'All the signs point there, and we’re headed in that direction anyway (if we keep our promises) but we can’t quite bring ourselves to state it up front’: today the EU published its ‘Roadmap for moving to a competitive low carbon economy in 2050’, a document that presents the clear evidence that the EU 2020 climate target should be strengthened, but could not quite bring itself to say ‘30%’, or even ‘25%’. The dancing around actually naming the new target – which remains implied – was a compromise in the face of regressive lobbying by smokestack industries.

A leaked draft of the Roadmap explicitly recommended embracing a 25% domestic cut in 2020 emissions against 1990 levels (effectively revisiting the Commission’s proposal for a 30% reduction inclusive of offsets in its May Communication last year). Yet after heavy lobbying from certain sections of EU industry, and an amazing statement by EU Energy Commissioner Oettinger – ‘industry means CO2 emissions ‘ – who was clearly working furiously behind the scenes, the Commission chose to drop explicit mention of 25% domestic reductions.

Instead perhaps it tried to appear to concede to smokestack industry pressure while yet not really giving ground, putting the ball back into Oettinger’s court by arguing that ‘yes we should focus on meeting our existing targets, but the energy efficiency target (his responsibility) amounts to a 25 % reduction anyway’. This target calls for a 20% improvement in energy efficiency, which is estimated along with the 20% target for renewables would lead to a 25% reduction in CO2 emissions – the actual CO2 target having been set at only 20%.

The problem with this that the carbon saved through the energy efficiency target risks being canceled out by weak budgets in the EU Emissions Trading Scheme. As the Roadmap points out, the policies are misaligned.

The trajectories for meeting the 2050 target described throughout the document chart accelerating domestic carbon reductions reaching 80% below 1990 levels by 2050, explicitly recommending a 40% cut in domestic emissions by 2030 and a 60% cut in emissions by 2040, but leaving implicit a 25% domestic target for 2020. This last is conspicuously absent from the one table in the document and yet a 25% target is clearly implied by the main visualisation of the Roadmap reproduced below. We have overlayed some grid lines to help draw out how different decades correspond to emissions reductions.

Roadmap graph

The draft communiqué had recommended the next ETS budget (2013-2020) be adjusted down by 500-800 million credits to correct for estimated overallocations which threaten to carryover from the current budget (2008-2012). The references to overallocation have now been replaced with alignmentof the ETS with Energy Efficiency policies. Specific figures on the scale of the adjustment needed to the Phase 3 budget have also gone, but earlier analysis by the Commission is suggestive: the Staff Working Documents accompanying the May 2010 Communiqué found that meeting both the Renewables and Energy Efficiency targets would leave the EU ETS overallocated by 2.4 billion permits by 2020. Sandbag’s own research has estimated that 1.8 billion of permits and unused offset credits will be carried over into the start of the next budget before other policies were factored in. This suggests that the ETS would have to be ‘recalibrated’ through a set aside of at least 600 million tonnes of EUA permits in order to continue to work effectively along side the energy efficiency target.

The Commission’s analysis shows it is confronted with a choice of either failing to meet its stated Energy Efficiency Commitments, or exceeding its 2020 climate targets. This should be a no-brainer. But it still remains to be seen whether Europe will align its policies upward to protect energy consumers and the climate; align its policies downward endangering both; or whether it will maintain a disconnect between the two policies, undermining the ETS and any hope of a meaningful carbon price signal.

It is a shame that the Commission was not able to hold firm and explicitly endorse the higher target that the weight of evidence shows to be necessary. Sandbag are pleased to see references to ETS adjustment surviving in the Roadmap text, but we regret the steady retreat on both the scale of the set aside and the arguments used to defend it and stand by our recommendation for a 1.4 billion set aside for Phase 3 that fully corrects for the overallocation in Phase 2.

It is crucial that the EU make the rational, cost effective and pro growth choice later in the year and explicitly adopt a higher target of 30% reduction in CO2 by 2020. The ETS provides a simple policy mechanism to help achieve this, through setting aside permits, and the EU should seize the opportunity to do so.

Finally, we welcome the Roadmap proposal to reduce the ETS budget beyond 2020 by accelerating the annual contraction of the budget beyond its current level of 1.74% and look forward to future discussions exploring new, longer-term ETS trajectories.