EU Energy Policy Blog

Under the proposed renewables Directive, Member States would commit to delivering additional renewable energy so that, collectively, they would generate 20% of energy from renewable sources by 2020. How was the EU to deliver the 20% renewables target while: (i) ensuring efficient use of the resources available across Europe; and (ii) allocating the burden in a fair manner across Member States?

The figure below illustrates how the targets are to be allocated according to the economic strength of each of the Member States: every Member State has to contribute an additional 5.5% of renewables to its energy mix, and the remaining gap to the overall 20% target is then shared proportionately to the GDP of the Member States with minor additional adjustments.

Target levels for EU Member States – closely linked to their GDP

The other figure below illustrates the implication of these targets. It depicts the current renewable share (2005, bottom part of bar) and the estimated maximum share of renewables that can be reached in each country by 2020 given resource potential and annual build constraints (dashed line). According to this estimation all countries, other than Belgium and Luxembourg, can meet their target with domestic resources. However, even where countries could deliver their target with domestic resources, it might be more economical to cooperate internationally for the development of some of this potential. If all countries would develop the same share of the potential accessible by 2020, then the countries at the left hand side would develop renewables to meet their target level (light blue) and additional renewable potential (red area) to support the countries at the right hand side to meet their target. The countries at the right hand side would meet some of their target with new domestic renewables (light blue) and with transfers from other countries (yellow).

Renewables target relative to existing capacity – and traded volume if all Member States deliver the same target level

How this transfer could be pursued was subject to much discussion during the drafting of the directive. Two options for inter-Member State cooperation are now proposed in the Directive. Either Member States can transfer guarantees of origin (GO, hereafter) for renewables between governments or they can implement a system for international trade of guarantees of origin between private parties.

This should in principle allow member states to pursue established domestic policies, like the feed-in tariff, to deliver their target. To ensure the integrity of their domestic schemes, the Directive suggests that countries can require a “prior authorisation” for exports of guarantees of origin for renewables to third countries. This “prior authorisation” is thus an important component for maintaining investment security. However, some doubts exist as to whether the provisions given in the proposed Directive to limit trade by private parties at installation level are sufficient and legally robust. Since such an uncertainty may delay or prevent investments in renewable capacity, it appears vital to increase the legal robustness and, consequently, to assure the practical implementation of the optional “prior authorisation” provisions.

As the practical implications of international installation-based GO trading are emerging, the number of countries which seem to be interested in linking their support schemes with this approach seems to have declined dramatically. If there is no viable set of countries that would intend to allow trade using the installation-based approach, then the proposed Directive could be simplified and investment stability increased by removing the corresponding provisions from the directive altogether. Alternatively, one can envisage options that would improve the legal certainty of the proposal concerning such inter-installation transfers.

The Proposal also makes provision for national action plans which Member States have to develop and submit to demonstrate a viable policy framework to deliver against the objective. The proposed directive is not explicit as to how the national action plans should reflect the role of trading between installations or Member States. The logic of the approach would suggest that where Member States envisage that some of their target will be delivered from renewables in other countries this possibility would have to be demonstrated in a credible fashion.

Under any system which sets targets to be achieved, the open question arises: what penalty will apply to those Member States which do not meet the relevant target? As currently drafted, the proposed Directive does not specify such a penalty. However, it does require that Member States which fail to deliver against their indicative trajectory would be required to submit an updated national action plan which should demonstrate how the Member State aimed to get back on track (see Article 4(3) of the proposed Directive).

Meeting the long-term EU emissions reduction targets will require the development and maintenance of a portfolio of renewable energy technologies. These technologies are currently at different cost levels. The experience gained from the development of increased levels of installed capacity in on-shore wind power, and other technologies, has demonstrated that the costs of technologies fall with increasing experience. The proposed Directive as currently drafted does not directly encourage Member States to pursue policies which contribute towards the development of such a portfolio. It would be valuable to envisage complementary policy measures to deliver this objective. The national action plans could be a suitable framework to allow Member States to demonstrate their efforts in developing the portfolio of renewable technologies. For example, it would be very useful if Member States had to demonstrate in their national action plans how they were planning to achieve more ambitious goals as we move towards the year 2030.

Karsten Neuhoff, Faculty of Economics, University of Cambridge; Angus Johnston, Faculty of Law, University of Cambridge; Mario Ragwitz, Fraunhofer ISI, Karlsruhe; Gustav Resch, EEG – TU Wien, Vienna; Dörte Fouquet, Kuhbier law firm, Brussels

PS: This post is derived from a discussion paper “The proposed new EU renewables directive : an interpretation”

This entry was posted on Wednesday, April 16th, 2008 at 9:07 am and is filed under Climate Change, Energy Policy, English. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.