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Blogpost: Moving Towards the New 2040 Climate Target

Outlining a Green Energy and Innovation Agenda

Today, the European Commission unveiled a communication on the 2040 Union-wide climate target, in line with the obligation of the European Climate Law to publish a legislative proposal within six months of the first global stocktake under the Paris Agreement (Article 4(3), European Climate Law). The Commission is bound to consider the “best available and most recent scientific evidence”, including the latest reports of the European Scientific Advisory Board on Climate Change (ESABCC) (Article 4(5)(a), European Climate Law).

In the next 15 years, Member States need to nearly triple the current renewable energy capacity. The communication aims for a 90% net reduction in greenhouse gas (GHG) emissions compared to 1990 levels. Industrial emissions will decrease by 85%, and transport emissions by 70% (relative to 2015 levels). The share of electricity would have to double current levels, reaching to 51% of the energy mix, with 90% coming from renewables and nuclear power (page 43, European Commission impact assessment).

Setting long-term climate targets is an essential exercise to lay the groundwork for future policymaking, provide a framework for accountability, and guide investment decisions. But long-term climate targets need to be followed by an effective and cost-efficient policy agenda with clear priorities and guided by overarching principles. EPICO suggests five policy trajectories that the EU needs to promptly embark on to achieve the ambitious 2040 target.

  1. Europe needs to rethink its understanding of energy security and its strategy to achieve resilience, benefiting citizens and industries. The crisis in the energy markets and rising inflation have increased public and private debt, while severely affecting the competitiveness of industry. The world's largest economies are rolling out huge domestic support packages to accelerate the development of clean energy sources in an attempt to make a bid for leadership in the green industrial revolution. The geopolitics of the climate transformation already show clear knock-on effects for Europe's economy and demand a new economic policy approach that goes beyond the Green Deal.
  2. A new industrial policy framework for innovation. The single market is Europe's key asset to drive down costs and increase competitiveness, but it needs to be strengthened to support transformation and future technologies. This includes a future-proof electricity market design, boosting PPAs, clear standards, the development of lead markets, public procurement of green products, more public guarantees and blended finance vehicles, a broader application of regulatory sandboxes, and better aligned internal and external industry policies. Since public funds are likely to remain scarce , we need a targeted (re-)prioritization in line with the 2040 target. Public funds should also be used in a more targeted manner to leverage private capital and increase energy resilience along key value chains with innovations.
  3. Green energy from renewables and hydrogen are key. The build-out of renewable energy sources (RES) in Europe is the decisive factor to meet the 2040 target, in parallel with attracting international investments to Europe. Upcoming policies should focus on facilitating the “renewables pull” to the EU. Investments should move to locations with abundance of renewable energy. As our study "Location Advantage of Renewables” shows, for three-quarters of companies from the manufacturing industry in Germany, the availability of renewable energy is an important factor for future investment. Investments become more likely in regions with a high share of RES, and corresponding availability of energy infrastructure (powerlines and hydrogen infrastructure). This is even more important as the buildout will contribute to decreasing the high energy prices.
  4. Reduce energy consumption and assume that energy will remain scarce in the medium-term. Europe needs to prioritize the most energy-efficient solutions. Indirect electrification, including through renewable fuels of non-biological origin (RFNBOs) are generally less energy efficient than direct electrification, and should thus be targeted to hard-to-abate sections of the economy, as well as where they can provide additional services to the energy system (most notably for long-duration energy storage). Achieving reductions in energy consumption is the cheapest form of energy saving, as opposed to demand destruction. Our energy consumption will need to adapt to a more intermittent, localized supply of energy. Hence, actions to reduce demand need to become a priority .
  5. Boost our hydrogen economy. The development of storable energy sources plays a crucial role for Europe. Barriers that hinder the ramp-up of the EU's hydrogen economy (most necessarily undermining investment security) should be addressed as part of upcoming policies. Europe needs a smooth transition to the exclusive use of renewable hydrogen. We must develop an infrastructure plan that maps the expected future demand by ramping-up domestic production of offshore and onshore renewable energy (eg in the North Sea), and imports. National and European development plans should be coordinated, and Member States will need to collaborate along the hydrogen supply chain.