Ecology, Energy, EU – Baltic States, Legislation, Transport

COP-21 agreement has significant implications for the EU's climate and energy policies in the member states, focusing on some key points: a) the EU's dimension of the deal and the steps that the member state need to take to implement it; b) the EU's legislative measures that the Commission will put forward in 2016 to meet its international commitments, with particular reference to the Energy Security Package (to be launched at the end of February).

EU Climate Action and Energy Commissioner Miguel Arias Cañete underlined major aftermath of the COP-21 agreement for the EU member states and the EU policies.

Great success

The Paris Agreement has been an unprecedented historic success. It is the first purely multilateral agreement on climate change, covering 195 countries and 98.5% of global greenhouse gas emissions. The EU has built a broad coalition of developed and developing countries in favour of the highest level of ambition – a "High Ambition Coalition" – that has been a game changer in Paris.

The Agreement is very ambitious in its scope and includes most of the EU's demands:

·         first, it sends a clear signal to investors, businesses, and policy-makers that the global transition to clean energy is here to stay and that resources have to shift away from fossil fuels;

·         second, it sets out a long term goal to put the world on track to limit global warming to well below 2°C – and pursue efforts to limit the temperature increase to 1.5°C;

·         third, starting from 2023, governments will come together every five years in a "global stock-take" to consider emissions reductions, adaptation and support provided;

·         fourth, parties have a legally binding obligation to pursue domestic mitigation measures with the aim of achieving the objectives of their contributions;

·         fifth, it sets up an enhanced transparency and accountability framework, including the biennial submission by all states (“Parties”) of greenhouse gas inventories;

·         finally, the solidarity package includes notably provisions on climate finance and on addressing needs linked to adaptation and loss and damage from climate impacts.

However, Paris has left a wide range of technical issues open, including detailed provisions on transparency and accountability, low-carbon strategies for 2050, the follow-up of the Lima-Paris Action Agenda and technology mechanisms.

The EU states have to work hard in 2016 to overcome the last hurdles of the agreement; in this context, next COP-22 in Marrakesh will be very important to ensure the deal's successful implementation.

Challenging tasks

Now all signatories have to live up to their responsibilities and implement the agreed provisions.

This is why the EU is committed to maintain the international momentum in order to ensure the full and timely implementation of the Agreement. The EU is preparing with the EEAS an action plan on climate diplomacy for this year, which will be discussed at the Foreign Affairs Council of 15 February.

The objective is to maintain EU’s international leadership in climate diplomacy, increasing efforts in sharing experiences on designing and implementing climate and energy policies.

In line with this, the EU intends to sign the Paris Agreement early in 2016 at the high level ceremony on 22 April in New York.

The Commission has already started working on several legislative packages to implement the EU's Paris commitments. The EU has put forward already in 2015 a proposal to revise and strengthen the European Emissions Trading System (ETS), the flagship of the EU's policy to combat climate change, which covers around 45% of the EU's greenhouse gas emissions.

Discussions on the ETS review are now ongoing in the Council and the European Parliament. A well-functioning ETS is key to reduce emissions in the energy sector as well as in energy intensive industries, which is recognised by European leaders and stakeholders.

Many business leaders already called for a carbon price to be put in place at global level. And as countries move to implement their INDCs, it is likely that more and more carbon pricing systems will be put in place. That is particularly encouraging as regards industry which will gradually reduce emissions on a global level and the Commission in its proposal provided adequate protection to European industry.

The European Commission is working hard on proposals for a new Effort-Sharing Decision (ESD) to put in place national targets for the sectors not covered by the ETS, including land-use and forestry. The two initiatives are closely interlinked, and the legal proposals will be presented in the first half of 2016.

As for the ETS, the European Council in October 2014 already set out the overall reduction target to be achieved by these sectors (-30% by 2030) as well as the methodology to share this target among EU states in a fair manner, while maximising cost-efficiency.

This means higher-income member states will continue to carry a higher share of the effort. However, it is clear that to meet the 2030 target all EU states and all economy sectors will have to make serious efforts to step up emission reductions.

The Commission is still examining a number of options, in close cooperation with Commissioner Hogan for agriculture, to see how the land-use sector can contribute to reaching the 2030 target while safeguarding the environmental integrity of the overall system.

Decarbonisation of transport

Together with the proposals on effort sharing, the Commission will present a Communication on the decarbonisation of transport. The Communication on decarbonisation of transport will indicate how the transport sector can contribute to achieving the 30% objective. It will also provide EU states and stakeholders with an idea of the different options available, both at European and at National level, to achieve that target.

The communication will be organised around three main issues:

·         improvements in efficiency of vehicles: mainly through the setting of emissions standards for cars and vans and the review of the test cycles;

·         management of road transport activity (including the shift to other modes, charging systems, intelligent transport systems, etc.);

·         decarbonisation of fuels, including alternative fuels and an electrification strategy.

Later in 2016, the Commission will make an ambitious set of proposals that will fully reflect the key role that energy efficiency and renewable energies will play in decarbonising EU’s economy.

The idea is to put forward a framework that enables reaching the 2030 targets, tapping the huge potential to increase efficiency across the economy and reduce demand and that can deliver a continuous growth of renewables.

Besides, the Commission will make proposals to reshape the design of today's electricity markets to put consumers at the centre of the energy system, enabling demand response and enhancing flexibility. More flexible power systems that are much better integrated with a truly European electricity grid are needed to allow an efficient integration of renewables in the system. Moreover, a stronger European framework for national policy decisions shall be based on security of supply measures.

Energy Security Package

In addition, the Energy Security Package will be composed of the following legal proposals: a Security of Gas Supply Regulation; a Decision on Intergovernmental agreements in energy (IGAs); LNG and Gas Storage Strategy; and Heating and Cooling Strategy.

The developments in the international energy context and the post-Paris scenario are posing new challenges that need to be addressed urgently.

For example, the Energy Security context and the geopolitics of energy, which is one of the key priorities of the EU Energy Union strategy presented in February 2015.

After the gas crises of 2006 and 2009, the EU took a number of measures to prevent these situations happening again:

·         The EU adopted a Security of Supply Regulation in 2010;

·         The EU increased interconnectivity and infrastructure;

·         The EU created reserve gas flow options, and

·         The EU introduced rules for network use to avoid cross-border infrastructure congestion.

The 2014 stress tests showed that a number of EU states were still far too vulnerable to major disruption of gas supplies, especially those in Central and South-Eastern Europe which rely on a single supplier. With current political tensions on EU borders, this problem is not going to disappear: there is a clear need for a well-functioning gas market with more competition and bringing down prices while reducing dependencies on one source of supply, in particular in Central and South Eastern Europe.

At the same time, the global energy market is experiencing important shocks. The plummeting of oil prices to a new low (around $30 per barrel), is leading to changes in gas prices which, in turn, is leading to further reductions of the import bill. Moreover, new players are coming into the global energy market, opening new opportunities for the EU's diversification and security of supply strategies:

·         Iran has the potential to become a major new market player soon after the lifting of sanctions;

·         Australia will become the world's largest LNG supplier by 2020 covering demand in the Asia-Pacific market and freeing up production from the Middle East and Africa to Europe, whilst the US is giving more and more LNG exporting licenses;

·         new gas fields have been discovered in the Leviathan basin and in Egypt;

·         Finally, LNG and pipe gas prices are converging, and renewables are becoming increasingly competitive.

Post-Paris scenario

At the same time, the Paris Agreement has sent a strong signal to businesses and policy-makers that the path to clean energy is irreversible and that a global energy transition is underway.

This global transition will require more energy efficiency and renewables. But this has to be a managed transition: it is impossible simply switch to a clean and sustainable energy model overnight. Gas will therefore play an important role in Europe's energy transition towards clean and more sustainable societies and economies because:

·         natural gas pollutes half as much as coal, and will therefore serve as a bridge between more polluting fossil fuels and cleaner sources of energy;

·         gas serves as a back-up to renewable energy sources;

·         finally, it plays an important role in the decarbonisation of the transport sector as an alternative to fuel for trucks and ships.

It is in this changing international context that the Commission will launch the following measures:

1) Revised Security of Supply Regulation. The objective of the new Security of Supply Regulation is to prevent and mitigate possible security of gas supply crises. It is seen that national policies do not always account for the security of supply situation of their neighbours. Crucially, the stress tests have shown that if EU states cooperate during a crisis, it would be much easier to avert supply disruptions. Another lesson is that commercial gas supply contracts are not transparent enough to allow preventive measures to be put into place.

The European Commission is proposing a revised regulation for a more efficient approach to overcome these limitations, creating a conscious cross-border approach to security of gas supply.

·         First, the regulation will explicitly include a solidarity principle among EU states to ensure the supply of households and essential social services in case their supply was affected due to a severe crisis. This means that EU states will be obliged to help each other in ensuring the supply of households and essential social services, such as healthcare and security services, in the case of a severe crisis. In practice, the Commission will require EU states to give priority to protected customers in a neighbouring state in crisis over non-protected customers at home.

·         Second, the regulation will propose a shift from the existing national approach to a regional approach when designing security of supply measures. Such change is necessary to ensure a better coordination of EU states, including a more accurate assessment of common risks, possible simultaneous crises and available resources. In this way EU states will be much better prepared for an emergency situation and will be able to address such situation more effectively if they conduct regional risk assessment and draw up regional preventive action plans and emergency plans.

·         Third, the regulation will change approaches to “use of pipelines bid” by reverse flows, which has proven one of the most efficient means, e.g. for helping Ukraine. It will make more difficult for operators to block such reverse flow based on their own interests. For each interconnection point, the procedure will involve all other EU member states who could potentially benefit along the supply corridor.

·         Fourth, the new regulation will also contain additional rules to improve transparency:

= The Commission and national authorities will get direct access to specific commercial contracts with duration of more than 1 year, which have a direct relevance for security of supply of a whole country or region. This will be the case when contracts with the same supplier cover a very high share of the total market.

= Under duly justified circumstances, EU states may request natural gas undertakings to provide additional updated information on gas flows already before an emergency in order to assess the security of supply situation at national, regional or EU level, information that will be shared with the Commission.

·         Finally, the new Regulation reinforces cooperation with EU neighbours, as Energy Community countries will be included in preventing and tackling possible supply crises.

2) Decision on Intergovernmental agreements in energy. The objectives of this mechanism are aimed at: a) making energy agreements more transparent and fully compatible with EU law, and b) to ensure that energy IGAs do not jeopardise the EU's security of supply or the functioning of the internal market.

Past experience, in particular in relation to the south-stream IGAs, has shown the deficiency of the current approach of ex-post control. Once concluded, EU states are often unable to unwind IGAs, even if they contravene EU law, as they are bound towards third countries.

The Commission’s analysis of all notified IGAs (124) showed that around one-third of the agreements related to energy infrastructure or energy supply contained provisions that were not compliant with EU law; presently, no such agreement has been renegotiated.

The main change in the new IGAs decisions, compared to the current IGA decision, is the introduction of a mandatory ex-ante compatibility check by the Commission.

The Commission needs to have the possibility to assess and express its opinion on IGAs before they are concluded among EU states, being prevented from signing IGAs before this analysis has been concluded.

When concluding the proposed intergovernmental agreement or amendment, EU states will have to take full account of the Commission's opinion. The new IGA Decision covers all agreements between one or more EU states and one or more non-EU countries which have an impact on the security of the EU’s energy supply and the functioning of the EU internal energy market.

It includes intergovernmental agreements and non-legally binding commitments, such as joint political declarations or memoranda of understanding that include interpretations of EU law, set conditions for energy supply (i.e. prices) or for the development of energy infrastructure.

Together with the proposals on reinforcing transparency with regard to commercial contracts the EU will be able to enhance Union’s oversight over relations with third country producers (as the European Council had called for in 2015).

3) LNG and storage strategy. The goals of the LNG and storage strategy are: to improve the access of all EU states to LNG as an alternative source of gas, and to improve access to storage as an additional source of flexibility.

Europe is the biggest importer of natural gas in the world: overall LNG import capacity is enough to meet around 43% of total current gas demand. However, important regional disparities exist in Europe: while in the North-West of Europe markets are competitive and well-connected, with access to several sources of gas (including a number of terminals with substantial capacity to import LNG), gas markets in the Baltic, central-eastern, south-eastern and south-western regions do not have access to LNG and are heavily dependent on a single gas supplier. These countries would therefore be hardest hit in a supply crisis.

The lack of choice in these regions also means that these countries often pay uncompetitive prices. Access to LNG is therefore one of the easiest and fastest ways to end with monopoly rents for foreign suppliers.

In order to improve the access of all EU states to LNG and storage as an alternative source of gas, the EU strategy is to speed up the building of the necessary infrastructure to complete the internal market, allowing all states to access international LNG markets, either directly or via other states. The goal is to remove bottlenecks, diversify supply sources and bring price competition to under-developed gas markets in the Baltics, Central and South Eastern Europe and South West Europe. Most of the infrastructure is already there; the next step is making sufficient inter-connections.

The LNG strategy identifies a number of projects that would end single-source dependency and give all EU states access to LNG, either via terminals or indirectly via interconnectors and/or access to liquid hubs (projects would bring real gas security and price competition to the EU energy markets).

Specific recommendations

= the Central East South Europe Gas Connectivity group (CESEC) identified six key priority projects along two main corridors from the Krk terminal in Croatia and from Greece to the north;

= the Baltic Energy Market Interconnection Plan (BEMIP) group identified six key priority projects that will connect the three Baltic states and Finland to the European network; and

= the South-West Europe high level group identified two projects that would serve to eliminate bottlenecks and connect regional markets.

There is also need to reinforce EU efforts to complete the internal gas market so that it sends the right price signals: to attract LNG to where it is needed and to facilitate necessary infrastructure investments.

Finally, the EU will work closely with international partners: to promote free, liquid and transparent global LNG markets. This means engaging with current and future suppliers and with other major consuming countries to ensure that LNG can be traded freely on global markets, both under normal market conditions and in the event of external shocks.

The Commission will hold regular discussions on LNG with Australia and continue to work closely with other current and potential suppliers such as Qatar, Nigeria, Egypt, Angola, Mozambique, Tanzania, Israel, Lebanon, Iran, Iraq and Libya. Priority should also continue to be given to high level energy dialogues with Algeria, the US and Canada.  

4) Heating and cooling strategy. The objective of the strategy is to combat energy waste by saving energy in the heating and cooling of buildings and industry. Energy efficiency is central to the EU Energy Security Strategy: for every 1% increase in efficiency, gas imports fall by 2.6%. This strategy is the first ever EU initiative addressing a sector that consumes half of the EU's energy and is 75% powered by fossil fuels. It also accounts for three quarters of EU total gas consumption and 13% of oil consumption: most of that energy is used inefficiently.

Approximately 90% of buildings in the EU housing sector are energy inefficient; almost half of those are tittered with old boilers with efficiency rates lower than 60%.

The strategy focuses on removing the barriers to decarbonisation in buildings and industry with three main actions:

·         Better implementation of current legislation and promotion of the use of EU funds.

·         Legislative reviews of EU legislation to make sure that the heating and cooling sector is fully taken into account (i.e. Energy Efficiency Directive, Energy Performance of Buildings Directive, Renewable Energy Directive and new electricity Market Design).

·         Non-legislative actions such as: awareness rising for consumers building owners; training of professionals to use the most modern technologies (e.g. architects, installers); support innovation through e.g. the SET plan; and support actions developed by the Covenant of Mayors, amongst others.

The Paris Agreement will have important repercussions on European energy and climate policies; the EU has already taken first steps in this ambitious transition to less polluting and more sustainable energy models. The legislative package that the Commission intends to launch will complement the EU's efforts to enhance energy security and to deliver on Paris COP-21commitments. It will also promote energy efficiency and allow the EU states to move away from polluting towards cleaner and sustainable sources of energy.

Reference: EU Climate Action and Energy Commissioner Miguel Arias Cañete’s speech at the Bruegel conference on "How will the Paris agreement impact EU climate and energy policies?" Brussels, 8 February 2016. In:

http://europa.eu/rapid/press-release_SPEECH-16-264_en.htm?locale=en;