Want less red tape and more cost effective energy and climate policy? Head to Brussels

Drapeaux parlement europe 3DThe EU is on the brink of setting its energy and climate future, and must agree a new policy framework for 2030 by March 2014, ahead of international climate talks in Paris this December.

In reaction to the European Commission’s green paper on options for the 2030 climate and energy policy framework last March, Europe’s largest trade association, Business Europe, suggested European manufacturing was being left behind. It stated, “Europe’s major competitors, the US and China are reindustrialising on the back of low energy costs. Meanwhile the current EU energy and climate policy is driving up costs through inconsistencies in EU policies as well as uncoordinated and heavy-handed national government intervention in energy markets.”

The experts don’t agree with Business Europe
Business Europe is trying to stall EU leadership on climate change and it is out of kilter with the views of the business community we interviewed for our review of EU climate and energy policy, published today.

Business Europe makes great claims for shale gas. But it’s unlikely to be a game changer in the UK and across Europe and, as Julian Morgan argued recently, it could even push up the value of the pound , making UK manufacturers  less competitive.

It claims that inconsistent EU policies and heavy-handed national government policy are to blame for higher costs. The main inconsistencies Business Europe refers to is the potential clash between the EU Emissions Trading Scheme (ETS) and mandatory targets for renewables (and resulting national support schemes to reach the targets). But it’s wrong to blame past failure of the ETS on renewables. The main reason the carbon price crashed was the recession that hit Europe, leaving factories and power stations with more allowances for emitting carbon than they needed, dramatically reducing the value of the allowances in the market.  The businesses and experts we interviewed did have criticisms of EU policy, but were overwhelmingly positive about the impact of EU climate policy.

The new policy package for 2030 should be smarter
Carbon trading and targets for renewables and other new technologies can and should work together to reduce costs. Targeted support schemes for different renewable technologies and other low carbon energy are far cheaper than using a carbon price alone. If the carbon price rose high enough to bring on new technologies like offshore wind or carbon capture and storage (CCS), there would be massive windfall profits for the lower cost technologies and consumers would overpay.  Regulation plays an important role in reducing costs too. By restricting the most polluting technologies such as coal, it provides long term signals for investment in abatement technologies like CCS.

We spoke to 20 climate and energy experts from industry, academia and NGOs for our review. They all said that product and power station pollution standards at the EU level had significantly reduced regulatory burden. It is easier to apply a single rule or standard to operations across all member states than to negotiate and implement different rules individually with 28 national governments. Common EU policy allows companies that operate across Europe to benefit from economies of scale. The 2020 climate and energy package, agreed back in 2009, kick started investment in renewables, massively reducing the costs of several technologies.

EU policy has its weaknesses, for instance many support schemes failed to keep pace with falling technology costs and, in some instances, renewable developers have made excess profits at the expense of energy bill payers. However, new, smarter support schemes are being introduced that avoid this, reducing support over time as a technology gets going and including cost control mechanisms.

The EU needs to stay ambitious and ahead of the game to benefit business
So, what’s needed for a more competitive energy market in Europe? The EU should stay ahead of the global climate game and continue to play a leading role in setting ambitious greenhouse gas emissions targets, working with others to agree a global deal. In this way, it will continue to lead on and benefit from the growing market for the technologies of the future which, undoubtedly, will be clean and low carbon.

Providing a long term framework in the 2030 climate and energy package will enable national governments and the private sector to invest confidently in energy efficiency and a range of low carbon energy sources for the future, helping to increase energy security across Europe. This package should seek to iron out the incompatibilities between the energy markets that exist within the EU, so resources can be more efficiently shared. A strengthened and smarter ETS should be complemented not undermined by clever targets and regulation to reduce the costs of decarbonising the power sector.

An effective 2030 European energy and climate policy package should give Business Europe something quite different to say in future, as it drives down costs and increases the global competitive advantage for European manufacturing industry.

Read our new report, published today: What has EU climate and energy policy done for the UK?

See the infographics from the report here

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