1. EU 2030 Framework / ETS Commission proposals

2. 22 January 2014 – Commission Communication and Impact Assessment + Energy Prices and Competitiveness study 13-14 February 2014 – European Council summit on competitiveness 20-21 March 2014 – European Council summit on 2030 targets October 2014 – UN Heads of Government summit on climate in New York December 2014 – UNFCCC COP20 in Lima EU timeline to decisions on 2030

3. Commission will propose a 40% GHG target and a 30% RES target Decision on an energy efficiency target in 2015 (after progress report) GDP costs and health benefits are quantified Weak ETS in combination with today's high gas to coal price ratio can lead to carbon lock-in, while regulatory uncertainty is leading to fragmentation of climate policies within the EU RES help limit external energy dependency and help stabilise electricity prices in the medium term, while the EU’s external fossil fuel bill rises 50% from 2010-30 “As pointed out by stakeholders e.g. from the power sector”, investors need a stable long-term policy framework Leaked 2030 Impact Assessment / rumours Draft version only!

4. 2014? Back-loading: pending Council position (German position) Cosmetic fix, would help market confidence but makes no difference to the short-term 2 bn EUA structural surplus 2017+ Supply Adjustment Mechanism: pending completion of the back-loading Useful re market volatility, nice to have for the long-term, but makes no difference to the short-term 2 bn EUA structural surplus ????? Set-aside: only possible in case of strong political consensus Short-term fix for the 2 bn EUA structural surplus, but not a solution to the medium-term problem of making the cap (linear factor) consistent with 2050 2020+ Widening to additional sectors Long-term objective Slow progress of ETS reform Decisions are linked to other processes 2020+ Linear factor revision: after agreement on the EU 2030 GHG target Medium-term fix making the cap (linear factor, role of offsets) consistent with 2050, slow impact on the short-term 2 bn EUA structural surplus 2014 Carbon leakage list review 2014? Agreement on EU 2030 Framework / GHG target

5. 1: EU RES target delivered through national targets and support schemes Market fragmented and distorted 2: EU RES target with EU harmonisation of support schemes (not yet clear how this would work) Market distorted but not fragmented 3: EU RES target delivered through ETS (mature RES) and innovation support (immature RES) Fully market compatible 4: No EU RES target Unlikely in light of Commission, German, and European Parliament opposition…. Four possible outcomes re the 2030 RES target

6. EU 2030 Framework / ETS EURELECTRIC’s position

7. Lessons from the 2020 Framework EURELECTRIC’s priorities Climate policies must be cost-effective, this requires 1.Focus on emissions reduction (not renewables, imports) 2.Economy-wide targets (not just a few sectors) 3.EU-level instruments (not national) 4.Market instruments (not command) 5.A steady pace of change (early + high ambition, not delay + low ambition; stable framework, not stop/start) …Do not replicate the 20/20/20 package EURELECTRIC commits to: Combat climate-change: Carbon-neutral electricity by 2050; Boost energy efficiency by electrifying transport, heating/cooling… Deliver cost-efficient, reliable electricity: European, market- based solutions

8. Whole-economy model 1.Reference: models policies which have been adopted and implemented to end 2011, but excludes policies currently in the process of announcement or adoption, additional policies beyond 2020 are not considered 2.Power Choices Reloaded: aims for an optimal portfolio of power generation based on an integrated energy market and all technology options, identifies a least cost pathway to the 2050 goal with switching between different forms of final energy use Meets all 2020 targets (but assumes 20% energy efficiency target reaches in 2025); Carbon price in ETS sectors only until 2020, but thereafter a uniform carbon price signal applies to all sectors and all Member States; Simulates policy measures to overcome non-economic barriers to energy efficiency; Assumes key grid or storage infrastructure will be built as planned in line with the needs of the overall electricity system. 3.Lost Decade: postpones major abatement action beyond 2030, so that an extremely steep abatement path becomes necessary to reach the 2050 goal, leading to bottlenecks in equipment supply, price effects due to overheated demand, and stranded assets because of exaggerated investments in redundant capacity. Power Choices Reloaded 3 main scenarios

9. 9 39% from energy efficiency 32% from Renewables 11% from nuclear, 6% from CCS and 13% from natural gas Power Choices Reloaded Combines all options to reduce emissions

10. Starting with emissions of 350g/kWh in 2010, the power sector will deliver about 10g/kWh in 2050 in the Power Choices Reloaded scenario. Reaching the whole- economy 2050 goal requires a significant share of final energy use to switch to electricity, notably in the transport sector and heating, thus delivering emissions reductions and efficiency improvements10 Power Choices Reloaded A systems approach with electricity as the pivot

11. Already in the Reference scenario, ETS drives strong restructuring of power generation in the long term In Power Choices Reloaded additional decarbonisation is achieved through higher RES and CCS post 2030 Gas plays a key role in balancing and reserve services. Pumped storage increases and in the long term hydrogen storage emerges. Power Choices Reloaded Structure of power generation

12. Power Choices Reloaded’s Lost Decade modelling scenario assumes a complete lack of action in the decade 2020-2030, therefore the entire decarbonisation action has to occur in the last two decades to 2050 Infrastructure, power sector decarbonisation, mobility electrification and technology R&D, as well as energy efficiency in the demand side sectors will have to develop in a very short period of time post-2030 The changes required in the system from 2030 to obtain the necessary cumulative emissions reductions by 2050 result in this scenario being barely feasible in true life Key failures involved in the Lost Decade case Weak carbon market until 2030 Limited financing under uncertainty hampering investment Market coordination failures delaying infrastructure Non-completion of IEM leading to low cross-border energy trade Slower pace of technology progress: learning curves and build up of supply chains Delays to energy efficiency persisting up to 2030, especially on the demand-side and in electrification What ambition, when? Power Choices Reloaded – high cost of a Lost Decade

13. What ambition, when? Power Choices Reloaded – high cost of a Lost Decade Limited financing CO2 driver without energy efficiency market failure correction Limited cross-border trade 2030 RES target with support schemes Delays to energy efficiency Lost Decade Increase of energy system costs as percentage of GDP in the Lost decade compared to the PCR

14. What ambition, when? Early, economy-wide, high ambition Climate is a lower political priority than before the economic crisis, BUT there is still some priority and therefore some policy ambition The power sector is always the first (easy) target for climate policy Therefore we face a choice: No ambition Low ambition = few sectors (power) = stop/start policies High ambition = whole-economy = stable policies (Not a realistic option for the power sector) Costs the power sector investment in low-carbon technologies and loss of market share from energy saving Gains the power sector new market share through electrification of additional sectors

15. Who and how? EU + market, not 28 x command chaos ETS as the key driver Strong innovation policy National RES and EE schemes National carbon price floors/taxes National capacity mechanisms MARKETS ARE FRAGMENTED AND POLICIES ARE START/STOP ENERGY MARKET INTEGRATION AND (MORE) PREDICTABLE POLICIES NL coal tax UK carbon price floor

16. 1. The ETS cap is not coherent with the EU 2050 goal Solution: Revise the linear factor 2. Surplus of 2bn-2.5bn EUAs Solution: Permanent set-aside 3. Fixed supply and demand shocks result in price volatility Solution: Supply adjustment mechanism ETS problems and reforms 3 different problems, 3 different solutions

17. EURELECTRIC’s recommendations Through a 2030 framework built on: -At least a 40% emissions reduction target -The ETS as the key driver policy for investment choice in low-carbon technology, infrastructure and processes -Extend the ETS to additional sectors -Phase out all energy subsidies and market distortions -Bring renewables fully into the market, fulfilling the same balancing and scheduling responsibilities as other technologies -Support energy innovation -Demand-side energy efficiency measures if necessary to correct market failures -2014 completion of the internal energy market EURELECTRIC commits to: Combat climate-change: Carbon-neutral electricity by 2050; Boost energy efficiency by electrifying transport, heating/cooling… Deliver cost-efficient, reliable electricity: European, market- based solutions