Block’s Indicator of Sustainable Growth

by Ray Block

The European Union may have become a cumbersome grouping of 27 countries with an over zealous bureaucracy in Brussels, but its energy challenge to the rest of the world is quite daunting.

We intend, the EU says, to increase our renewable energies to 20 per cent of total energy consumed by 2020, and at the same time reduce greenhouse gas (GHG) emissions by 20 per cent from 1990 levels by 2020. This is only an interim step in the carbon abatement stakes, but it’s a good start to a much more ambitious carbon reduction target by 2050 and beyond.

Another requirement, less admirable, is to have all 27 countries achieving by 2010, a 10 per cent level of biofuels in the transport fuel mix, so as to reduce dependence on Middle East oil.

The European Union’s renewable energy targets started off with a big advantage in having large resources of hydro power, particularly in Scandinavian countries and in Austria, with a lot of small hydro projects scattered in the other countries.

At December 2006, the EU had reached a renewable energy level of 6.92 per cent. The make of renewables at that time was hydro 66.4 per cent, wind power 16.3 per cent, biomass 15.8 per cent, geothermal 1.3 per cent, and solar 0.3 per cent.

The goal for 2010 was to reach a 12.5 per cent renewable energy level. But this is proving unattainable, given that in 2008 only about 8.5 per cent of EU energy consumption currently comes from renewables. So the revised figure is to reach 12.5 per cent by the end of Phase 2 of the emission trading scheme in 2012.

To move to the 20 per cent renewable energy target by 2020 may prove more difficult, as the period of the soft entry into carbon abatement, that is from 2005 through to 2012, when heavy industrial emitters received free emission allowances comes to an end. From 2013, the emission allowances are to be auctioned and rationed at the same time to cope with the goal of reducing greenhouse gases.

From 2013 onward, the heavy emitters will have it much tougher. Andrew Bounds in Brussels for Financial Times (January 8 2008) says that some heavy industrial users are unlikely to be able to absorb increased costs from the proposed changes, which if implemented, would see a forced reduction in sulphur, nitrogen and dust emissions.

The draft directive would include carbon dioxide emissions of nitrous oxide from the production of nitric, adipic and glyoxalic acids, and perfluorocarbon, a greenhouse gas produced by some aluminium producers. No wonder some heavy industries are wondering whether it is worthwhile remaining as producers in the EU, in what could become a hostile atmosphere in directives from Brussels.

The new changes come into effect in 2013. They are aimed at closing loopholes that allowed power generators to make billions of euros in windfall profits from the over-allocation of free emissions permits in the 2005-07 first phase of the emission trading scheme.

The EU has cut national allocations of emission permits by 6.5 per cent for 2008-2012 compared with 2005, as it attempts to meet the 20 per cent cut in emissions from the 1990 level by 2020.The 10,800 installations covered by the emissions trading scheme account for 41 per cent of the EU’s carbon emissions.

At risk are producers of aluminium, steel, cement and chemicals, who apart from being forced to increase prices are unlikely to remain competitive with imports. How many companies may need to shift plants offshore to remain competitive is going to become a major concern, with consequent job losses in the EU?

The Financial Times says that the “commission wants to set an EU-wide emissions cap from 2013.” This will replace a more politically elastic system, whereby member states set their own cap, which are approved by Brussels. The free emission allocations for the energy sector and refineries will be no more.

“Overall, it is estimated that at least two-thirds of the total quantity of allowances will be auctioned in 2013. Today’s level is less than 10 per cent.” The newer members of the EU, the former Soviet satellites will receive disproportionate amounts of permits to allow them to catch up in economic terms, and they will receive the auction proceeds towards reforestation projects and investments in renewable energy technology.

The larger and richest economies are required to reduce emissions up to 20 per cent below 2005 by 2020, while the newcomers to the EU, the mainly agricultural countries with the lowest GDP per capita levels would be allowed to increase emissions compared with 2005, capped at +20 per cent for the poorest.

The EU ignored the large volume of lobbying from the richer countries, particularly the UK. To make matters worse for the laggards in renewable energy projects, such as the UK, they are almost certainly going to miss their EU targets by 2020.

There remains a possibility that major changes to the EU energy road map could happen, as a virtual deadline for parliamentary approval of the whole scheme will depend on elections to the new European Parliament, and subsequently a new Commission installed in mid 2009. As a study by Green Prices said: “the Commissioners might have new plans.” The consultant group went on: “there is still a danger that the proposal will be watered down during the tortuous negotiation process of the coming months.”

EU table of renewable energy competitiveness by 2020

countries which will get close to, or exceed the 20 per cent renewable energy target

2005 renewable level               2020 expected level

%                               %

Sweden         39.8                             49

Latvia         34.9                             42

Finland        28.5                             38

Austria        23.3                             34

Portugal       20.5                             31

Denmark        17                               30

Estonia        18                               25

Slovenia       16                               25

Romania        17.8                             24

France         10.3                             23

Lithuania      15                               23

Spain           8.7                             20

Germany         5.8                             18

Greece          6.9                             18

Italy           5.2                             17

Ireland         3.1                             16

Bulgaria        9.4                             16

The three laggard larger economies, UK, Netherlands and Poland are unlikely to meet their EU renewable targets.

UK               1.3                             15

Poland           7.2                             15

Netherlands      2.4                             14

Slovak Republic aims to get a 14 per cent renewable level by 2020, Belgium, Czech Republic and Hungary to a 13 per cent renewable level, while the other three EU members are all tiny economies- Luxembourg, Malta and Cyprus, with renewable targets ranging from 10 to 13 per cent.

One of the many problems in harnessing the differing renewable energy platforms in the community has been a lack of transparency and blocked access to energy grids. David Adam, the Guardian environment correspondent (July 24 2008) quoted Prime Minister Gordon Brown as saying the government would remove “without delay the barriers that currently prevent renewable generators connecting to the national grid.”

The current draft renewable energy directive provide for the virtual trading of renewables between member countries involving Guarantees of Origin (G0s), which certify the renewable origin of electricity produced. Under the system, member states may invest in renewable energy production in another member state in exchange for GOs, which can be counted towards the renewable target.

Posted under Climate Change, Economies, European Emission Trading Scheme, Food, Renewable Energies, World Inflation