The type of target really matters

As the EU Commission gears up to release its 2030 Energy and Climate White Paper in Davos week, there is considerable discussion regarding the emissions reduction target that will be recommended. Historically the EU has been keen on multiple targets, but in recent years this has backfired, with conflicting goals and multiple policy instruments leading to a weak carbon market and a lack of investment in one critical climate technology in particular, carbon capture and storage (CCS).

For the period 2020-2030, it is hoped that the EU will retreat on the number of targets and focus instead on a single greenhouse gas target that then becomes the main driver of change in the energy system. Such an approach could help restore the EU ETS and ultimately deliver the key carbon emissions goal at a lower overall cost, therefore also helping restore some EU positioning in terms of international competitiveness.

Most commentators are expecting the GHG target to be in the range of 35 to 40% from a 1990 baseline (vs. 20% for 2020), but there is very little discussion on how that target might be structured. There are two basic approaches;

1.  Emissions must meet a particular goal in a given year.
2. Cumulative emissions over a period of time must be below the baseline year on an average basis.

While a single statement such as “Emissions in 2020 must be 20% below 1990” is often used to cover both these cases, the goals are very different. This is a critical consideration as the EU sets out its position for 2030, but perhaps more importantly as future goals are tabled for the UNFCCC in Q1 2015.

The UNFCCC has, to date, monitored and reported on national objectives through the Kyoto Protocol, which is based on the second approach given above, i.e., cumulative emissions. In the Doha Amendment to the Kyoto Protocol, the EU commitment for the period 2013-2020 is a reduction of 20% below 1990. This is because the Kyoto Protocol is based on allowances (Assigned Amount Units or AAUs) and that these must be surrendered for each tonne emitted over the period. This is also how the atmosphere sees CO2 emissions – cumulatively. Every tonne matters as CO2 accumulates in the atmosphere over time. It doesn’t matter at all what the emissions are in a given year, only that the cumulative amount over time is kept below a certain amount. The EU ETS works in the same way – every tonne counts.

However, as if to confuse, the Doha Amendment also gives the EU Copenhagen pledge of a 20% (or 30% under certain conditions) reduction in greenhouse gas emissions by 2020 as a percentage of the reference year, 1990. In the particular case of the EU, due to the expectation of relatively flat emissions over the period 2013 to 2020, these two goals are very similar, such that the difference issue hasn’t really seen the light of day. Further to this, the Kyoto Protocol allows for carryover of AAUs from 2008-2012 into the 2013-2020 period, so the difference is further dampened. But when it comes to 2030, big differences could show up (see chart below).

 

 In the case of a 35% target (for example), the brown line shows a pathway to this as a fixed goal in 2030, but equally any pathway would be okay as long as the emissions are 35% below 1990 levels in 2030. But on a cumulative emissions basis, assuming a linear reduction, this is only a 28% reduction for the period 2021 to 2030.

The green line equates to a 35% cumulative emissions reduction for the same period, but in the year 2030 a reduction of about 47% is actually needed to achieve this, a much more ambitious requirement then a simple 2030 goal.

Exactly what the EU says on January 22nd remains to be seen, with considerations such as the high level number itself and domestic vs. international action being the main discussion points. But the big difference might just lie in the eventual wording (“by 2030” or “through to 2030”) and the need to table commitments with the UNFCCC at some point, particularly if the latter still works on a cumulative basis after a global agreement is reached.