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<p>The EU climate and energy package, enacted in 2009, is a set of binding legislation which aims to ensure the EU meets its climate and energy targets for 2020. These targets, known as the “20-20-20” targets, set three key objectives for 2020:</p><p>A 20% reduction in EU greenhouse gas emissions from 1990 levels;</p><p>Raising the share of EU energy consumption produced from renewable resources to 20%;</p><p>A non-binding 20% improvement in the EU's energy efficiency.</p><p>The package comprises four pieces of complementary legislation (see as follows) and estimates, of the costs and benefits were set out in the original Impact Assessment published in 2009.<Sup>1</Sup> This estimated averageannual costs to the UK over the period 2013 to 2020 of around£3 billion with annual benefits estimated at betweenaround £1.3 billion and £35.2 billion, depending on thevalue of carbon used for emissions savings (all figures in presentvalue terms, 2008prices).</p><p>The Government has not estimated the total costs to UK businesses and public purse since the implementation of these policies but, where available, latest cost estimates for individual elements of the package are given as follows.</p><p>1. The EU Renewable Energy Directive.</p><p>This requires that 15% of the UK's energy demand in 2020 is from renewable sources. To increase and accelerate the use of renewable energy a number of schemes have been introduced. The renewables obligation (RO) provides incentives for large-scale renewable electricity generation by making UK suppliers source a proportion of their electricity from eligible renewable sources. The feed-in tariffs (FITs) scheme pays energy users who invest in small-scale, low-carbon electricity generation systems for the electricity they generate and for unused electricity they export back to the grid. Combined, the costs of the RO and FITs schemes are estimated to add around £10 per MWh or 9% to the price of electricity for businesses in 2013 (all real 2012 prices).</p><p>In addition the renewable heat incentive and renewable heat premium payment schemes provide support to renewable heat and are estimated to have cost a total of £15 million in financial year 2011-12 and £39 million in 2012-13, with budgets to the end of the spending review period of £251 million in 2013-14, £424 million in 2014-15 and £430 million in 2015-16 (all nominal prices). This is funded through general taxation.</p><p>The renewable transport fuel obligation (RTFO) requires companies that supply more than 450,000 litres of fuel per year to source a percentage from renewable sources. In financial year 2012-13, the RTFO is estimated to have added around £315 million (in nominal prices) onto the cost of the UK transport fuel supply.</p><p>2. Reform of the EU Emissions Trading System (EU ETS) Directive.</p><p>The EU ETS puts a price on carbon by placing a cap on total EU greenhouse gas emissions from the power and energy intensive industrial sectors. By enabling trading of allowances, emission reductions can take place where the cost of the reduction is lowest. More abatement will be undertaken by organisations with lower abatement costs and those with high abatement costs can instead purchase allowances.</p><p>Over the course of Phase II of the EU ETS (2008-12), UK industrial sectors received around 136 million more free allowances than they needed to cover their emissions over this period. At the same time UK large electricity producers received a shortfall (around 218 million fewer than their total emissions). In addition over the same period, UK participants used around 77 million international project credits for compliance; these trade at a lower price to EU ETS allowances, reducing costs.</p><p>In 2013 the EU ETS is estimated to add around £2 per megawatt hour (MWh) or around 2% to the price of electricity for businesses in 2013, based on an EU ETS price of around £6 per tonne of CO<Sub>2</Sub> (all real 2012prices).</p><p>3. National targets for non-EU ETS emissions.</p><p>Under the so-called effort sharing decision, member states have taken on binding annual targets for reducing their greenhouse gas emissions from the sectors not covered by the EU ETS, such as housing, agriculture, waste and transport (excluding aviation). The UK's target is a 16% reduction in 2020 levels compared to 2005. Policies to comply with the Renewable Energy Directive and the UK's carbon budgets are expected to deliver the reductions in emissions required to meet this target, implying no additional costs.</p><p>4. Carbon Capture and Storage (CCS).</p><p>The final element is a directive creating a legal framework for the environmentally safe use of CCS technologies. The climate and energy package does not address the energy efficiency target directly. This is being done through the 2011 energy efficiency plan and the Energy Efficiency Directive. It is too early to assess the costs and benefits of the EU Energy Efficiency Directive, as the UK has until June 2014 to transpose its requirements into domestic law. Any significant costs and benefits will be set out in published impact assessments, relating to the separate articles of the directive.<Sup>1</Sup>http://www.ukccsrc.ac.uk/system/files/euclimateenergypackage.pdf</p> |