1

UK response to European Commission ‘Consultation on Roadmap for a low carbon economy by 2050’

Questions 1 - 8 – These questions are aimed at non-Government audiences so the UK has not provided a response. 9) The EU will need a diverse portfolio of technologies to build a low-carbon future. Some examples of potential technologies and energy efficiency solutions are carbon capture and storage, renewable energy technologies, electric vehicles, fuel cells, smart grids, heat pumps, cogeneration, next generation nuclear power, zero emissions buildings etc. Which technologies do you think will be the most important in achieving a low carbon economy by 2050 and how can the EU foster their development and deployment? The UK is a strong supporter of the EU’s Strategic Energy Technology Plan. However, there are also other important technology areas such as Marine Energy, ultra low carbon vehicles and Energy Storage. A road map for a low carbon economy should recognise a broad set of low carbon technologies, including those outside the immediate scope of the SET Plan. These will then need to be reviewed regularly to ensure that the roadmap remains appropriate, takes account of future technology developments and needs and does not lock the EU into reliance on unsustainable technologies. The low carbon roadmap should take stock of existing and planned research into low carbon technologies and plot progress towards the demonstration and commercialisation of these technologies both within the EU and internationally. The aim of such planning should be to facilitate collaboration, avoid wasteful duplication, and to accelerate development towards the goal of large scale deployment of low carbon technology, including through agreeing common standards. There is a case for EU spending to be reprioritised towards low carbon technology development. Most of the money needed to support low carbon technologies will need to come from the private sector. The roadmap should also consider market support mechanisms and innovative financing both at EU and national levels, such as through the EIB group. This will encourage the very significant amounts of additional private sector investment needed.

2

10) What are in your opinion the most important initiatives the EU should pursue in the next five to ten years to secure a successful transition towards a low carbon economy by 2050? We understand that over the next few months, the European Commission will publish several Communications setting the strategic direction of the EU’s transition to a low carbon, resource efficient and climate resilient economy1. These policy statements must provide a coherent and joined-up framework that promotes sustainable low carbon growth, maximises opportunities and manages and minimises the costs of the transition to a low carbon economy. To ensure consistency across each of the Communications, the Commission should work from a commonly agreed understanding of the EU’s objectives for the transition to a green economy that ensures resources are managed and used sustainably and which is resilient to the impacts of climate change. The UK believes that key objectives for a successful transition towards an EU green economy should be:

• The Commission should ensure its forthcoming roadmaps are coherent and set out an overarching, long-term vision for a low carbon economy by 2050, together with medium-term milestones to 2020, 2030 and 2040.

• To maximise economic opportunities for the EU and minimise costs by promoting open and competitive markets.

• To put in place a stable business and enterprise friendly framework that attracts sufficient investment to accelerate the transition to an EU low carbon economy.

• To enhance the EU’s leadership role in global negotiations and the low carbon agenda more widely by demonstrating the compatibility of taking action against climate change and economic growth.

• The Commission should fulfil a facilitation role while respecting subsidiarity.

The move to an EU low carbon economy represents a huge transition for the whole EU economy. However, such a move is consistent with the EU’s ambitious climate change goals as agreed by Heads of Government (an 80% to 95% reduction in GHG emissions by 2050) and can be used to support the international climate change negotiations. Indeed, if the EU can agree policies now and make significant progress in implementing them over the next five to ten years we will demonstrate that the transition does not threaten stability and development but instead creates sustainable growth and jobs. This will be the best means of unlocking greater 1 Communications include: The Flagship initiative on resource efficiency made up of DG Climate Action’s Roadmap

for low-carbon economy by 2050 and their Communication on mainstreaming climate adaptation and mitigation in EU

policies and climate proofing of financial instruments; DG Energy’s Energy Strategy for Europe 2011-2020,

Infrastructure Package and its roadmap for a low carbon energy system by 2050; other relevant Europe 2020

flagship initiatives such as Resource Efficient Europe, EU Industrial Policy, Innovation Union and an Agenda for New

Skills and Jobs; DG Enterprise’s Smart Regulation and the Single Market Review and DG Move’s transport white

paper.

3

ambition on the international negotiations and global transition to a low carbon and green economy. In this context, the policies contained in the roadmap should be consistent with a move to a 30% emissions reductions target by 2020, to signal the EU’s commitment to combating international climate change, and to ensure that it capitalises on growth, investment and job opportunities in the transition to a low carbon economy. The UK has produced an ‘Ambitions for a low carbon economy’ paper, which was shared with the Commission earlier this year, and which aims to outline much more fully objectives for the EU in securing a successful transition to a low carbon economy by 2050. The paper is included at Annex 1.

4

11) The EU Emissions Trading Scheme is a central element of EU climate policy. The EU wants to foster international climate action by reinforcing international carbon markets, e.g. by making links among emissions trading systems and by further developing crediting systems. What elements do you think should go into the EU low carbon roadmap? (e.g. bilateral agreements to recognise international allowances and credits, sectoral crediting systems, separate financing mechanism for the purchase of international credits from developing countries, etc.) We support the creation of new large scale ‘sectoral’ market mechanisms to promote net emission reductions in developing countries while creating new credit types which could be used to meet EU targets. It is crucial that such new offset mechanisms are agreed internationally in order to avoid double-counting, ensure high environmental quality and have effective governance in place including structural transparency. The transition from the CDM to new market mechanisms will have to be managed carefully in order to preserve market confidence. We should therefore start considering potential financial instruments that could be used during this transition such as green bonds and advance market commitments. In the longer term, if we are to meet our global targets for 2050, more advanced developing countries should be taking domestic action to reduce their own emissions. These countries will therefore need to progress away from baseline and credit mechanisms towards sectoral or economy-wide trading. In this context, we should promote the creation of emission trading systems globally and promote linking to enable cost-effective action for more advanced developing countries. Although CDM offsetting will play a diminishing role as new market mechanisms provide new sources of credits it will continue to be an important incentive for emission reductions in the less advanced developing countries for some time. Under a 20% EU reduction target there is very limited demand for international credits beyond the levels of supply already in the pipeline. If we are to incentivise new mechanisms we will need to increase the demand from the EU and elsewhere. The UK supports an EU move to a 30% reduction target by 2020, which should increase demand in the EU. We also look forward to progress towards an international agreement including comparable ambitious reduction targets from other developed countries to create a larger carbon market.

5

12) Achieving a low-carbon future means investing in the medium to long-term. How can the EU roadmap help to create a stable environment to encourage investment in low carbon technologies? Would it be a good idea to consider a mid-term objective for 2030, and if so, in what form? Given the long lifetimes of many energy and transport assets (30 to 40 years), we need to make the right investment decisions now if the EU is to meet its GHG targets for 2050. The EU needs to take positive steps to promote investment for the medium to long term. Those steps include measures in the Commission’s recent communication on energy infrastructure, which outlined what is needed to achieve sufficient investment in EU infrastructure, particularly electricity and gas networks, to meet our 2020 energy and climate change targets and longer-term low-carbon and energy security. The need for urgent action is reinforced by the evidence, set out in the Stern Review, that early action is the most cost-effective way of meeting our 2050 GHG targets. As noted above, the EU roadmap should set a clear vision for an EU low carbon economy in 2050. The subsequent energy roadmap to 2050 and transport white paper should be consistent with this vision to build investor and business confidence that the Commission is moving in a clear unified direction. The roadmap should consider a series of scenarios or ‘pathways’ for reaching the EU’s 2050 GHG ambitions. It should then draw together the common themes from these scenarios before setting out the key milestones in 2020, 2030, and 2040. Basing the milestones on the common themes from the scenarios will ensure that the milestones do not block particular pathways, or force short term responses which turn out to be unsustainable or incompatible with the long term goal. The Commission should not seek to transform these milestones into statutory targets, given that Member States may adopt different pathways in meeting the 2050 objective. In setting out these milestones, the Commission should take care to strike a balance between coordination and maintaining subsidiarity. There are areas, such as developing standards for emerging technologies and establishing codes to facilitate cross border trade in electricity, where collaboration at the EU level has the potential to produce the most cost effective transition to a low carbon economy. Coordination of this nature can also help to encourage investment by allowing businesses to take advantage of the world’s largest single market. However, there are also many areas such as planning consent where action should be at a Member State level. The roadmap should promote a stable regulatory framework that is business and enterprise friendly, and promotes open and competitive markets, to ensure that the right incentives are provided for investment. The roadmap should support a move to a 30% GHG emissions reduction target for 2020. This would raise the carbon price and in turn incentivise further abatement activity and investment in low carbon technologies; and provide greater certainty about the EU’s commitment to a low carbon future. Any such policy would need to recognise the need to mitigate against the risk of carbon leakage.

6

It is also essential that any strategy to move to a low carbon economy in Europe takes into consideration the needs of SMEs, and takes full advantage of the opportunities provided by innovation. At the start of October, the European Commission published Innovation Union, one of the seven strands of the Europe 2020 strategy. Innovation Union covers all aspects of innovation and the low carbon road map should reflect this. Finally, the roadmap should consider the use of both public sector loans and innovative financing, through platforms such as the EIB, in order to correct market failures where these exist, and also to leverage further private investment. One important facility for promoting low carbon technologies is the Strategic Energy Technology (SET) Plan, which will require significant levels of investment in the next five to ten years. We welcome the Commission’s discussion of using innovative financing in its recent Budget Review, and would expect the roadmap to consider the role of the EU budget in delivering the low carbon agenda.

7

13) We want to cut emissions in the EU by 80% to 95% by 2050. Some of the measures needed to achieve this could bring about more sustainable growth, extra jobs, accelerated innovation, cleaner air, increased energy security and lowering our vulnerability to external energy shocks. Which of these do you think should be top of the list? What should the EU do to maximise the benefits you think should be delivered in priority by future climate action? The roadmap to a Low Carbon Economy in 2050 is part of the delivery of the flagship initiative on a resource efficient Europe under the EU 2020 Strategy, which has as its objective to “support the shift towards a resource-efficient and low-carbon economy that is efficient in the way it uses all resources”. The UK looks forward to parallel roadmaps on resource efficiency, transport, and energy, amongst others. It is important that measures to aid the transition to a low carbon economy are complementary and work towards a coherent vision for a low carbon, resource efficient, and climate resilient economy. The UK paper on ‘Ambitions for an EU low carbon economy’ (Annex 1) suggests the following as a starting point for a coherent vision:

In 2050 we envisage a resource efficient, low carbon, climate resilient Europe that provides a business and enterprise friendly framework, which is supported by open and competitive markets that encourage growth. Europe will be powered almost exclusively by low carbon electricity, supplied by a technologically advanced efficient and climate resilient “smart” grid providing extensive interconnection across the EU and facilitating secure and diverse energy imports. Civil nuclear and carbon capture and storage (CCS) will be an important part of the energy mix providing stable base load energy, complementing that supplied by renewables. Europe will have substantially reduced its demand for key resources such as raw materials and water, both improving its resource productivity and minimising its impact on global natural resources and biodiversity. Europe will be a global leader in developing and commercialising green technologies and EU manufacturers will play a key role in the EU and global low carbon supply chains, underpinned by a highly skilled EU workforce. The EU will have developed mutually beneficial trade relationships with its strategic partners to maximise EU business opportunities and will build on these to leverage action on energy markets and in international climate change negotiations

Policies developed as part of these roadmaps should be evaluated against this vision and the Commission should prioritise measures which deliver against it. The following list sets out initial policy ideas, which have been identified by the UK as helping to deliver this vision for a low carbon economy, and ensuring that the EU maximises the benefits of moving to a low carbon economy:

8

Policy option

1 The Commission should ensure its roadmaps on low carbon, resource efficiency, energy and transport:

• Are coherent and set an overarching vision for an EU low carbon, resource efficient and climate resilient economy.

• Include scenarios for reaching that vision by 2050 and milestones in by 2020, 2030 and 2040 identifying the common themes, whilst allowing Member States to set their own pathways to meet the target.

• Are consistent with the Europe 2020 strategy objectives.

• More broadly the Commission’s Europe 2020 flagship initiatives should encourage a smooth transition to a low carbon, resource efficient and climate resilient economy, furthering eco-innovation, maximising business opportunities with a better access to finance and creating an open and competitive business environment.

2 The Commission should revise their impact assessment framework to:

• Set a systematic process for identifying the risks and opportunities of policies for the climate, natural resources, including water, and biodiversity.

• Require new Commission policies and appropriate funding streams (e.g. R&D grants) to take account of the carbon impact, to encourage them to focus on supporting the cost effective transition to a low carbon, resource efficient and climate resilient economy

3 The Commission must encourage more streamlined and coordinated planning procedures through the exchange of best practice between Member States, without encroaching on Member States sole legal competence. Member States, regulators and system operators must work together to develop consistent electricity transmission network codes to allow better cross-border trade in electricity, particularly from renewables.

4 Member States and the Commission must explore options for addressing the SET Plan funding gap in a time of fiscal consolidation in Europe. This funding gap threatens to delay the development of low carbon technologies such as CCS for energy intensive industries.

5 The Commission’s Transport White Paper for 2010-20, and other relevant strategies must: 1. Encourage ambitious action to improve the efficiency of existing technologies across all

modes of transport e.g.: i. Ensure a solidly evidence-based review of the 95g/km target for car CO2 in 2020 during

the 2013 review under the car CO2 regulations. ii. Set out a suitable EU measure to address emissions from international shipping if an

international agreement is not achieved in the International Maritime Organization (IMO) within the prescribed timescale.”

iii. Facilitate the effective introduction of the Aviation EU ETS in 2012. Seek to maximise compliance amongst aircraft operators and reduce the risk of challenge in order to ensure that the environmental objectives of the System are met

2. Brings forward a broad range of cost effective low carbon technologies (avoiding ‘picking winners’) e.g.:

i. Encourage agreement of technology neutral charging infrastructure standards for vehicles that plug into the grid

ii. Engage with ACARE to develop a ‘beyond 2020, towards 2050’ vision, to set a strategic direction for the European aviation industry, and provide access to the necessary R&D funding.

6 The Commission and Member States should: • Harmonise standards within the EU for measuring and auditing carbon footprints over a

product’s life-cycle, sharing best practice and boosting access to green products and services, and using voluntary agreements where these will be effective.

• Agree ambitious and dynamic standards setting processes under the Eco-Design and Labelling Directives framework.

• Adopt (by end 2010 or early 2011) measures setting minimum and/or energy labelling standards for the following products:

o Boilers and water heaters. o Computers and displays o Commercial refrigeration o Air conditioning

7 The Commission should develop an EU low carbon heating and cooling plan drawing together the various work strands - (biomass, community heating, CHP, energy efficiency etc) and setting out:

9

• Drivers for heat demand in 2020 and 2050

• Options for heat and cooling supply consistent with an 80% to 95% cut in GHG by 2050 and resilient to the impacts of climate change

• The long term strategic impact of these options; and

• The place for EU-level and Member State level action

8 The EU Council and Commission must take a firm stance against fossil fuel consumption subsidies, using international fora such as the G20 to make progress.

9 The EU should foster an approach to low carbon skills which:

• Empowers learners and employers as consumers, focusing in particular on the quality of information available to support their skills investment decision

• Gives skills providers greater freedom to respond to learner and employer demand, by removing bureaucracy and unnecessary skills infrastructure, and simplifying the audit and funding regimes

• Encourages and supports employers and social partnerships, in sectors and in localities, to tackle barriers and blockages preventing the skills market operating efficiently

10 The EU Council and Commission must remain active in the creation and maintenance of key bilateral relationships including EU-China and EU-India to support the development of low carbon, resource efficient and climate resilient technologies and place China and India on the pathway to low carbon, resource efficient and climate resilient economies.

10

14) What sectors do you think may be most vulnerable to the negative impacts of climate change, and what policies do you think the EU should pursue to help them to adapt? Do you have any suggestions on the integration of adaption policies in the Common Agriculture Policy, civil protection, environment, energy, transport, research and development policies? The sectors in which we believe it is most important to embed adaptation to climate change are land use planning, the built environment, emergency planning, infrastructure, natural resources, health, agriculture, and business. The EU should also pay attention to the impacts that climate change will have in other parts of the world, which may translate into impacts within the EU. Each sector needs to pursue policies, based on the most up to date climate science, which build resilience to current and future climate into policy outcomes. In integrating adaptation to climate change into EU policies, the principles of subsidiarity, sound financial management, and proportionality should be promoted. There is a case for reprioritising the EU budget to play a greater role in helping to deliver the collective benefits of a low carbon, resource efficient, and climate resilient economy for Europe. Whilst the UK government could not support any EU proposal that seeks to impose conditionality on Member States, nor earmarked funds for adaptation, which would inhibit true mainstreaming of this cross-cutting issue, opportunities do exist. Within a simpler and more affordable Common Agricultural Policy, we believe there is scope for Pillar 2 to help respond to the challenges of climate change by delivering environmental objectives, as well as increasing competitiveness. Energy, water, transport, and ICT infrastructure underpin smart, sustainable and inclusive economic growth. The operational framework for projects funded via structural and cohesion funds should be considered for its potential to help promote climate resilience as an outcome, without adding burdens. EU transport policies can contribute to the low carbon agenda. The Trans-European Transport Network (TEN-T) should promote sustainable transport including measures promoting climate adaptation for the development of a reliable and climate change resilient European transport network. Cooperation on climate research and innovation can underpin the EU’s capacity to adapt successfully. Efficiencies could be realised in building our understanding of climate futures on all scales from global to local impacts, as well as in promoting cooperation on supercomputer hardware and agreeing on priorities.

11

15) Do you have success stories that could lead to new initiatives for steering EU transition to a low-carbon economy you wish to highlight? Please add further comments or suggestions here if you wish. There are a number of initiatives involving the UK that should contribute to the transition to a low carbon economy: North Sea Offshore Grid Initiative Last year the Ministers of 10 countries (UK, Germany, France, Belgium, Netherlands, Sweden, Ireland, Luxembourg, Denmark and Norway) signed a Political Declaration launching the North Seas offshore grid initiative. They agreed to work together on developing offshore infrastructure in the North, Irish, and Baltic Seas, in light of the contribution that offshore renewable energy resources can make to the achievement of our common goal of moving to a low-carbon economy while maintaining security of supply. The complexity of the initiative calls for improved multilateral collaboration which is scheduled to be endorsed through a Memorandum of Understanding on 3 December 2010 which will include a detailed work programme, the aim of which is to identify and tackle the barriers to a more coordinated development of offshore grids. 2050 Pathways Analysis In July 2010, the UK Government published the 2050 Pathways Analysis. This innovative piece of work presents a framework through which to consider some of the choices and trade-offs which the UK will have to make over the next forty years in the transition to a low carbon economy. It is system-wide, covering all parts of the economy and all greenhouse gas emissions released in the UK. It shows that it is possible for the UK to meet the 80% emissions reduction target in a range of ways, and allows people to explore the combinations of effort which meet the emissions target while matching energy supply and demand.

The analysis was published in three formats; a simplified and interactive 2050 web tool; the full Excel model which drives the web tool; the 2050 Pathways Analysis report which sets out (a) the analytical approach and methodology, the findings and conclusions; and (b) a detailed description of what was assumed and why for each of 18 sectors included in the model.

The work was published as a ‘Call for evidence’ as the team wished to invite consultation on whether the inputs and assumptions which went in to the 2050 Calculator were robust. The response to that invitation has been positive and the team will be updating the 2050 Calculator with some minor revisions and re-publishing it in the New Year.

The 2050 Pathways Analysis work has been well-received by a large number of people interested in energy and climate change. Over 500 experts took part in interactive sessions on the 2050 work, and colleagues in the UK, Europe and further afield have been talked through the model. A real value of the work is that it allows anyone to explore and test their ideas about how to meet the UK’s future requirements, and to immediately get a sense of the impact and implications. Indeed over 40,000 individuals accessed the web tool

12

between July and November. It is hoped that this tool will help to engage wider society on the need for an objective and numerate debate about the choices available to us during the transition to a low carbon economy. Such insights are valuable to decision-makers in both the public and private sectors in their work steering a transition to a low-carbon economy.

The 2050 Pathways Analysis is freely available online at: http://www.decc.gov.uk/en/content/cms/what_we_do/lc_uk/2050/2050.aspx The Green Deal: Energy efficiency is a key part of the UK’s transition to a low carbon economy. The UK coalition Government has made a commitment to introduce the Green Deal, a new initiative to cut carbon emissions and save energy in UK homes and businesses. Under the scheme, householders and businesses will be able to make energy efficiency improvements to their properties, with bill-payers repaying through the savings they make on their energy bills. The Green Deal finance will come from the private sector; the UK government is currently in discussions with energy companies, retailers, and banks about how best to facilitate this. The Government believes that the Green Deal will help meet a range of social and environmental objectives in the UK – reducing energy demand and carbon emissions, making property warmer, saving consumers and businesses money and stimulating a green recovery in jobs. In addition there should be benefits in terms of reduced water consumption through the uptake of measures to reduce hot water consumption. The UK government will enact the necessary legislation during the current session of Parliament, which should allow for the full Green Deal to be available in 2012. Target to reduce carbon dioxide emission by 10% across central Government by May 2011 On 14th May 2010 the Prime Minister David Cameron committed UK central Government to reduce carbon dioxide emissions by 10% by May 2011. Every central Government Department has developed a plan to meet its share of the target. The Prime Minister also committed every department to display real-time energy use of its headquarters online in real time. In October 2010 the real-time energy data was used in a cross-government energy reduction competition that ran though out the month. Green Investment Bank The UK Government is committed to creating a Green Investment Bank (GIB) to support private investment in green infrastructure by having an explicit mandate to tackle risk that the market cannot currently adequately finance. and late-stage technologies. The GIB will initially be capitalised with £1bn of funds from departmental budgets and significant additional funding from the sale of Government-owned assets sales. The design of the new institution’s governance arrangements, business model and operating model are already underway with the intention of beginning lending in 2012. UK National Infrastructure Plan

13

In October 2010 the UK Government published its National Infrastructure Plan. It recognised that long-term climate change may undermine the transition to a low carbon economy if new low carbon infrastructure is not adapted to climate change. To ensure carbon reduction targets are met will require fundamental changes not only to the energy technologies on which most core UK infrastructure relies, but also to the way infrastructure in the UK is planned, coordinated and delivered. In addition, due to the projected long-term impacts of climate change, infrastructure will need to adapt to climate change to provide security and resilience to the increased risk from natural hazards (e.g. floods and heat waves). The Government plans that over the next five years, some £200 billion will be invested in UK economic infrastructure. The UK Government is working to identify and examine strategic solutions to improve the long-term resilience of new and existing infrastructure in the energy, telecommunications, transport and water sectors to future climate change impacts. The National Infrastructure Plan includes a commitment to publish, in Spring 2011, findings on how best to respond to the risk and opportunities that climate change will present to UK infrastructure.

14

ANNEX 1

Ambitions for an EU Low Carbon Economy

Introduction 1. Over the next few months the European Commission plans to publish

several Communications which should contribute to setting the strategic

direction of the EU’s transition to a low carbon economy2. It is important

that all these activities provide a coherent and joined-up framework that

promotes sustainable low carbon growth, maximises opportunities and

manages and minimises the costs of the transition to a low carbon

economy. To ensure consistency across each of the Communications the

Commission should have an agreed understanding of its objectives for the

transition. This paper sets out what those objectives might be.

2. There is already consensus amongst policy makers, business and NGOs

that the EU must make the transition to a competitive low carbon

economy by 2050, with substantial progress by 2020. This paper

assumes a broad definition of an EU low carbon economy that is also

resource efficient and climate resilient. A shift to such an economy is

consistent with the EU’s ambitious climate change goals (an 80% to 95%

reduction in GHG emissions by 2050) and can be used to support the

international climate change negotiations. Indeed, if we can demonstrate

that the transition does not threaten stability and development but instead

creates sustainable growth and jobs, this will be the best means of

unlocking greater ambition on the global low carbon transition.

3. The shift to an EU low carbon economy represents a huge transition for

the whole EU economy offering both opportunities and challenges. For

instance, an EU low carbon economy will transform many industries and

their supply chains, opening up new markets and positioning the EU as a

leader in green economic growth. It will also help diversify the EU’s

energy supply away from a reliance on fossil fuels and stimulate the

growth of low carbon goods and services. More broadly, an EU low

carbon economy will help to ensure the long-term sustainable use of

2 Communications include: DG Climate Action’s Roadmap for low-carbon economy by 2050 and their

Communication on mainstreaming climate adaptation and mitigation in EU policies and climate proofing of financial

instruments; DG Energy’s Energy Strategy for Europe 2011-2020, Infrastructure Package and its roadmap for a low

carbon energy system by 2050; the Europe 2020 flagship initiatives (Resource Efficient Europe, EU Industrial Policy,

Innovation Union and an Agenda for New Skills and Jobs); DG Enterprise’s Smart Regulation and the Single Market

Review and DG Move’s transport white paper.

15

natural resources and ensure that investments are resilient to the impacts

of climate change.

4. There are some significant challenges on the pathway to an EU low

carbon economy, not least minimising additional costs, securing the funds

to make the transition and ensuring the most cost efficient policy

instruments are chosen to reach our objectives. A significant challenge

rests with:

a) Creating the collective political will to make the transition a reality

b) Creating a business and enterprise friendly framework, with open and

competitive markets, that provides the right incentives for investment

– transforming the whole economy;

c) Addressing problems around access to finance;

d) Overcoming scepticism regarding the urgency of the transition. Given

the long lifetimes (30 to 40 years) of many energy and transport

assets there is a risk the EU will be ‘locked in’ to a high carbon

trajectory if forthcoming investments do not facilitate the transition to a

low carbon economy;

e) Ensuring an adequate supply of skills, including Science, Technology,

Engineering and Mathematics (STEM) skills, required by low carbon

industries;

f) Providing/facilitating market opportunities, including export

opportunities;

g) Considering how emissions can be reduced in different sectors of the

economy, enhancing EU competitiveness. For some sectors which

operate across international borders and serve global markets

international action will help avoid competitive disadvantage or carbon

leakage;

h) Focusing limited expenditure on key technologies and sectors where

there are clear market failures or barriers, including through support

for R&D, innovation and infrastructure and commercialisation of

green, low carbon technologies;

i) Considering how key resources other than energy, such as raw

materials and water, can be used more sustainably.

Objectives for the Commission’s work

5. Progress on the EU’s low carbon agenda should make it easier to

decarbonise and develop low carbon commercial initiatives at a Member

16

State level. However, we need to ensure that we create an economic

environment that fully reflects the cost of carbon emissions, combined

with appropriate market conditions to facilitate growth, increase business

certainty and create a positive environment for business to invest. This

will be the most effective way of meeting both low-carbon and economic

growth objectives. On that basis we must ensure the transition to a low

carbon economy is undertaken in the most efficient manner, minimising

fiscal, regulatory and economic costs.

6. It is essential that initiatives to develop an EU low carbon economy are

taken forward in a way that supports business competitiveness, i.e. we

should seek business-led, market based approaches wherever possible

and ensure regulatory burdens are kept to a minimum. This needs to be

underpinned by policies that provide the incentives necessary for the

development of low carbon infrastructure in, for example, the energy and

transport sectors. In this context, we should limit the use of regulation to

areas where it supports market development and encourages the

investment needed for a low carbon economy. In doing so we should

explore and champion the use of innovative alternative approaches to

regulation wherever possible.

7. The following objectives are proposed to enable the transition to an EU

low carbon economy.

8. Objective 1 - The Commission should ensure its forthcoming

roadmaps are coherent and set out an overarching vision for a low

carbon economy by 2050.

A single Commission vision for an EU low carbon economy in 2050 and the associated Roadmaps and related Communications should provide some clarity both in terms of what is meant by an ‘EU low carbon economy’ and the shape, speed and extent of the transition. We suggest the following as a starting point:

9. In 2050 we envisage a resource efficient, low carbon, climate

resilient Europe that provides a business and enterprise friendly

framework, which is supported by open and competitive markets

that encourage growth. Europe will be powered almost exclusively

by low carbon electricity, supplied by a technologically advanced

efficient and climate resilient “smart” grid providing extensive

interconnection across the EU and facilitating secure and diverse

energy imports. Civil nuclear and carbon capture and storage (CCS)

will be an important part of the energy mix providing stable base

load energy, complementing that supplied by renewables. Europe

will have substantially reduced its demand for key resources such

as raw materials and water, both improving its resource productivity

17

and minimising its impact on global natural resources and

biodiversity. Europe will be a global leader in developing and

commercialising green technologies and EU manufacturers will play

a key role in the EU and global low carbon supply chains,

underpinned by a highly skilled EU workforce. The EU will have

developed mutually beneficial trade relationships with its strategic

partners to maximise EU business opportunities and will build on

these to leverage action on energy markets and in international

climate change negotiations

10. The Commission’s Roadmaps for delivering the vision should highlight the

milestones that need to be achieved by 2020, 2030 and 2040. That said,

the vision should not be treated as a blueprint. It should be the

responsibility of both the EU and Member States to put in place

complementary long term frameworks and work in partnership with the

private sector to deliver against these milestones.

11. A theme of coherence should extend across the Commission by using the

Commission Roadmaps and Communications as a platform to ensure the

synergies between the work of individual DGs are exploited much more

fully. Commissioners should have a shared aim of working to encourage

sustainable economic growth, including making a lasting contribution to

the transition to a low carbon economy by 2050. DG Climate Action, DG

Energy, DG Environment, DG Research, DG Move, DG Enterprise and

others should demonstrate a step change in their collaborative working

and ensure that low carbon, resource efficiency and climate adaptation

considerations are consistently integrated across EU policies and

spending. For instance, DG Energy’s forthcoming work on the Energy

Strategy for Europe, Infrastructure Package and roadmap to 2050 should

tie in closely with the overarching 2050 roadmap and Communication on

climate change adaptation being developed by DG CLIM.

12. Objective 2 - To maximise economic opportunities for the EU and

minimise costs

In placing the EU on a pathway to a low carbon economy, it is important to capture the significant global growth opportunities as well as ensuring EU competitiveness. Given the need to make significant progress by 2020 many of the opportunities (and also challenges) for the EU are likely to arise in the next decade. We must provide business with the best platform to take advantage of these opportunities by creating the right market conditions for investment, ensuring a stable, simple and efficient regulatory environment and continuing to identify and tackle market failures.

18

Trade 13. Greater trade is a key route to growth. By harnessing the power of the

single market and trade, the EU can achieve a ‘triple win’ of economic

growth, environmental benefits and more sustainable development. There

are significant EU business benefits in the growing low carbon and

environmental goods and service sector, worth £600 billion in 2009. But

there remain significant tariffs and non-tariff barriers to trade in low carbon

goods and services.

14. We should continue to support the EU’s efforts to reach a successful

outcome in the WTO Committee on Trade and Environment (CTE)

negotiations, and press the EU to take a more proactive role on

advancing the Australian Initiative on liberalising trade in climate related

goods in a way that is consistent with a positive outcome on the Doha

negotiations. The EU should also consider outreach to the larger

developing economies which are outside the Australian Initiative, as they

are the countries currently stalling progress. We should also ensure the

EU pursues liberalisation of environmental goods and services in its Free

Trade Agreements and regulatory dialogue.

15. At the same time, we recognise the risks of carbon leakage for some

sectors in the light of the failure of the major economies (both developing

and developed countries) to agree binding emissions reduction targets at

Copenhagen.

16. But from a trade perspective we believe Border Adjustment Mechanisms

(sometimes called Carbon Inclusion Mechanisms) pose a number of

serious problems in terms of practicality, legality and wider impact on the

world trade system. These problems are recognised in the recent

Commission communication on the analysis of options to move beyond a

20% GHG emissions reduction target.

Coordinated action

17. The need to avoid EU business incurring excessive costs strengthens the

case for a coherent set of policies at an EU level to promote an EU low

carbon economy. The more the EU acts together the smaller the risk of

individual Member States incurring disproportionate costs compared to

those of other EU members.

Coordinated EU action may also help create new and expanded markets for the low carbon and climate adaptation sectors, avoiding fragmentation of the Single Market. These include offshore wind, low carbon vehicles, marine power, carbon capture and storage, civil nuclear and energy efficient services (IT, software and low carbon chemicals). Maximising the deployment of commercially viable low carbon environmental goods

19

and services will help drive not only our climate change and energy objectives, but support jobs in the supply chain. Therefore we must provide the right framework and incentives for take up of these products and services. Policies should address the key barriers of lack of time, lack of finance and the low priority given to investment in these areas at the micro level in households, business and public sector organisations.

18. In addition, other common policies offer the scope to reinforce the EU low

carbon agenda. For example, proposals for a Single Market Act expected

later this year are likely to identify low carbon as a potential growth

market. In order to capitalise on this, the EU should promote

standardisation systems that are as accessible as possible to business

and more consistent information to consumers about the environmental

properties and impacts of products. The EU should also extend

disciplines, such as mutual evaluation, that help Member States identify

and remove barriers within the Single Market. Furthermore, it should

promote better monitoring and auditing of environmental impacts and

measures to open up public procurement markets to green goods and

services.

19. Finally, it is important that EU action in this area does not inadvertently

second guess the development of markets or particular technologies, or

otherwise create barriers to entry. In this regard it is important the focus is

on improvements in performance rather than favouring particular solutions

to deliver low carbon.

The impact on mature industries and supply chains 20. The transition to a low carbon economy will transform mature industries

and supply chains. These can be broken down to:

• Industries which will need to transform their goods and services.

These include aerospace, automotive, construction, ICT, electronics

and financial services. The role for the EU should be to help reduce

uncertainty by creating a stable regulatory framework, which can help

leverage necessary private sector investment, investment in innovation

and providing/facilitating information on market opportunities.

• High-carbon and/or energy intensive industries. These sectors are

important to, and could capitalise on, the transition to the low carbon

economy, since their goods and services are likely to be critical

components of the capital investments in low carbon infrastructure (e.g.

steel for wind turbines). They are also likely to see the highest rise in

costs relative to other sectors due to the increase in energy prices

arising from climate change policies and measures. This potentially

puts these sectors at a competitive disadvantage and risks ‘carbon

20

leakage’ – a loss of market share to foreign competitors based outside

the EU where GHG policies are less stringent (ultimately this does not

help address global climate change). In taking forward policies the EU

should assess the risk of carbon leakage and the scope for further

emissions reductions within different sectors of the economy, and how

to mitigate costs, incentivise investment and maintain competitiveness.

The EU should also consider what further measures might be required

to help those sectors needing a technological breakthrough in order to

make future emissions reductions. Any measures need to be

consistent with open and fair competition.

Small/Medium Enterprises (SMEs)

21. SMEs have an important role in facilitating the transition to a low carbon

economy. They employ over two thirds of the private sector workforce and

are responsible for around 50% of all emissions in the economy. By

realising the economic benefits of becoming more efficient in how they

use resources such as energy, raw materials and water, SMEs will

contribute to the transition to a low carbon economy. It is essential that

any strategy to move to a low carbon economy in Europe takes the needs

of SMEs into consideration, for example, by adopting an approach that

encourages entrepreneurship to flourish. Issues of specific concern to

SMEs include support for innovation, keeping regulatory burdens to a

minimum and facilitating access to venture capital and other sources of

finance, including funding available from the EU..

22. Objective 3 – Put in place a business and enterprise friendly

framework that attracts sufficient investment to bring about the

transition to an EU low carbon economy. The transition to a low

carbon economy will require significant levels of investment, particularly in

the following areas:

• Large scale low carbon infrastructure – For instance, putting in

place additional transmission and distribution infrastructure to

guarantee security of supply in a generation portfolio much more reliant

on intermittent low carbon sources and/or those situated in remote

locations could cost hundreds of billions of Euros. Barriers include the

high levels of risk to investors, lengthy waits for returns on investment,

incompatible national energy regulatory framework, incompatible

planning regimes and long term uncertainty, which makes it difficult to

gauge whether a project is likely to be profitable.

• Innovation – For example, the Commission estimate that investment in

R&D through the technologies covered by the Strategic Energy

21

Technology (SET) Plan is likely to require €50billion of additional

funding from 2010 to 2020. Innovation will be a key determinant of

Europe’s future competitiveness and its ability to take advantage of

markets created by the move to a low carbon, resource efficient and

climate resilient economy. Business is a key driver of innovation and

we need to work in partnership with them to provide the right conditions

to encourage long term investment decisions, ensure solutions can be

drawn from a wide range of technologies, realise benefits from non-

technological aspects of innovation, and enable future growth. The UK

is supportive of the Commission’s intention to increase the funding

available for high risk innovative projects and the creation of a pan-

European Venture Capital Fund to invest in high-tech, innovative

SMEs.

23. The vast majority of this capital investment must come from the private

sector. Therefore, policies in this area should focus on creating the

conditions for private sector investment through providing greater long-

term certainty, and access to finance where appropriate. A well designed

policy framework can be used to combat both these challenges. This will

include in particular implementing the Third Package of Energy

Liberalisation to enable investment in energy networks to support a low

carbon energy system; and a well functioning intellectual property system

which provides incentives for business to innovate and which supports

diffusion of low carbon technologies. Direct investment by the

Commission and MS should continue to address barriers to innovation

and commercialisation for key low carbon solutions and to areas of

market failure in infrastructure (although in some cases it may be more

efficient to make non-financial interventions).

24. Finally, ensuring the EU workforce has the right skills is central to

enabling the transition to a low carbon economy. The skills required range

from high-end Science, Technology, Engineering and Mathematics

(STEM) skills to lower skilled roles such as fitting insulation. We would

support activity at EU level to improve the quality of information relating to

low carbon qualifications, job opportunities and career pathways, in order

to empower learners, stimulate interest amongst the workforce and

encourage employer investment.

25. Objective 4 - To enhance the EU’s leadership role in global climate

change negotiations and the low carbon agenda more widely. If we

can demonstrate that the EU’s low carbon growth is creating jobs without

threatening stability or development, this will be the key to showing other

countries that the low carbon transition is both welcome and inevitable,

22

driving global ambition to reduce emissions. The EU needs to show

leadership both in the international climate change negotiations, where

urgent action is needed to meet a two degree target, as well as the global

low carbon agenda more broadly.

26. Making progress on the transition to an EU low carbon economy will also

have the benefit of illustrating that the EU is ‘practising what it preaches’.

In turn this will reinforce the EU’s credibility in international climate change

negotiations (as well as related negotiations such as those on

international biodiversity) and ensure the EU will be well placed to

influence the other major economies and developing countries.

27. An effective long term EU low carbon strategy will also be necessary to

underpin the move to a 30% GHG emission reduction target for 2020. It

will be important to make the links between the Commission’s analysis of

meeting the target and this project. In managing the transition to a low

carbon economy it will be necessary to put in place internationally

accepted standards for carbon measurement, verification and auditing,

not least to facilitate carbon trading initiatives.

28. In taking forward green objectives in international fora, the EU should

continue to promote open, competitive markets worldwide, including a

global market for carbon. In addition, it should pursue policies that

encourage the wide provision and take-up of low carbon technologies,

particularly in major emitting and developing countries; that ensure the

sustainable management of and fair access to essential raw materials;

and that support wider trade policy and development objectives.

29. Objective 5 - To ensure the Commission fulfils a facilitation role that

respects subsidiarity. There is a role for the Commission in guiding the

EU on its pathway to a low carbon economy by 2050. This coordination

should work on two levels by establishing:

a. Frameworks such as charging infrastructure standards for low

carbon vehicles and energy efficiency standards for household

products, where any advantages of Member States’ ability to act

alone are outweighed by the wider benefits of the single market.

It is important that regulatory burdens are kept to a minimum;

rigorous impact assessments are carried out on all proposed

measures; and that regulation is seen as a last, not a first,

resort.

b. Coordinating policies where Member States’ agree policy

priorities at an EU level in areas of Member State competence

23

so as to address common barriers to an EU low carbon

economy in a coherent and efficient manner.

30. The policy priorities identified at an EU level should help Member

States develop their own low carbon strategies and where relevant, be

reflected in them. These policy priorities should be implemented in a

form that best suits national circumstances. Furthermore, they should

allow for additional complementary initiatives that Member States wish to

take forward on an individual, bilateral or multilateral basis in a manner

consistent with open and competitive markets.