Last week ECO talked about the paper published last month by the European Commission, which analyses what a move to a 30% emissions reduction target on 1990 levels by 2020 would mean for the EU. The paper makes a good read and leads to a quite unequivocal conclusion.
The recession has made emission reductions much cheaper than originally estimated. At €81 billion per year by 2020, the total costs of a 30% reduction would be only €11 billion more per year than originally estimated for a 20% decrease. A move to 30% would also reduce spending on pollution control by €3 billion annually. In addition, health co-benefits would be as much as €8 billion in 2020.
Furthermore, the current 20%-by-2020 emissions trajectory would require major and expensive catch-up later on to attain the legislated emission reductions of 80-95% by 2050 at optimal cost.
Shorter-term economic impacts would also result from staying with the 20% target. Cash-strapped EU governments may rightly be scared by the estimate that revenues from the auctioning of emissions allowances may fall by up to €70 billion. Conversely, achieving a 30% emissions reduction target would reduce imports of oil and gas by €40 billion in 2020 at a reference price of $88 per barrel.
Keeping the 20% target would further perpetuate the low carbon price that has resulted from reduced production and over-allocation of emission permits to industrial sectors. The lower the carbon price, the lower the incentive for change and innovation. While Europe traditionally considers itself a leader in green technologies, this cannot be taken for granted. Other countries are catching up fast.