- Distributed Energy Resources
- Policy Regulation
- Greenhouse Gas Emissions
- The Energy Cloud
- European Union
- Paris Climate Agreement
Europe’s Energy Transition Megatrends and Tipping Points, Part II: Rising Number of Carbon Emissions Reduction Policies and Regulations
Jan Vrins coauthored this post.
Jan Vrins coauthored this post.
In our initial blog in this series, we discussed seven megatrends that are fundamentally changing how we produce and use power. In this blog, we will discuss the rising number of carbon emissions reduction policies and regulations, and how this is fundamentally changing the European utilities industry.
Europe has always been a leader in climate change and carbon reduction initiatives. Policies and regulations to reduce greenhouse gas (GHG) emissions continue to evolve at the European level, as well across the unique markets at the individual country and local levels (provinces and cities). Europe has established a long-term goal of reducing emissions to 80%-95% below 1990 levels by 2050. This overarching goal is supported by a range of polices, regulations, and binding targets (currently set for 2020 and 2030) targeting GHG reductions for specific sectors, energy efficiency, building performance, and renewables.
Although there is no question that there have been threats to its ability to achieve these targets—including various austerity and financial measures, Brexit, and, more recently, Clexit—the European Union (EU) remains committed and has recently put into place new regulations to provide the needed incentives for individual member states to dig even deeper. Several countries are leading the way, and when combined with initiatives at the local level (often in partnership with the private sector and local energy companies), we are seeing the sustainability objectives of governments, policymakers, utilities, businesses, and local communities more closely aligned than ever before.
The long-term impact of the Paris Climate Agreement will be significant. This agreement will focus on limiting global warming to well below 2°C (3.6°F) by the year 2100. Each nation sets its own target for reducing emissions each year. While a record number of countries (174 and the EU) signed the agreement in April 2016, the agreement will only go into effect when at least 55 countries representing at least 55% of global emissions formally become parties to it. To date, 24 countries have formally joined the agreement. If the countries that have publicly committed to join this year (including China, United States, Mexico, Canada, and Australia) formally enter into the agreement, the world would still be 1.05% short of the 55% threshold. More work to be done, but the EU and many European countries and local governments are not waiting.
EU Carbon Regulation
The EU has long had some of the most aggressive carbon policies and regulations in place, along with complementary policies establishing binding targets for energy efficiency, building performance, and renewables. Its most recent strategy is set out in the Energy Roadmap 2050. Policies and measures have also been put in place to achieve interim goals and targets for 2020 and 2030. While it is expected that the EU will achieve its 2020 targets for GHG, emissions, energy efficiency, and renewables, current predictions indicate that it will fall short of the 2030 targets by a considerable amount. Based on that, a proposal for new regulation was announced on 20 July 2016. Referred to as Effort Sharing Regulation, this regulation establishes binding national targets ranging from 35%-40% for some EU member states with higher than average GDP per capita and significant cost-effective GHG reduction potential (e.g., Luxembourg, Germany, and the UK). It also sets targets of 0%-10% for member states on the other end of the spectrum (e.g., Bulgaria, Romania, and Latvia).
Europe’s Energy Roadmap 2050 explores pathways for the transition to a new energy system that meets these GHG emissions goals while simultaneously promoting competitiveness and security of supply. In its analysis, the EU concludes that decarbonisation is technically and economically feasible. A European approach is expected to result in lower energy costs and more secure energy supplies compared to individual national schemes. Further, the EU’s move to establish a fully integrated internal energy market aims to remove technical and regulatory barriers to improved competition and expanded consumer choice, while at the same time create interconnections needed to improve energy security, reduce imports, and prepare networks for carbon-free energy resources.
With or without the UK, Europe is moving forward on its path to achieve its ambitious carbon emissions reductions targets, which will continue to be facilitated by its long-established and well-supported climate and energy policies. Many of Europe’s leading countries have already begun to realise the "triple bottom line benefits" (sustainability, affordability, and security) from these policies. Other countries will follow along, and over time, Europe—as a major international trading partner—could advance its position as global leader in establishing climate and energy compliance standards worldwide.
What Are Individual Countries Doing?
Many European countries have made significant contributions toward the EU’s climate and energy targets; a few examples are offered below.
Despite Brexit, the UK stands out as the first country to establish legally binding carbon policies and regulations. The UK’s Climate Change Act of 2008 establishes the framework for its transition to a low-carbon economy and requires that UK GHG emissions in 2050 are reduced to at least 80% below 1990 levels. In fact, the UK’s most recent Fifth Carbon Budget, which legislates the UK’s GHG emissions reductions targets, limits GHG emissions during 2028-2032 to 57% below 1990 levels. In addition, the UK government has announced plans to close all coal-fired power plants by 2025 and restrict their use by 2023.
Germany has led the market for solar renewable energy development, with other countries like the UK, France, Italy, and Spain having made substantial investments over time, and some countries continuing to accelerate investments, especially for distributed solar PV. Despite some short-term challenges in certain countries, Europe as a whole is highly committed to advancing its renewable energy agenda. For example, distributed solar PV will be a major contributor to the EU’s renewable targets; over 150 GW of solar capacity representing €250 billion ($279 billion) in revenue is forecast for 2016-2024, of which three quarters will be distributed solar PV.
Germany also appears to be leading in the area of energy efficiency, having recently announced a €17 billion ($19.4 billion) campaign titled Effizienzoffensive, the ultimate goal of which is to cut the country’s energy consumption in half by 2050. The German government has launched the scheme because expansion in renewable energy sources alone will not be enough to meet the country’s carbon emissions reduction targets. The campaign will include a competitive tender to acquire cost-effective energy savings, a pilot smart metering programme, a waste heat recovery initiative, and other activities promoting cross-cutting technologies.
In the transport sector, Norway is leading the charge toward decarbonisation with its support for electric vehicles (EVs). Today, nearly one-quarter of all new cars sold in Norway are EVs, which is a key outcome of the government’s efforts to raise awareness and support EV market development for the past 30 years. Norway’s (dis)incentive programmes (taxes, fees, tolls, access lanes, etc.) have also contributed to this outcome, as has its investment in EV charging infrastructure. Today, Norway has more than 1,000 public charging stations covering 55,000 miles of roadway, as compared to the 13,000 stations covering 4 million miles of roadway in the United States.
Norway and other European countries (e.g., Sweden, Germany, France, and The Netherlands) have also recently announced plans to phase out fuel-powered transportation. While there is considerable opposition to these plans from a diverse set of political and commercial perspectives, it is expected that if multiple EU member states succeed in establishing these types of bans, the EU will attempt to enforce similar rules throughout its territory.
While policy and regulation at the EU and country level will continue to evolve, we also see significant movement at the local level. Numerous cities have committed to clean energy, with some establishing 100% clean energy targets, including Copenhagen, Denmark; Munich, Germany; and the Isle of Wight, England. Cities and businesses have been showing tremendous leadership in reducing the emissions responsible for climate change and building resilience to climate impacts. That’s why the Center for Climate and Energy Solutions (C2ES) and the U.S. Conference of Mayors are teaming up to create the new Alliance for a Sustainable Future. This alliance will help mayors and business leaders develop concrete approaches to reduce carbon emissions, speed deployment of new technology, and implement sustainable development strategies. We see public-private partnerships between local governments, utility incumbents, new entrants, and large corporations taking shape and driving the sustainability agenda forward.
Key Roles for Stakeholders
Meanwhile, many utilities are decommissioning or converting their existing coal plants and investing in utility-scale renewables, as well as distributed energy resources (DER). We have seen Centrica, Engie, and others make significant investments in new energy businesses focused on new distributed, greener, and smarter energy products and services. The biggest challenge in this energy transition will be balancing ongoing investments in the grid while the total volume (and with that, total revenue) that flows through core centralized components decreases overtime. This includes mitigating the risk of stranded assets that may become obsolete or financially unsustainable, as well as their cost to their business, their customers, and society.
Governments and regulators at all levels have a key role to play, as well. They will have to balance a wider set of imperatives supporting a safe, reliable, and affordable power grid while at the same time incorporating clean, distributed, and more intelligent energy. In doing so, they must ensure that this shifting landscape accommodates innovation while also adapting rules and procedures to keep up with the pace of change underway.
What Does This All Mean?
The sustainability objectives of government, policymakers, utilities, and their customers are more closely aligned than ever before. Countries and local governments will continue to discuss how sustainable targets can be met without affecting jobs and the access to safe, reliable, and affordable power. And utilities will continue to evolve to support cleaner, more distributed, and more intelligent energy generation, distribution, and consumption.
Recommended action items for countries, local governments, and utilities include:
- Understand the possibilities, costs, and full impacts of low-carbon generation and DER (energy efficiency, demand response, and others).
- Implement a workable framework and develop an integrated plan to move toward lower emissions goals, since it’s certain that decreased emissions requirements will be in place in the near future.
- Leverage neighbouring country and local government designs and efforts (as described above) at the European level to develop joint plans, policies, and goals.
- Implement (pilot) initiatives that include renewable energy and other low-carbon generation into a reduced emissions framework while also incorporating energy efficiency and distributed generation as resources into the decreased emissions planning process.
This blog is the second in a series discussing how industry megatrends will play out across Europe as well as at the regional and country level. Stay tuned for our next blog in this series.
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