Interviewees: Dóra Fazekas, János Hidi and Zsófi Kőműves
Energy Review, Vol 5. Issue 02. 2023
Energy Review: Can you tell us about the European Union's net zero targets and the plans they have in place to achieve these goals? Cambridge Econometrics: In December 2020, the EU submitted strengthened emission targets of at least 55% emission reduction from 1990 to 2030 to the UNFCCC. It also included an absolute emission target of 2,242 MtCO2e in 2030, excluding LULUCF and international aviation and maritime transport. The EU also has a net zero target to be achieved by 2050. The ‘Fit for 55’ package (July 2021) and REPowerEU Plan (2022) are the key policy packages to work towards achieving the targets, while the EU Green Deal from 2019 draws up a road map to reaching net zero emissions. The Fit for 55 package includes the extension of the ETS (Emission Trading System) to cover transport and buildings. The package also introduces tougher emission caps for the power and industry sectors and places stricter national limits on non-ETS sectors. The introduction of the Carbon Border Adjustment Mechanism (CBAM) is also proposed, taxing the emissions associated with the production of imported goods, which are not covered by the ETS. The REPower EU plan includes a renewables-share target of 45% as well as an energy efficiency directive striving to reduce primary and final energy consumption substantially (to 960 and 750 Mtoe). Additionally, sectoral pledges and policies are in place to reduce methane emissions, to phase down coal use, to reduce oil and gas use, to increase transport electrification and reforestation efforts. ER: How is the EU planning to raise funds needed to invest in renewable energy and low-carbon technologies to reach its net zero target? Cambridge Econometrics: The EU provides climate finance through the EU’s central and Member States’ public budget and other development finance institutions, through bilateral and multilateral contributions. The EU’s 2021-2027 long-term budget includes €2.018 trillion in current prices to fight climate action, the Innovation Fund, the Modernization Fund and the LIFE programs also support low-carbon innovations, increasing energy efficiency and taking steps towards a circular, low-carbon economy. Revenues from ETS and ETS2 and commitments of member state budgets are key sources for climate action programs. ER: What role do you see for the private sector in supporting the EU's net zero efforts, and how can companies be incentivized to contribute? Cambridge Econometrics: The investment needs of the transition to a net zero economy are enormous, requiring investments equivalent to about 3-5 per cent of the GDP annually between now and 2050 to be mobilised in support of this goal. Ample public sources are provided by the EU and its member states. Public spending is designed to kick-start and incentivise, but the private sector will need to finance the majority of the transition. Companies are motivated to invest in the transition to lower their energy and carbon costs, to remain competitive in a low-carbon environment and to comply with ever stricter EU regulations. Low-carbon projects can be directly co-financed with public and private sources, or other forms of public support can be used (eg. carbon contracts for different arrangements or green product share mandates in various markets). ER: Can you discuss some of the challenges the EU faces in implementing its net zero strategies, and how they plan to overcome these challenges? Cambridge Econometrics: We would say that the most difficult is to implement the strategies to minimise socio-economic challenges as well as conflicts across member states. There is a divide between the frontrunner countries of the green transition and member states reliant on polluting industries with lower budgets and political willingness for climate action. Higher costs of energy and fuel, declining living standards which may bring political instability are shared worries of many member states. Strengthening financial support under the Just Transition Fund, the EU Recovery and Resilience Facility and the European Social Fund could help in transforming the financial risks to opportunities and make climate action more attractive to the less willing. ER: How does the EU plan to work with other countries and international organizations to drive global action on climate change and achieve its net zero goals? Cambridge Econometrics: The EU has a pivotal role in leading international climate action by example, as an opinion leader and as provider of funding to support developing economies to adapt to climate change and mitigate its impacts. Through the European Investment Bank, the EU has provided over EUR 23 billion annually to fund climate action in developing countries. Through the Neighbourhood, Development and International Cooperation Instrument (NDICI), the Global Climate Change Alliance+ and the European Fund for Sustainable Development Plus (EFSD+) initiatives further support is provided to tackle climate adaptation activities. (Dr. Dóra Fazekas is the Managing Director, Mr. János Hidi is the Sustainable Investment Project Manager, and Ms. Zsófi Kőműves is a senior economist, at the Budapest office of Cambridge Econometrics, Hungary.) ■□■