The European Commission has presented a new climate and energy policy framework for 2030 that focuses heavily on emissions reductions.
Currently the EU implements “20-20-20” targets, which require a 20% reduction of greenhouse gas emissions compared to 1990 levels, an 20% increase in the share of renewables in electricity generation, and a 20% improvement in energy efficiency.
But the European Commission now intends to scrap the energy efficiency target and weaken the renewable energy target. Though the proposal includes a “binding” EU-wide renewable energy target of 27%, this would not be translated into national targets through EU legislation, leaving “flexibility” for member states. It is questionable, however, whether flexible targets are targets at all.
Of course such a move has been lobbied for by business and industry groups, such as Businesseurope, and is supported by some EU member states including the UK and the Czech Republic who argue it should be for individual nations to decide.
But some economists also approve of the idea, such as Harvard’s Robert Stavins, who claims that a single emissions target “would be good news for the economy and the environment”.
It’s not all about climate change
We should all rejoice, then? At first glance, the argument for a single greenhouse gas emissions target alone is appealing. The EU emissions trading scheme, the EU’s main instrument for driving down emissions, uses market forces. Stavins argues that adding further targets and policies for renewables and energy efficiency only distort these incentives, making them more expensive, and in turn raising the cost of reducing emissions.
But this line of argument presupposes that the transition to renewables and energy efficiency improvements are seen only as means to mitigate climate change. In fact, the process of generating and distributing energy inevitably creates environmental problems, besides climate change. These occur throughout the chain of production, from extraction (for example, open pit coal mining), transport (leaking gas pipelines), combustion (local air pollution) and by-products (such as disposal of nuclear waste).
So if nuclear power is really considered an answer to climate change then we are replacing climate impacts by other kinds of environmental harm. So the idea that completely free choice of technology is only restricted by carbon pricing – an argument usually favoured by economists – could be misleading. And if producing energy means producing these environmental problems along the way, it makes sense to not only use cleaner, renewable energy sources, but also less energy in the first place.
There are also economic justifications for maintaining targets for renewable energy, even if climate change was the only environmental aspect that mattered. Renewable technologies are trying to break into imperfect markets, which tend to benefit established sources such as fossil fuels and nuclear energy. This leads to low adoption of renewables.
But substituting fossil fuels imported from politically unstable regions for renewables can improve energy security, reducing the costs associated with relying on others: sudden blackouts, diplomatic failures, even military interventions. (The ease with which Russia’s state-owned gas and oil firms can “turn off the taps” of supply to clients, for example, has hastened several Eastern European states’ efforts to diversify their energy mix.)
But these effects are typically not fully reflected in the market price paid for energy. This represents a distorting influence of its own on the mix of energy sources and the level of energy consumption. In other words, climate change is not the only market failure to be considered.
A direct approach would be best, but…
Ideally, all these matters would be addressed directly. Local air pollution would be dealt with efficiently on-site, nuclear power plant operators would provide for their own waste disposal, and imported energy such as oil and gas would be taxed to account for the environmental costs of transporting them. Of course, such a direct approach may not always be feasible. In the case of the European Commissioners’ decision, some elements may fall outside the EU’s jurisdiction – or indeed beyond the political willingness required.
Under these conditions, maintaining separate targets for renewables and energy efficiency could be practical contributions. They indirectly contribute, through the effects they have on choice of energy source and level of energy consumption, to reducing many associated environmental problems. That said, large-scale renewables entail some negative effects of their own, such as increased land consumption and the ecological and aesthetic problems which that brings.
There are additional obstacles that need to be tackled in order to reach a level playing field for energy. The current low carbon price of the EU Emissions Trading Scheme at only €5 per tonne implies that industry is not taking its environmental damage into account in long-term investment decisions. The financial incentive – that is, the expense of a higher carbon price – is not there to force their hand.
Political support, such as the recent UK deal with French nuclear giant EDF also disadvantages renewables, to the point that supporting renewable energy sources could be seen, not as an unreasonable “subsidy”, but as an effort to level the playing field. Compared to an idealised setting from an economic textbook, this may be considered a second- or third-best choice. But then the real world hardly ever corresponds to the textbook.
Finally, the way in which EU member states promote renewables can be criticised for failing to make best use of the potential for cooperation between them – a credible EU-wide target for renewables may provide a boost to cooperation, and the chance to achieve cost savings.
So the European Commission needs to take a long-term perspective. This needs to look beyond just climate change, and take other real-life constraints into account. And enforceable targets and policies are the way to make that happen.