I am quite optimistic, yes.

Q: Member states appear reluctant to agree binding measures on efficiency however – after they said they did not want binding targets. Do you think energy efficiency is beyond the scope of European energy policy?

A: No, to come to binding measures for energy efficiency is possible. On the basis of the Lisbon treaty we have the competence. But the question is do we want to use this European competence or does the Council [of Ministers, i.e. the member states] accept to use this European competence?

What is the main problem? If you look to buildings, they represent 40% of our whole energy consumption. If you invest in existing buildings, it’s a long-term investment. If you renovate a building from roof to cellar your investment will deliver benefits in a time frame of 15-25 years. In these times of crisis and budget constraints, many mayors, local authorities and governments may say investing now in buildings to get a return on my energy bill in 15-25 years is not my political priority.

But I think we should be credible. You can’t have this argument of the low-hanging fruit and the best European energy source in every Sunday speech and do the contrary from Monday to Saturday. Now it’s time to be credible.

Q: Gas is often said to be the natural partner to renewables. How will this sector evolve alongside renewables? Do we need big projects like the Southern Corridor with the gains in efficiency we are projecting?

A: In our energy roadmap, gas plays an important role. And we need more gas imports because our own sources – take the UK, take the Netherlands – will come to an end. Shale gas maybe in Poland is an additional but not certain solution. So we need a clear gas strategy, we need diversification, which means new pipelines, and new sources.

And since gas is not CO2-free – maybe gas in power means 60% of coal to power emissions – so CCS is key as well. In our outlook we say in 2035 at the latest, gas to power means CCS. CCS is relevant for coal power plants for the moment but it will be so for gas as well in 2030-5.

Q: Do you see a future for coal in Europe?

A: I see a future for coal in the world: in China, India, South Africa, Russia, and in some member states in Europe as well. If we come to technical and economic solutions with CCS, coal is welcome in our energy mix, maybe not at the level of today but with some relevance for some decades.

Q: Looking beyond June, what can we expect from the internal market communication in the autumn?

Q: Our internal market communication will be the start of a debate about market design, market mechanisms and capacity markets. So indeed, renewables, security of supply and new investments in gas power plants are part of a broader picture about how to conclude and finish the internal market. We have to do this by order of the European Council and it is in all of our European interests.
For renewables, we have a period, some years, in which we will have to accept subsidies and state aid, not as a never-ending story but in a progressive manner and with a clear option to come to a functioning internal market where renewables are competitive in that market.

 

"Communication" on renewable energy discusses scenarios, but makes no choices

"Renewable energy: a major player in the European energy market", is the title of a new "Communication" on renewable energy which the European Commission will publish in June, and of which EER has obtained a draft. But the Communication does not make a clear choice as to how renewables can maintain or expand their role in Europe's energy supply - it merely outlines various options. It also says that there should be more "coordination" of national support schemes, but stops short of advocating full harmonisation. In a reaction, industry association Eurelectric says the Commission should make a clear choice for emission trading as the instrument to promote renewables. The European Renewable Energy Council (EREC), on the other hand, wants to see a binding renewable energy target of 45% for 2030, more than double the current 2020 target.

In its new renewables policy paper, the Commission frankly sets forth that it is faced with the dilemma whether to promote renewable energy primarily through the market-based instrument of the Emission Trading Scheme (ETS) or through binding targets and support schemes. A "binding supportive framework" is necessary, the Commission writes, "be it carbon pricing based (…), renewable energy focused, or otherwise". At this moment, renewable energy is primarily promoted through a plethora of widely different national support schemes in combination with a binding EU target ("20% renewables by 2020"), and indirectly through the ETS. But the current renewables target lasts only until 2020. The question is what to do next.

Oettinger says he wants to table concrete proposals by early 2014, before the end of the current Commission and European parliamentary elections in mid-2014. The target date of 2018 foreseen in the current EU renewable energy directive would be “too late”, he says.

The current policy framework for renewables appears to be working, says the Commission, but at the same time it notes that the future is less certain: "the growth of renewable energy will slump after 2020" if nothing is done. The impact assessment accompanying the Communication discusses three options for a post-2020 renewables policy:
1) rely on the carbon market, with stronger greenhouse gas emission reduction targets
2) continue with a binding renewables target and better coordinate renewables support
3) continue with the target and fully harmonise support schemes

The Commission notes that each of these options has its advantages and disadvantages. Going for a binding target could result in higher energy import savings, although it could also raise costs for consumers through financial aid for renewables. Going for a target could also lead to more job creation than opting for the carbon market alone and it would do most to drive technological innovation. Full harmonisation of support schemes (option 3) would lead to more concentrated and distant centralised energy generation rather than local, distributed generation. Long-term costs for all options are similar, the Commission says and it concludes that: "There is not a clear preferred option scoring best in all criteria."

Holy Grail

What the Commission really wants is not certain. Energy Commissioner Oettinger has been talking a lot about fixing the ETS – certainly for a Commissioner who is not responsible for this dossier – but he also points out that a CO2 reduction target does not guarantee investments in renewables because there are nuclear and carbon capture and storage (CCS) too as alternative low-carbon investment options. “At the moment I think a new binding target for renewables for 2030 could be a good instrument,” he concludes (see the interview above).

Although the German commissioner may be amenable to the idea of a new target - this also fits well with Germany's national approach to renewables - not everyone might agree with him, not even within his own department. The dilemma Oettinger faces is that if he backs a market approach he must support a much stronger ETS cap and the powerful energy-intensive sector, in Germany especially, will fight this. If, on the other hand, he pushes for a new renewables target, he risks condemnation - from within his own department even - for undermining the Holy Grail of the European internal energy market.

Market prices

With its emphasis on the internal market, increasing cost-competitiveness of renewables and announcement of a new paper on the Strategic Energy Technology (SET) plan (an existing EU programme to help bring technologies from lab to market) next year, the renewables Communication is far from a promise of a 2030 renewables target, even if Oettinger himself

The Communication points out that there is significant "maturing" of renewable technologies
appears favourable to the idea. The Communication points out that there is significant "maturing" of renewable technologies: the costs of photovoltaic (PV) systems came down by nearly half from 2005-10 and PV systems and onshore wind are expected to be competitive in several European markets by 2020. The cost of other renewables is also expected to decline. In line with this, the Commission advocates “moving as rapidly as possible towards schemes which expose producers to market prices”. Some form of support will continue to be needed for newer, less mature technologies, but the Commission believes renewables support schemes should not be as prevalent, uncoordinated or unpredictable as today.

The Commission indicates that the crash and burn of national subsidy schemes in parallel with the economic crisis has deeply damaged investor appetite for renewables and the lack of cross-border coordination has made their development perhaps more expensive than it could be. Accordingly, it advocates more cooperation and coordination (at a European level) in the support of renewables. More detail on this is expected in a fresh policy paper on the internal energy market in autumn. Oettinger says this will start the debate over “market design, market mechanisms and capacity markets”. The Commission would also like to see more international trade in renewable energy. The current Renewable Energy Directive, adopted in 2009, enables the production of renewable energy produced in one country to be counted towards the target of another country through certain trade mechanisms, but this scheme has so far hardly been used at all by member states.

Wider range

For Jesse Scott, head of sustainable development and environment policy at industry association Eurelectric, EU policymakers have two paths they can go down as they start to plan energy and climate policy for 2030. One gives priority to the internal market and turns to the ETS as the main driver of decarbonisation, complementing its action with a separate funding stream for innovation to drive those renewables that are still far from cost-competitive today. The second option is to adopt a new renewable energy target for 2030 with harmonised subsidies across Europe for maximum cost-effectiveness. EU policy could turn out to be a combination of both these options, Scott acknowledges, but she argues that Brussels should ideally steer a course for one or the other. For Eurelectric, she adds, the choice is clear: it prefers a market-based approach.

The renewables industry on the other hand, is convinced of the opposite. “If you only follow the carbon price, you will get the lowest cost and closest to market technologies,” says Josche Muth, secretary general for the European Renewable Energy Council (EREC), which represents the renewables industry, trade and research associations in Brussels. “We need a wider range of renewables for cost-effective decarbonisation in the long-term.” He points out that most stakeholders in a Commission consultation on post-2020 renewables policy supported a binding target for 2030. This is also because of its benefits beyond decarbonisation, Muth believes: “We have other targets. Energy policy is driven by energy security, competitiveness and innovation [as well as decarbonisation].”

Action plan

Muth's observation indirectly points to a major problem with an ETS-led approach, which is that the ETS does not cover the whole energy sector. It only applies to the electricity sector, but not to the heating or transport sectors, which make up part of the current 20% renewables target (indeed transport has its own target of 10% renewables within that). Many observers argue that these two sectors are getting inadequate attention from policymakers. The Commission’s new Communication again focuses strongly on electricity.

According to Xavier Noyon, secretary general of the European Solar Thermal Industry Federation (ESTIF), this is a mistake. "If it's about leading discussions on exchange of best practice and preparing guidance on support schemes, why not do the same for heating and cooling?" There is an equally powerful argument for coordination at EU level to avoid national boom/bust subsidy cycles, he says. Heating represents nearly half of EU final energy consumption, but unlike transport it does not have its own dedicated legislation or indeed Commission department. Noyon would like to see an EU heating and cooling action plan that synthesizes its roles in achieving greater energy efficiency and deploying renewables.

The case of heating and transport illustrates that the future of renewables does not only depend on a potential renewables target and the ETS. There is other legislation that matters too. The EU energy

The case of heating and transport illustrates that the future of renewables does not only depend on a potential renewables target and the ETS
performance of buildings directive, for example, is a big driver of renewable heating and other green energy technologies in buildings. In transport, fuel suppliers say it is the fuel quality directive, which mandates a 6% cut in greenhouse gas emissions from road fuels from 2010-20, that primarily drives their investments in biofuels – not the 10% renewables in transport target. In another example, end-user energy efficiency obligations for energy retailers in France have led GDF Suez to buy solar thermal provider Clipsol, thus indirectly driving the spread of renewables. Certainly NGOs such as WWF do not want climate and energy policy reduced to a single CO2 emission reduction target, but emphasize the importance of a “basket” of policies.

In the end, however, what may matter most for any future renewable energy policy are developments that take place beyond the energy sector altogether, namely Europe’s economic and financial crisis. If the future of European renewable energy policy is unclear, the future of the EU economy is even more so.

 

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