Brussels Energy Brief - January 2008
January 2008
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KEY DEVELOPMENTS
Two More Years of Negotiations Before Kyoto Protocol Replaced
Frank Schoneveld
The United Nations climate talks, finalised on 15 December 2007, produced a two year negotiation “roadmap” that will eventually replace the Kyoto Protocol and aims to reduce greenhouse gas emissions. Significant developments at the talks included agreement in principle to the setting up of new climate change adaptation funds, technology transfers to less developed countries and inclusion of anti-deforestation mechanisms. The agreed roadmap follows on from the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC). The Kyoto Protocol commits signatories to specific GreenHouse Gas (GHG) reductions with the aim of reaching a 5 per cent global reduction of GHGs by 2012, compared to 1990 levels. Some large emitters, such as the United States, are not signatories to the Kyoto Protocol. The roadmap agreed in Bali, Indonesia on 15 December encompasses a negotiation framework for a global climate change agreement to replace the Kyoto Protocol in 2012.
Despite resistance, notably from the United States, the parties agreed that the new protocol will have "measurable, reportable and verifiable nationally appropriate mitigation commitments or actions, including quantified emission limitation and reduction objectives, by all developed country parties, while ensuring the comparability of efforts amongst them, taking into account differences in their national circumstances". Developing countries are to adopt "nationally appropriate mitigation actions". Negotiations on individual country commitments for specific GHG emission reductions are yet to come. The first such negotiations will be held in Hawaii on 28 and 29 January 2008.
Launch of New Euro-Mediterranean Energy Partnership
Mélanie Bruneau
On 17 December 2007, European Energy Commissioner Andris Piebalgs, together with Ministers from EU Member States and Mediterranean partner countries, launched the new Euro-Mediterranean (Euromed) Energy Partnership at the Fifth Euromed Energy Ministers Conference. The Ministers and Commissioner endorsed the Ministerial Declaration and its 2008 to 2013 Priority Action Plan for Euromed cooperation in the field of energy. The Action Plan focuses on three main areas in the region: i) ensuring the improved harmonisation and integration of energy markets; ii) promoting sustainable development in the energy sector; and iii) developing initiatives of common interest in key areas such as infrastructure extension, investment financing, and research and development. Ahead of this conference, the Commissioner had called on the leading energy companies operating in the region to play an active role in supporting the 2008 to 2013 Priority Action Plan. For the next four years, the European Union will assign more than EUR 3.2 billion to Euromed cooperation.
Commission Proposal to Limit CO2 Emissions from Cars
Patricia Armesto
On 19 December 2007, the European Commission proposed legislation to reduce the average carbon dioxide (CO2) emissions of new passenger cars to 120 grammes per kilometre by the year 2012. The proposed legislation is the cornerstone of the European Union's strategy to improve vehicle fuel economy. Other benefits for consumers include the improvement of energy security and the promotion of eco-innovations. The proposal also aims to safeguard the already competitive automotive sector through provisions that will stimulate the development and deployment of cutting edge automotive technologies.
EU States Agree on Airline Emission Trading Plan
Chen Dingsheng
At the Environment Council Meeting on 20 December 2007, the 27 EU Member States overcame their differences regarding the details of plans to include aviation in the EU Emissions Trading Scheme. These included starting dates for the scheme, the amount of CO2 allowances that airlines should receive free of charge and the question of what should be done with the money raised from auctioning allowances. In particular, it was decided that: (i) all airlines flying to and from the European Union would join the scheme in 2012; (ii) airlines would be required to maintain emissions at average 2004 to 2006 levels; (iii) in accordance with the Commission’s proposal, 90 per cent of pollution permits would be distributed to airlines free of charge; (iv) revenue from emission allowance sales should be invested in climate change mitigation measures, although ultimately the decision is left to individual Member States; (v) airlines with very low traffic levels on routes to, from, or within the European Union would be exempt from the scheme, as would public utility air services, and; (vi) 3 per cent of total allowances would be set aside in a special reserve and distributed free of charge to new entrants or very fast-growing airlines. No measures were proposed for dealing with the additional climate impacts caused by nitrogen oxide or other pollutant emissions from aircraft.
EU Seeks Flexibility on Renewable Energy Trade
Kirsten Lewis, Elena Kostadinova and Patricia Armesto
On 23 January 2008, the European Commission announced its new renewable energy proposal. Key to the proposal are: (i) an overall binding target for EU Member States to ensure that 20 per cent of the energy consumed in the European Union is renewable energy by 2020; and (ii) binding targets for each Member State. Member States may meet their national targets by using green power certificates bought from other Member States. The Commission considers that integration of the existing trading schemes within the European Union could provide an impetus for the development of an international market for green certificates.
The introduction of a trading mechanism for green power certificates has been criticised by Germany, Spain and the renewables industry because they believe it would undermine existing national support schemes such as subsidised feed-in tariffs and premiums (i.e. State aid). These national systems supporting renewable energies already exist in 18 of the 27 EU Member States.
Commission Proposal on Voluntary Greenhouse Gas Reduction Commitment in Sectors not Covered by EU ETS
Patricia Armesto
The European Commission has adopted a legislative proposal on effort-sharing to meet the European Union’s independent greenhouse gas reduction commitment in sectors not covered by the EU Emission Trading Scheme (ETS). These sectors include transport, buildings, services, agriculture and waste. The Commission proposes an EU-wide reduction of around 10 per cent compared to 2005 figures. All EU Member States have their individual targets expressed as a percentage. In order to meet those national targets, Member States should introduce policies and measures to lower emissions, such as traffic management, taxation regimes and renewable energy for heating. Member States already monitor their greenhouse gas emissions and report on them every year. The next step in the legislative procedure is for the proposal to be discussed in parallel in the Council and the European Parliament.
State Aid: Aid Scheme Stimulates Renewable Energy in the Netherlands
Geert Dierickx
In February 2007, the Dutch Government set a new target to reduce carbon dioxide (CO2) emissions by 30 per cent by the year 2020. In order to attain this target, the existing aid schemes for renewable energy and combined heat and power were modified, extended and transformed into a new scheme. This new scheme, which stimulates the production of renewable energy and combined heat and power, provides an extra available budget of EUR 2.1 billion. The new scheme was authorised by the European Commission under EC Treaty State aid rules. The total amount of Dutch expenditure for renewable energy currently amounts to EUR 8.3 billion.
Commission Welcomes Substantial Progress Made by Energy Council on Unbundling and Internal Energy Market Package
Patricia Armesto
The Portuguese Presidency's Progress Report on the Internal Market Package was adopted on 3 December 2007 by the Energy Council. The report indicates that a significant number of EU Member States agree that ownership unbundling is necessary, although some States are still unconvinced. The report also indicates that all Member States agree that unbundling rules should be similar to avoid distortions between Member States in the internal market. The Commission welcomed this significant step and other important progress made in relation to other issues raised in the package. These include the powers and independence of national regulators and the need for a mechanism to improve the coordination of national energy regulators.
Electricity: Problems Surrounding High Tension Electricity Interconnection between France and Spain Continue
The electricity interconnector between France and Spain is a key link in securing the supply of energy to the Iberian Peninsula and strengthening the stability of the European power grid. Despite this, the interconnection project has met with many obstacles on technical, environmental and financial grounds. In an attempt to unblock this project, the European Commission appointed Mario Monti as European Coordinator for the electricity interconnection between France and Spain. Mr Monti has issued his initial report which provides an overview of the unresolved issues and makes a number of recommendations. These include ways of ensuring that a climate of trust is created by responding to the concerns of parties currently not in favour of the interconnector and finding financial solutions to enable it to go ahead. In January, French President Nicolas Sarkozy and Spanish Prime Minister José Luis Zapatero committed to reviving the project and to finding a compromise by 30 June 2008. However, there remains considerable opposition in the regions on both sides of the border.
New Energy Star Programme Adopted
Elena Kostadinova
The Council of the European Union has adopted a new Regulation implementing the EU-US Energy Star Programme on the Coordination of Energy-Efficient Labelling Programmes for Office Equipment. The new Regulation will require EU institutions and central Member State government authorities to use the energy efficiency criteria defined in the Programme in public procurement procedures for the purchase of office equipment.
Emissions Trading: Commission Adopts Amendment Decision on Slovak National Allocation Plan for 2008 to 2012
Chen Dingsheng
The European Commission has adopted a decision on the proposed amendments to the Slovakian national allocation plan for CO2 emission allowances for the 2008 to 2012 trading period of the EU Emissions Trading Scheme. Slovakia initially proposed allocating nearly four million additional allowances, arguing that new nuclear capacity would not be fully operational before the end of 2012. In its assessment of the claim, the Commission found that a partial increase of 1.7 million allowances was justified. The cleared annual allocation for Slovakia for the 2008 to 2012 trading period is now fixed at 32.6 million allowances.
UK Government Report: Biofuel Targets are Relatively Expensive and Likely to Increase Food Prices
Frank Schoneveld
The UK Government's Environmental Audit Committee has issued a report that criticises both the European Union and the United Kingdom for pursuing biofuel targets. The Committee reports that biofuel targets are generally an expensive and ineffective way to cut greenhouse gas emissions when compared to other policies available. The report also said the biofuel targets are likely to cause food price increases and greater food insecurity in developing countries. The European Union has set a 10 per cent biofuel target for transport fuel by 2020 while Britain has a separate target of 5 per cent biofuels in petrol and diesel by 2010. The Environmental Audit Committee’s report states that: "emissions from road transport can be cut cost-effectively, and with lower environmental risk, by implementing a range of other policies." Examples given of such other policies include the use of waste vegetable oil and the development of more efficient biofuel technologies. The EU Energy Commissioner reacted by stating that the Commission strongly disagreed with the report's conclusion. Other recently published reports, however, also conclude that, although biofuels may emit fewer greenhouse gases, they have higher costs in terms of biodiversity loss and destruction of farmland.
EIB Supports the Supply of Gas and Production of Electricity in Italy
Chen Dingsheng
The European Investment Bank (EIB) and Italian energy company, Eni, have signed two loans for strategic projects. The first is a EUR 200 million loan to co-finance the construction of a combined cycle (electricity and heat) power plant, which will reduce harmful emissions and improve energy efficiency. The second is a EUR 185 million loan to co-finance the expansion of the Transmed Gas Pipeline, which will improve the supply of Algerian gas across Tunisia to the European Union. The Transmed pipeline has been identified as a priority energy route by the EU Member States. Supporting the improvement of the pipeline is in line with one of the European Union’s strategic priorities to meet the growing demand for energy and guarantee the efficiency and security of supply.
Commission Requires Spain to Withdraw Conditions in Endesa Deal
Juan Gutiérrez
The European Commission has decided that Spain has violated Article 21 of the EU Merger Regulation by imposing certain conditions on Enel and Acciona in their acquisition of Endesa. These conditions concern: (i) their obligation to maintain Endesa as an independent company, including keeping its brand and its decision-making centre in Spain; (ii) a limitation on Endesa's debt service ratio; (iii) a limitation with respect to Endesa's dividend distribution policy; (iv) the obligation for certain Endesa generation units to purchase specified amounts of national coal; and (v) the obligation to keep the assets of the insular and non-mainland electricity systems within the Endesa Group. The Commission required Spain to withdraw these conditions by 10 January 2008.
MERGER NOTIFICATIONS
End November 2007 – January 2008
M.4886 - PETROPLUS / SHELL FRENCH REFINERIES (28 November 2007)
MEETINGS
February 2008
Transport, Telecommunications and Energy Council (TTE) – Energy (28 February 2008)
