When designing energy and climate policy targets and the measures to reach them, the EU must rely on the core source of its competitiveness, i.e. well-functioning internal energy markets.
The EU cannot afford policy measures that do not exploit the internal market or that are non-market based and/or predominantly national. Unfortunately, the current trend in this regard is very negative: national subsidies for renewable energy have raised the need for national capacity remuneration mechanisms that are either already introduced or planned in many member states. If the functioning of the EU ETS is not addressed, the risk for national CO2 taxes increases. This development must be reversed.
Fortum welcomes the EU Commission’s formal launch of a process to establish the 2030 EU energy and climate framework with the Green Paper. For the energy sector, where investments are capital intensive and with long lead times, it is crucial that key decisions concerning the future energy and climate policy framework are made as soon as possible. Even more important than deciding on the concrete targets is to get clarity on the overall architecture of the future framework – the kinds of targets there will be and their relation to each other, and the measures to implement those targets (and the measures that cannot be used) in order to ensure the most cost-efficient implementation possible.
The energy sector is a major investor with even larger investment potential, as tackling the 2050 decarbonisation target requires massive investments both in generation capacity and in transmission infrastructure. However, nearly all market-based investments are currently on hold in Europe because of the increasing uncertainty and lack of visibility regarding the future policy framework. The key source of uncertainty relates to the lack of visibility regarding the future of the EU ETS and to the role of the carbon price as a driver for decarbonisation.
It is important to draw on lessons learned from the current “2020” energy and climate policy framework, especially regarding target setting. The current architecture, which is based on multiple targets and overlapping steering mechanisms, has created a complicated system where different measures are diluting each other’s effectiveness and creating market distortions. An additional complication comes from the fact that only one of the EU-level targets, namely the CO2 target, is implemented with an EU-level mechanism, whereas the other two targets are implemented with national measures. There is a clear need to streamline and simplify the current policy framework in order to avoid unnecessary cost and to protect the competitiveness of the EU economy.
In the context of the appointment of the next EU Commission (2014 - 2018) the possibility of merging DG ENER and DG CLIMA should be considered. Combining both energy and climate related policies under a single Directorate General would help to better integrate and coordinate these policies and related implementation measures.