EU action on energy and climate change

Executive summary

I

Energy played a key role in the EU’s origin, when the six founding Member States established the European Coal and Steel Community in 1952, 65 years ago. Measures tackling climate change developed later. Energy and climate change are now closely interlinked, since energy production, mainly from the transformation and combustion of fossil fuels, and energy use – by e.g. industry, households and transport – account for 79 % of EU greenhouse gas emissions. As a result, effective action on energy production and its use is essential to tackle climate change. Energy and climate change raise many issues which are best dealt with by states working together. As a result, they are high on the EU’s agenda.

II

This landscape review aims to provide an overview of what the EU is doing in this field; to summarise key audit work the European Court of Auditors (ECA) and other Supreme Audit Institutions (SAIs) in the EU have done to date; and to identify main challenges to inform the legislative debate and future audit work.

III

In both energy and climate change the EU sets a policy framework. Certain areas, such as the choice of the energy mix, remain within the competence of Member States. Internationally, the EU and its Member States have played a leading role in international climate agreements, such as the 2015 Paris Agreement.

IV

In the energy field, an important part of EU action is the establishment of an internal energy market to allow the free flow and borderless trade of gas and electricity across the EU. The internal energy market aims to deliver in a cost-effective way the EU’s energy policy objectives of delivering affordable, competitively priced, sustainable and secure energy.

V

In November 2016, the Commission produced its so-called ‘Clean Energy for All Europeans’ package of proposals for further reforming the energy market. These proposals are currently under consideration by EU legislators, i.e. the European Parliament and the Council of the European Union.

VI

On climate change, most EU actions focus on mitigating climate change by reducing greenhouse gas emissions, while action on the adaptation to the effects of climate change remains largely unregulated.

VII

This strong focus on mitigation is reflected in the EU’s climate and energy targets. The EU has set itself targets for 2020 and 2030 to reduce greenhouse gas emissions, increase the share of renewable energy in energy consumption and to make gains in energy efficiency. By 2050, the EU intends to reduce EU greenhouse gas emissions by between 80 % and 95 % compared to 1990 levels.

VIII

Approaches to cutting greenhouse gas emissions are different across sectors. With the EU Emissions Trading System (ETS), the EU has set a limit on overall emissions from some sectors of energy supply, energy-intensive industries and intra-EEA flights, and created a marketplace for emissions quotas, thereby ‘putting a price’ on carbon. For the other sectors, the approach has been to cut emissions by means of binding emissions reduction targets set for each Member State by the EU. Member States are individually responsible for defining and implementing national policies and measures to achieve those targets. These approaches are accompanied by both EU and national measures to increase renewable energy and energy efficiency.

IX

Even if efforts to cut greenhouse gas emissions are successful and the objective of the Paris Agreement – keeping the global temperature rise since the pre-industrial era below 2°C – is achieved, adaptation to a changing climate is necessary. Climate change already impacts the environment, society and the economy, with warming currently just over 1°C compared to the pre-industrial period. Europe’s climate will be significantly different from today under a full 2°C temperature increase. The basis for EU action in the area of adaptation is the 2013 EU adaptation strategy, which encourages Member States to take action but does not make it mandatory.

X

The SAIs and the ECA have in recent years audited a wide field of different topics on energy and climate change. Audits on energy have made up the largest share of reports, with other topics, such as adaptation, receiving less attention. Although audit coverage has varied, a number of common findings can be identified. Audits have found that differences in the way Member States have implemented EU legislation and administered their energy markets have held back progress towards completing the EU’s internal energy market. Notwithstanding the successful growth in renewables and decline in their costs globally, audits have found a lack of cost-effectiveness and obstacles to investments. Cost-effectiveness issues have also been regularly identified in energy efficiency audits; in the field of nuclear energy, SAIs have found significant cost increases and delays. Audits have also shown that the shift to low-carbon transport modes is not taking place to a sufficient degree. In the area of adaptation, audits have focused mainly on floods. Here, auditors have found issues in flood prevention, protection and response.

XI

This landscape review identifies seven areas of main challenges:

1. Energy and climate change governance
2. Evidence-based policy
3. The energy transition
4. Using research and innovation effectively
5. Planning for and tackling adaptation
6. Financing
7. Involving EU citizens

Introduction

Fundamentals of energy and climate change

01

Atmospheric carbon dioxide (CO₂) levels reached a new high of 400 parts per million at the end of 2015¹. 2016 was the warmest year on record according to all major global surface temperature datasets: on average, the world was 1.1°C warmer than in the pre-industrial period. In 2016, the Arctic ice sheet shrank to its smallest size since satellite records began in 1979. France and Germany experienced significant flooding in May and June, but July and August were the driest months on record in France.

02

Climate change and its causes are no longer subject to serious scientific dispute. For nearly three decades, thousands of scientists from all over the world have been contributing scientific knowledge about climate change and its environmental and socio-economic impact through the Intergovernmental Panel on Climate Change (IPCC). According to the IPCC, human influence on the climate system is clear and is evident from the increasing greenhouse gas concentrations in the atmosphere and the warming observed². The link between increasing greenhouse gas concentrations in the atmosphere and observed increases in the Earth’s temperature is well understood (see Box 1).

03

Energy played a key role in the EU’s origins, when the six founding Member States established a common market for coal and steel within the European Coal and Steel Community in 1952 and, in 1957, created the European Atomic Energy Community (Euratom). Since the 1990s, the EU has been working towards establishing an internal energy market to allow the free flow of energy across the EU.

04

Energy and climate change are closely interlinked, since energy production, mainly from the transformation and combustion of fossil fuels, and energy use – by industry, households and transport for example – account for 79 % of EU greenhouse gas emissions. As a result, transforming energy production and use is essential to tackling climate change. Meeting energy needs while reducing greenhouse gas emissions is a key challenge for the EU and its Member States.

05

Building ‘a resilient Energy Union with a forward-looking climate change policy’ is therefore a key priority of the European Commission. The Energy Union strategy, with its five dimensions, provides the framework for achieving this priority (see Box 2). To implement this strategy, the Commission has proposed several important draft pieces of legislation and non-legislative initiatives in energy and climate change in 2016, most notably the Clean Energy for All Europeans Package³. These will be debated in the Council and the Parliament during 2017 and 2018. From a financial point of view, the EU has committed to spending at least 20 % of its 2014-2020 budget on climate action, i.e. around 212 billion euro.

06

EU action in the area of energy and climate change encompasses the two complementary policy responses to climate change: mitigation and adaptation. Mitigation of climate change seeks to address the causes of climate change by reducing or limiting greenhouse gas emissions and by enhancing natural sinks of greenhouse gases. Adaptation aims at anticipating the effects of climate change and taking appropriate action to prevent or minimise the potential damage.

Aim and approach of this landscape review

07

This landscape review of EU action on energy and climate change aims to:

• provide an overview of what the EU is doing in this field;
• summarise key audit work we and other Supreme Audit Institutions (SAIs) in the EU have done to date; and
• identify main issues and challenges to inform the legislative debate and future audit work.

08

The report is structured as follows:

• Part I describes the main EU energy and climate change policies; greenhouse gas emissions from different sectors; the associated EU sectoral legislation; how this legislation has been implemented, and what funding has been provided, to help reach the EU’s energy and climate targets;
• Part II provides an analysis of what has been audited in the area of energy and climate change by the ECA and the Member States’ SAIs and an overview of their key findings. A summary of all ECA audit reports in the area is available on our website, together with a list of all SAIs reports studied;
• Part III highlights main challenges for the future, both to inform the legislative debate and to help to identify potential opportunities and challenges for public audit.

09

The landscape review is not an audit: it is a review largely based on publicly available information⁴. It is not based on any new audit work and does not present any new audit findings or recommendations. The Commission’s replies to findings and recommendations made in the individual ECA reports quoted were published in those reports, available on our website. More details on our approach and sources are provided in an Annex.

Part I – Energy and climate change: What the EU is doing

10

Part I describes what the EU is doing in energy and climate change. It includes information about the following:

• An overview of the EU’s competence in the field, and of the work carried out at EU level to mitigate climate change. The section presents the main EU energy and climate targets and objectives and briefly describes the underlying policy framework and its two main pillars for reaching the emissions reduction targets: the EU Emissions Trading System (EU ETS), and effort-sharing;
• Mitigation action in each greenhouse gas emitting sector: energy supply, industry, buildings, transport, agriculture and forestry and waste. Energy supply and use accounts for 79 % of EU greenhouse gas emissions, so it is given most emphasis;
• Adaptation to climate change, highlighting expected changes and impacts on society and environment;
• Other policies supporting the implementation of EU action on energy and climate change, i.e. research and innovation, public and private financing for climate-change mitigation and adaptation, and actions to improve policy making and implementation.

The EU’s competence in the field of energy and climate change

11

Energy and climate change are two areas in which the EU and the Member States have shared competence⁵. This means that the EU and the Member States may legislate and adopt legally binding acts. Member States can exercise their own competence unless the EU has formulated and implemented energy or climate change policies and strategies⁶.

12

The objectives of EU energy policy are set out in the Treaty on the Functioning of the European Union⁷, which states that, in a spirit of solidarity between Member States, the aims of EU energy policy are to:

• ensure the functioning of the energy market;
• ensure security of energy supply in the Union;
• promote energy efficiency and energy saving and the development of new and renewable forms of energy; and
• promote the interconnection of energy networks.

13

The Treaty also stipulates that measures implemented in the framework of EU energy policy must not ‘affect a Member State’s right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply’. This is, however, subject to derogations. In particular, the EU’s environment policy may provide for measures which significantly affect a Member State’s choice between different energy sources and the general structure of its energy supply⁸.

14

The EU’s competence in the area of climate change derives from its competence in the area of environment policy. The objectives for EU environment policy, established in the Treaty, include⁹:

• preserving, protecting and improving the quality of the environment;
• protecting human health;
• using natural resources prudently and rationally; and
• promoting measures at international level to deal with regional or worldwide environmental problems, in particular climate change.

15

The Treaty also states that EU environment policy should rest on the principles of precaution, prevention, rectifying pollution at its source, and on the ‘polluter-pays’ principle¹⁰. As a general principle, environmental protection requirements must be integrated into the definition and implementation of the Union’s policies and activities, in particular with a view to promoting sustainable development¹¹.

16

In both energy and climate change, depending on the exact subject, the EU has the competence to act on the international stage. For example, the EU may negotiate or enter into international agreements with third parties either alone or jointly with the Member States¹².

International climate agreements

17

Climate change cannot be tackled by the efforts of countries or regions acting alone. The EU recognises this¹³. The EU and its Member States only emit around 12 % of global greenhouse gas emissions¹⁴, so they have played a leading role in negotiating international climate agreements under the United Nations Framework Convention on Climate Change (UNFCCC)¹⁵, under which the Kyoto Protocol and the Paris Agreement were agreed.

18

The Kyoto Protocol was adopted in 1997 and entered into force in 2005. The protocol set, for 37 countries and the European Union, an objective to reduce greenhouse gas emissions by 5 % over the 2008-12 period compared to 1990 levels. The European Union committed itself to reducing its emissions by 8 % instead of 5 %¹⁶. Under the Kyoto Protocol as amended in Doha in 2012, the EU and its Member States had committed to reducing their greenhouse gas emissions by 20 % by 2020 compared to 1990 levels.

19

Under the Paris Agreement, governments agreed to keep the rise in global average temperature this century to ‘well below’ 2°C above pre-industrial levels, aiming to limit it to 1.5°C. Signatories of the Paris Agreement, including the EU and each Member State, submitted details of how they would contribute to this target¹⁷. According to the UNFCCC, these contributions will not be sufficient to limit the global increase in temperature to below 2°C¹⁸. The signatories therefore agreed to reconvene every five years to report to each other on the progress they had made and to establish more ambitious targets as required by the science. Recognising the adverse impacts of climate change, the signatories also included provisions in the Paris Agreement dealing with climate-change adaptation.

20

Before the Paris Conference, developed countries had already committed to providing 100 billion USD each year by 2020 to support developing countries’ efforts to mitigate and adapt to climate change. In the Paris Agreement, developed countries reaffirmed this and committed to increasing the level of support from 2025 onwards¹⁹.

EU energy and climate framework

EU energy and climate targets and objectives

21

To fulfil its obligations under the Kyoto Protocol and the Paris Agreement, the EU has set itself various targets to mitigate climate change. These targets involve direct, quantified reductions in greenhouse gas emissions, as well as specific targets for renewable energy production and increased energy efficiency (see Box 4).

22

By 2014, the EU had already succeeded in reducing its greenhouse gas emissions by more than 20 % below 1990 levels²⁴. However, in 2015, its emissions increased by 0.7 % compared to 2014.

23

Current trends, projections, and targets, with the reductions in emissions required to reach the targets, are shown on Figure 1. It shows that the 2030 and 2050 greenhouse gas emissions reduction targets and objectives will not be achieved without significant additional efforts. To achieve the 2030 targets, annual emission reduction efforts will need to increase by half in the next decade. The most significant change, though, will be the one required beyond 2030, when the emission reduction rate will need to outpace historic levels by three to four times in order to achieve the 2050 objective.

24

To reach these targets and objectives, the EU has set sub-targets for emissions cuts in sectors covered by the EU Emissions Trading System (EU ETS). In sectors which are not covered by the EU ETS, the EU shares the effort among Member States by setting binding national targets for reductions in greenhouse gas emissions – this is called ‘effort sharing’. These policies – EU ETS and effort-sharing – are described in the following sections.

25

To track the progress achieved in reducing the EU’s greenhouse gas emissions, the European Commission and the Member States report annually on their anthropogenic²⁵ greenhouse gas emissions to the UNFCCC. The EU has also put in place an internal emissions-reporting system²⁶. This system is built around the EU greenhouse gas inventory, a compilation of Member State inventories drawn up by the Commission. The European Environmental Agency (EEA) performs annual quality checks of Member States’ inventories in cooperation with Eurostat and the Commission’s Joint Research Centre. Under the UNFCCC, international experts from non-EU countries should review the EU’s greenhouse gases inventories at least once every five years.

26

In 2015, the EU Member States (see Figure 2) emitted approximately 4.6 gigatonnes of CO₂-equivalent (CO₂e)²⁷.

The EU Emissions Trading System

Objective and main features

27

In 2005, the EU introduced the EU Emissions Trading System (EU ETS) ‘to promote reductions of greenhouse gas emissions’²⁸. The EU ETS was the world’s first multi-country²⁹ and multi-sector scheme for trading allowances of greenhouse gas emissions. It restricts the emissions of power plants, large energy-intensive industrial installations, and, since 2012, aviation emissions from intra-EEA flights. These sectors account for about 45 % of EU greenhouse gas emissions.

28

The EU ETS is known as a ‘cap-and-trade’ system³⁰. The EU ETS sets a limit on overall annual greenhouse gas emissions: total emissions over a calendar year are ‘capped’. Allowances, representing the right to emit one tonne of CO₂-equivalent, are either auctioned by governments or handed out for free to emitting installations. The allowances can be freely traded on the market. Each year, operators must surrender a number of allowances corresponding to their reported greenhouse gas emissions³¹.

29

The first phase (2005-2007) of the EU ETS was a pilot. In the second phase (2008-2012), most of the allowances were given away for free. In the third, current, phase (2013-2020), the cap set at EU level decreases annually by a so-called ‘linear reduction factor’ of 1.74 %. The goal is to reduce greenhouse gas emissions in the EU ETS sector by 21 % below 2005³² levels by 2020. Therefore, the EU ETS encourages the reduction of greenhouse gas emissions in a predictable way.

30

According to the polluter-pays principle, all EU ETS allowances should be auctioned. But since not all countries worldwide price greenhouse gas emissions to the same extent as the EU, the EU ETS can, in theory, impact negatively on the international competitiveness of EU industry. As a result, some companies might choose to relocate to countries with fewer constraints on greenhouse gas emissions, thus emitting greenhouse gases elsewhere. This phenomenon is referred to as ‘carbon leakage’. Sectors that can prove³³ they are exposed to the risk of carbon leakage, such as the steel industry, receive some free allowances³⁴. In the power sector, which physically cannot relocate, nearly all allowances are auctioned³⁵.

Price of EU ETS allowances

31

A core element of the EU ETS is the carbon price. Setting an absolute ceiling (the ‘cap’) on emissions creates scarcity of supply. Limited supply and flexible demand should create a price signal for carbon allowances. In a well-functioning system, market actors would invest in emissions reductions in the most cost-effective way³⁶. In theory, those with lower costs for reducing emissions will do so, and will sell their surplus allowances to those facing higher costs. With a declining cap, scarcity in the system would increase over time, driving up the carbon price and making more expensive emission reduction investment options more viable.

32

Companies will invest in low-carbon technologies as long as such investments are cheaper than buying allowances on the market. So the market price of EU ETS allowances needs to be sufficiently high to justify investment decisions in low-carbon technology³⁶. Therefore, the market price of EU ETS allowances, not just the reduction of emissions, supports the transition to a low-carbon economy. Models used by the Commission in 2011 showed a price trajectory of 40 euro per tonne of CO₂e in 2020, 100 euro in 2030 and 250 euro by 2050³⁷. However, from 30 euro at the beginning of phase 2, the allowance price decreased to around 5 euro at the beginning of 2017 (see Figure 3). This is far below the price bracket of 36-72 euro which, according to the High-Level Commission on Carbon Prices, must be reached by 2020 if the temperature targets in the Paris Agreement are to be achieved³⁸. The price decreased because supply of allowances was higher than demand. Indeed, at the end of 2015, there was still an oversupply of 1.8 billion allowances, equivalent to one year of EU emissions from the EU ETS sector³⁹. This oversupply was due to the economic recession following the 2008 crisis as well as the growth of energy efficiency or renewable energy policies (see paragraph 168).

33

To restore a better balance between supply and demand, the Commission deferred the auctioning of 900 million allowances from 2014-2016 to 2019-2020 (known as ‘back-loading’) and established a permanent market stability reserve to store a part of the excess of allowances outside of the carbon market as of 2019.

34

Even with these measures, together with the Commission’s legislative proposal⁴⁰ for the fourth EU ETS phase (2021-2030), the oversupply of allowances will last at least until around 2030⁴¹.

Effort-sharing decision and proposed regulation

35

The emissions reductions of the sectors not covered by the EU ETS are regulated by the 2009 Effort Sharing Decision (ESD). These sectors include transport (except aviation and international shipping), agriculture and forestry, buildings and waste, as well as industrial sectors not covered by the EU ETS. Emissions from those sectors account for around 55 % of total EU emissions.

36

National emission targets for 2020 have been set on the basis of GDP per capita. The wealthiest Member States are required to reduce their emissions by 20 % by 2020 compared to 2005 levels. Less wealthy Member States are allowed to increase their emissions until 2020⁴². This is because the catch-up in their economic growth is expected to generate higher emissions. However, the Commission has noted that the targets set ‘represent a limit on their emissions compared with projected business as usual growth rates. A reduction effort is thus required by all Member States’⁴³. Member States are responsible for defining and implementing national policies and measures to limit emissions from the sectors covered by the ESD⁴⁴.

37

By 2020, these national targets are expected to contribute half of the EU’s 20 % emissions reduction target, the other half coming from the EU ETS sectors. According to the Commission, which monitors compliance, the EU is on track to achieve the reductions from the sectors under the ESD⁴⁵.

38

The replacement of the ESD has been under discussion in the European Parliament and Council since 2016. The Commission’s proposal includes binding annual greenhouse gas reductions by Member States to reduce emissions of the non-ETS sectors by 30 % by 2030 compared to 2005.

Sources of greenhouse gas emissions: the importance of the energy sector

39

Energy production, mainly from the transformation and combustion of fossil fuels, and energy use by all economic sectors, account for 79 % of EU greenhouse gas emissions (see Figure 4). Other greenhouse gas emissions come from industrial processes other than energy usage (see paragraphs 80 to 84), from agricultural practices (see paragraphs 103 to 110) or from waste management (see paragraphs 111 to 113). These percentages are largely unchanged since 1990.

40

The 79 % accounted for in energy includes the production of electricity and heat generation as well as the burning of fuels in industry, buildings, transport and agriculture. Changes in the way we produce electricity and heat and in the way we use energy in our economy are therefore key to reducing greenhouse gas emissions⁴⁶.

41

Since greenhouse gas emissions are mainly caused by energy production and use, energy efficiency can have a significant impact in reducing greenhouse gas emissions. In addition, demand for energy investment and imports decrease and consumers save money. Energy efficiency has been described as the quickest and least costly way of addressing energy security, environmental and economic challenges⁴⁷. This is why the EU has legislated to establish a set of measures across several greenhouse gas emitting sectors⁴⁸ and set itself energy efficiency targets for 2020 and 2030.

42

The EU has set itself a non-binding target of 20 % gains in energy efficiency by 2020 compared to projections of future primary energy consumption (see paragraph 21)⁴⁹. Member States decided themselves on their indicative national energy efficiency targets, which, in theory, should add up to the 20 % target set for the EU as a whole. However, according to the European Environmental Agency, they would result in a saving of 17.7 % of primary energy consumption by 2020, falling short of the 20 % EU target⁵⁰.

43

The EU 2030 energy efficiency target is to improve energy efficiency by ‘at least 27 % at EU level’ compared to projections of future energy consumption, with a review in 2020 ‘having in mind a 30 % target’. In 2016, the Commission has proposed increasing the target to 30 % and making it binding at EU level⁵¹.

44

All economic sectors, such as industry, transport and agriculture, use energy. Another way to look at greenhouse gas emissions is to analyse emissions by sector (see Figure 5) and not by source (see Figure 4). On this basis, the energy supply sector, mainly electricity and heat production⁵², produces 29 % of total emissions, making it the largest single producer of greenhouse gas emissions. It is followed by the transport sector (26 % of emissions), the industrial sector (19 %) and the buildings sector (12 %).

45

The following sections present the EU action taken to reduce greenhouse gas emissions in these sectors. For each sector, the small bar chart on the right-hand side shows how these emissions add up.

Energy supply

Overview of the energy supply sector

46

In 2015, 29 % of greenhouse gases were emitted by the energy supply sector, mainly from the generation of electricity and heat. Across the EU, electricity and heat were produced from five main sources: renewable energy, coal, nuclear energy, gas, and oil.

47

Member States have widely varying energy mixes, which explains why they face different challenges of security of supply and decarbonisation (see Figure 6).

48

The last ten years have seen rapid growth in the use of renewable energy for electricity and heat generation across the EU (see Figure 7). The share of gas increased until 2010, and has reduced since that date. The share of nuclear energy remained fairly stable. Coal and oil use declined. This growth in renewables was largely made up of the 387-fold increase in the use of wind energy between 1990 and 2015. In relative terms, the use of solar energy increased most; it increased by more than 7750 times between 1990 and 2015.

49

In the EU, electricity is generated by renewable sources, nuclear fission or the combustion of fossil fuels. The main renewable sources for electricity are hydropower, wind and solar.

50

The most important source for heat generation is gas, followed by coal and renewable sources. The main renewable sources for heat are solid biofuels⁵³, such as wood pellets, sawdust or dried manure, and renewable waste⁵⁴ incineration, such as food waste.

51

While electricity can be transported over long distances, this is more difficult with heat which, if transported at all, is usually distributed only locally through pipelines of hot water in towns or cities. Therefore, electricity and heat generation have very different production and distribution profiles. Because of these differences, decarbonisation of the electricity and heat sectors face distinct challenges.

52

Energy sources vary widely in how much greenhouse gas emissions they produce (see Figure 8). As a result, changing the energy supply sector towards a decarbonisation of energy generation is vital for reducing emissions. In the following paragraphs, we briefly describe each of these energy sources, starting with those causing most greenhouse gas emissions.

Coal

53

In 2015, coal accounted for around 25 % of electricity and heat generation in the EU, down from 90 % in the early 1950s⁵⁵. It remains in widespread use in some Member States because it is cheaper and more readily available than other fossil fuels such as natural gas and oil⁵⁶. It allows Member States which extract and use it to reduce their dependence on imports⁵⁷.

54

Coal emits more CO₂ per unit of energy produced than other fossil fuels. In 2015, one quarter of the EU’s electricity and heat was produced from coal, but CO₂ emissions from coal made up 72 % of the EU’s overall CO₂ emissions from electricity and heat generation (see Figure 8).

Oil and gas

55

Around 22 % of the EU’s electricity and heat is generated from oil and natural gas. In 2015, the EU imported 89 % of its oil and 69% of its natural gas⁵⁸. National governments maintain control over reserves of oil and gas on their territory.

56

To limit greenhouse gas emissions from gas and coal, the EU has been supporting the development of carbon capture and storage (CCS) technologies⁵⁹. However, these technologies are currently costly, and only at an early stage of development⁶⁰.

Nuclear energy

57

Nuclear power is produced by nuclear fission, a process which emits no greenhouse gases when it generates electricity⁶¹. In 2015, nuclear energy accounted for 22 % of electricity and heat generation in the EU. It made up 47 % of the EU’s low-carbon electricity.

58

In 2017, there are 129 nuclear reactors in operation in 14 EU countries. A further 90 reactors exist which have been shut down; of these, 3 have been completely decommissioned. Over 50 of the EU›s currently operational reactors are estimated to be shut down by the end of 2025. A significant market for decommissioning nuclear plants is therefore developing in Europe⁶².

59

According to a Commission report based on Member States’ data, the estimated total cost for the management of spent fuel and radioactive waste is about 400 billion euro and approaches for disposal of intermediate level waste, high level waste and spent fuel, such as site selection or development of design, are not specific in most of the Member States⁶³.

60

Member States have adopted different policies towards nuclear energy. Some Member States, such as the Czech Republic, Hungary and the UK, are planning to build new nuclear power installations, while others are reducing their dependency on nuclear power –for example, in 2011, Germany decided to phase out nuclear energy by 2022 as part of its energy-transition policy, and France has decided to reduce its dependency on nuclear energy.

61

The EU deals with nuclear energy from several angles, some of which fall under the Euratom treaty:

• nuclear safety legislation establishes a framework to ensure nuclear safety e.g. of nuclear installations⁶⁴ and for the management of radioactive waste and spent fuel⁶⁵;
• nuclear safeguards legislation ensures that nuclear materials are used only for the purposes declared by their users;
• nuclear research, including a major contribution to the International Thermonuclear Experimental Reactor (ITER), aims to demonstrate the future feasibility of nuclear fusion⁶⁶ as a viable source of energy;
• nuclear decommissioning: the EU provides financial assistance to the decommissioning of eight Soviet-designed first generation nuclear reactors in Lithuania, Bulgaria and Slovakia.

Renewable energy

62

By 2020, 20 % of the EU’s final energy consumption should come from renewables⁶⁷ (see paragraph 21). This target includes the use of renewables in all sectors possible, i.e. their use in electricity and heat production but also in transport. Figure 9 shows the binding national targets for all Member States, based on their relative wealth, and the progress made since 2005. In 2015, 16.7 % of EU gross final energy consumption came from renewable sources.

63

The 2030 target of a 27 % share of renewable energy in final energy consumption does not include targets for individual Member States⁶⁸.

64

The worldwide growth of, and investment in, renewable electricity production has led to a significant decrease of the cost of many renewable sources in the last decade. For example, the costs of utility-scale photovoltaics and wind energy respectively fell by 85 % and 65 % between 2009 and 2015⁶⁹. A further decrease is expected⁷⁰. As a result, several renewable energy technologies can now compete with traditional energy sources for producing electricity (see Figure 10).

Internal energy market and security of supply

65

The internal energy market is the regulatory and infrastructure set-up which, once fully established, should allow the free flow and borderless trade of gas and electricity across the EU. It aims to deliver, in a cost-effective way, the EU’s energy policy objectives of providing affordable, competitively priced, sustainable and secure energy⁷¹. It has also the potential to benefit the development of low-carbon energy sources: in an open energy market, renewable energy could flow across borders and be made available on a more permanent basis, where intermittency may previously have been an issue.

66

In order to develop an internal energy market, it is necessary both to establish rules for how the gas and electricity energy markets function and to ensure that there is adequate infrastructure in place for this purpose. The legislative framework for liberalising the national, often state-owned and monopolised, energy markets has been developed progressively (see Box 5). More detailed rules are being laid down in guidelines and network codes⁷² setting common technical standards.

67

Member States are responsible for implementing the legislation and guidelines. The Commission monitors this implementation and has the power to open infringement procedures, which can lead to a case being filed before the European Court of Justice.

68

The plan was to complete the internal energy market by 2014⁷⁸. Despite significant progress in some regions of the EU, the internal energy market has not yet been achieved⁷⁹. Recognising this, the Commission issued a ‘Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy’ in 2015⁸⁰ (see paragraph 5) and, in 2016, a package of legislative and non-legislative initiatives – the Clean Energy for All Europeans Package⁸¹. Both, the Energy Union Strategy and the 2016 Package do not only concern the development of the internal energy market but bring together several strands of policy – these are dealt with in the relevant sections of this landscape review.

69

The development of internal electricity and natural gas markets is the basis for securing energy supply⁸² cost-effectively as they open up the possibilities for greater supply diversification by creating flexible trading within and between Member States. EU legislation on electricity and gas supply disruption is being updated. Proposals include shifting from a national to a regional, cross-border approach when dealing with supply disruptions⁸³.

70

Suitable infrastructure is just as necessary as market structures and effective regulation for the functioning of the internal energy market and the increase of security of supply. This includes infrastructure between and within Member States. The EU set an objective for the capacity of cross-border electricity⁸⁴ interconnections to be at least 10 % of the installed electricity production capacity in any given Member State⁸⁵ by 2020 and to be at least 15 % by 2030⁸⁶. Interconnectors can facilitate the coupling of national energy markets, which should improve security of supply and decrease energy prices. The EU supports the development of cross-border infrastructure, for example by requiring streamlined permit granting procedures, by facilitating cost allocation between different Member States, and by partially funding selected infrastructure projects⁸⁷.

71

A 2017 Commission evaluation concludes that progress has been made, but highlights several remaining issues regarding the implementation of the internal energy market, such as the following⁸⁸:

• Bottlenecks still exist due to missing or underused infrastructure in electricity and gas. For example, electricity interconnections and, where relevant, internal lines still need to be improved in south-western Europe, such as Spain and France, and in northern and eastern European countries such as Germany, Poland and the Czech Republic;
• National wholesale gas prices converged between 2013 and 2015, while price differences in the wholesale electricity market remained significant⁸⁹.

Transition to a low-carbon energy production

72

The transition to a low-carbon energy supply sector requires significant further changes in energy production⁹⁰. Under the current policy framework⁹¹, the energy mix of the future is projected to change (see Figure 11), with a strong decline in EU domestic production for all fossil fuels (coal⁹², oil and gas) and a move towards renewable energy. Additional renewable energy generation capacity is therefore needed.

73

The growth in renewable energy sources will need to happen mostly in the electricity sector, since the potential for greater use of renewable sources for heat is currently more limited⁹³. The profound transformation of the energy system poses several challenges. First, increasing and integrating certain intermittent forms of renewables, mostly wind and solar, in an electricity system, where supply and demand have to be constantly balanced and storage solutions are currently limited, poses technical challenges. Another challenge is the decentralisation of energy production, mostly renewables, in an electricity network and market built around a clear separation of producers, distributors and consumers⁹⁴.

74

In addition, falling wholesale prices and generation overcapacity create little incentive to invest in new capacities and networks. Further investments will need to be made in renewable generation, but current legislation ‘does not ensure sufficient incentives for private investments in the new generation capacities and network’⁹⁵.

75

If government intervention in the electricity market is not carefully designed, however well intentioned, it can further distort the functioning of the energy market and may lead to higher costs, or unfair competition. Similar to other sectors, such state aid is therefore only permitted under certain circumstances within the EU, and Member States must comply with the guidelines on state aid issued by the Commission, especially in the renewable energy sector where the level of public support remains significant. From 2017, an open, competitive, bidding process to grant any aid to renewable energy infrastructure has been required⁹⁶.

76

To compensate for the intermittency of renewables, and since electricity storage⁹⁷ or demand management⁹⁸ solutions are not widespread yet, Member States maintain some conventional electricity production capacity to prevent possible electricity shortages when, for example, demand is high, but wind and sun are scarce. Electricity suppliers can be offered payments to keep means of non-intermittent electricity production (such as coal or gas generation facilities) available. These payments, known as ‘capacity mechanisms’, are liable to distort competition if they are not designed properly⁹⁹.

77

EU energy companies have acknowledged that electricity produced from coal emits more greenhouse gas emissions than electricity produced from other sources (see paragraph 54). In April 2017, electricity utilities from all Member States – except Poland and Greece – committed not to invest in new-build coal-fired power plants after 2020¹⁰⁰ in order to contribute to providing ‘clean energy to Europeans’. The United Kingdom has also announced its intention to close all coal-fired power plants by 2025 and to fill the capacity gap mainly with new gas and nuclear power plants.

78

The closure of nuclear (see paragraph 58) and coal power stations and coal mines, often significant regional employers, can create social challenges. The Commission¹⁰¹ is considering how best to support structural transition in coal and carbon-intensive regions, in compliance with state aid rules, for example, by providing guidance on how to use existing funds and exchanging best practices¹⁰².

79

To address many of these challenges, the Commission has proposed a range of legislative and non-legislative measures in November 2016. Ongoing discussions in Parliament and Council cover, for example, rules to further strengthen the internal energy market¹⁰³ including more regional cooperation between Member States; for the first time at EU level, some aspects of storage of electricity¹⁰⁴; and the preparation of integrated national energy and climate plans intended to improve EU energy and climate governance¹⁰⁵.

Industry

80

Direct emissions from industry accounted for 19 % of EU greenhouse gas emissions in 2015. Indirect emissions due to electricity and heat usage are accounted for in the ‘energy supply’ category.

81

Around half of the industrial sector’s emissions are caused by the burning of fuels. The remainder are emitted in industrial processes, such as during the production of cement, and in product use.

82

Large and energy-intensive industrial installations are included in the EU ETS, which is the main framework for the EU’s mitigation action for this sector (see paragraph 27). Around two thirds of industrial greenhouse gas emissions are covered by the EU ETS. The rest is covered by effort-sharing (see paragraphs 35 to 38). Under the EU ETS, companies have to take into account the carbon price and, in theory, are thus incentivised to reduce their emissions. In practice, substantial free allowances are given to sectors exposed to international competition. The level of free allowances is set to slowly reduce over time as global climate action reduces ‘carbon leakage’ risks (see paragraph 30).

83

Emissions from industry are also influenced by EU action in other areas, such as energy efficiency measures¹⁰⁶ and air quality standards¹⁰⁷. For example, large companies are required to carry out energy audits, at least every four years, to identify ways to reduce their energy consumption¹⁰⁸. The Industrial Emissions Directive, setting emission limits for non-greenhouse gas emissions and minimal technology standards for installations, has also indirectly contributed to CO₂ reductions¹⁰⁹.

84

Emissions from product use consist mainly of fluorinated gases. These were introduced to replace the ozone-depleting chlorofluorocarbons used in many industrial and consumer applications such as refrigerators and air conditioners. Today, fluorinated gases account for around 2.7 % of total EU greenhouse gas emissions; emissions of these gases rose by 66% between 1990 and 2015. Since these gases have a high global warming potential¹¹⁰, the EU has legislated to set an objective of reducing their emissions to two thirds of 2014 levels by 2030.

Buildings

85

On-site energy generation and the burning of fuels for heat or cooking in buildings account for 12 % of total EU greenhouse gas emissions. In addition, buildings consume electricity; for example, for lights, IT, heating and, increasingly, cooling. The greenhouse gas emissions arising from this are accounted for in the energy supply sector. In total, buildings consume 40 % of total energy in the EU¹¹¹.

86

Around 75 % of the buildings in the EU are not energy efficient¹¹². The EU has therefore introduced several measures to achieve energy savings in buildings, such as a common certification of buildings’ energy consumption¹¹³, targets for the renovation of public buildings¹¹⁴ and a ‘nearly zero-energy building’ standard, obligatory for new public buildings as of 2019, and for all buildings constructed as of 2021¹¹². Investments in the energy efficiency of buildings face certain barriers, such as split incentives between the owners and tenants of buildings, large upfront costs and often long payback periods. In 2016, the Commission proposed a revision of its legislation on buildings¹¹⁵.

87

Apart from energy efficiency of buildings, EU action has focused on energy-efficient domestic products¹¹⁶. In cooperation with the Member States¹¹⁷, the Commission has developed minimum mandatory energy consumption requirements for certain products¹¹⁸ and introduced mandatory labelling to inform consumers¹¹⁹. According to the Commission, these product efficiency policies are expected to save the EU around the equivalent of the annual primary energy consumption of Italy and deliver almost half of the 20 % energy efficiency target by 2020¹²⁰.

Transport

The sector and its CO₂ emissions

88

The transport sector currently accounts for 26 % of the EU’s greenhouse gas emissions¹²¹. Around three-quarters of transport emissions come from road transport, and especially from cars (see Figure 12).

89

Emissions from other sectors have generally been declining since 1990, but emissions from the transport sector have not: significantly more greenhouse gases are currently being emitted than in 1990 and, after a declining trend between 2007 and 2013, the trend rose again in 2014 and 2015 due to higher transport demand linked to the economic recovery.

Road transport

90

The EU has set CO₂ emissions standards for cars and vans sold in the EU (see Box 6). New cars have to carry labels with details of their CO₂ emissions¹²².

91

Heavy-duty vehicles (HDVs) such as lorries, buses and coaches accounted for 14 % of all vehicles on the EU’s roads in 2015, and produced around 26 % of CO₂ emissions from road transport in the EU: 4 % of the EU’s total greenhouse gas emissions¹²⁶. Unlike cars and vans, HDVs are not subject to any CO₂ emissions standards. The 2014 EU strategy¹²⁷ aims to identify ways of monitoring the emissions HDVs produce¹²⁸, not ways of reducing them. The Commission¹²⁹ considers this strategy to be an essential first step towards future action. As a result, the Commission proposed new legislation for the monitoring and reporting of CO₂ emissions from new HDVs placed on the EU market¹³⁰.

Aviation, maritime and river transport and multimodal transport

92

Aviation accounted for 3.4 % of the EU’s greenhouse gas emissions in 2015. Around 3.1 % of these emissions were caused by flights between EEA¹³¹ and non-EEA countries; the rest were caused by flights within the EEA. By 2020, global international aviation emissions are projected to be around 70 % higher than in 2005. By 2050, it is forecast that they could increase again by up to seven times their 2005 levels¹³².

93

Emissions from flights within the EEA are covered since 2012 by the EU ETS (see paragraph 27). Flights between EEA countries and non-EEA countries are covered by an agreement reached under the International Civil Aviation Organisation (ICAO) in October 2016, according to which large airline companies¹³³ will have to compensate part of their emissions by acquiring international carbon credits¹³⁴. Participation in this scheme will become mandatory in 2027. The ICAO has also introduced a standard to certify CO₂ emissions for aircraft.

94

Maritime and inland waterways transport accounted for 3.3 % of the EU’s greenhouse gas emissions in 2015, most of which comes from international shipping, i.e. shipping between EU and non-EU ports¹³⁵. International maritime transport accounts for about 2.1 % of global greenhouse gas emissions and a further increase in the range of 50 to 250 % by 2050 is projected¹³⁶. These emissions are not accounted for in the EU’s reduction targets and are not currently internationally regulated.

95

While the fuel consumption of ships is known, reporting and verification processes are still missing¹³⁷. To tackle this problem, and to provide scope for potential emission reduction measures later, the EU has introduced a system for the monitoring, reporting and verification of greenhouse gases emitted by ships¹³⁸. In parallel, the EU has also worked together with the International Maritime Organization (IMO), which reached a global agreement on a Monitoring, Reporting and Verifying scheme for shipping greenhouse gases in 2016¹³⁹.

96

Water and rail transport emit significantly less greenhouse gases per passenger or per tonne of freight than air and road transport (see Figure 13). Therefore, using water and rail transport in combination with air and road transport can also help reduce transport greenhouse gas emissions. The EU supports the combination of transport modes through measures to eliminate restrictions¹⁴⁰ and through funding measures¹⁴¹. However, in 2015, 76 % of freight was still transported by road¹⁴² (see also paragraph 173).

Renewable fuels

97

The EU has also taken steps to reduce the emissions caused by all types of transport by encouraging the use of renewable fuels, mainly biofuels and electricity. By 2020, 10 % of all energy used in transport must come from renewable sources¹⁴³. The EU also encourages the use of other forms of low-emissions alternative fuels, such as hydrogen and liquefied petroleum gas (LPG); it has set common standards for alternative-fuels infrastructure, such as recharging and refuelling stations, and requires Member States to develop an infrastructure policy¹⁴⁴.

98

Biofuels¹⁴⁵ account for around 70% of the renewable energy used in transport¹⁴⁶. They are produced from biomass, such as biodegradable agricultural or forestry products, or from domestic or industrial waste. In principle, biofuels have the potential to emit less greenhouse gases than fossil fuels, because the amount of CO₂ emitted during the combustion of the biofuel was captured from the atmosphere when the source materials were being grown, and the oil which would have otherwise been burnt is still in the ground.

99

At the beginning of the 2000s, high crude-oil prices generated a renewed interest in biofuels. Biofuels were expected to decrease the dependency of oil-importing countries, generate new export opportunities for developing countries and contribute to reducing greenhouse gas emissions¹⁴⁷. For these reasons, the EU set a minimum requirement for the share of renewable sources in transport (see paragraph 97). This triggered investments in biofuel production capacity. However, biofuels are only effective in reducing greenhouse gas emissions if the emissions avoided by not burning fossil fuels are not cancelled out by greenhouse gas emissions during their full production lifecycle, during the cultivation, transportation and transformation of biofuels feedstock, or by changes in land use. For example, if a forested area is cleared to make space for biofuel production, the carbon storage capacity of the forest is lost.

100

Such land-use change can be direct or indirect. For example, if a forest is cleared to make space for cultivation of biofuels feedstock, the land-use change is direct (DLUC). If existing agricultural land is given over to biofuel cultivation, all else being equal, there would be a reduction in food production. This could thus make it necessary to clear more forest to make space for food production: In this case, the land-use change is described as indirect (ILUC - see Figure 14).

101

The concerns regarding land-use change to cultivate biofuels and the resulting legislative debate limited the development of biofuels¹⁴⁸. In 2013, biofuel consumption suffered from its first drop since the implementation of the first biofuels directive in 2003. The debate prompted the EU to set out sustainability criteria which biofuels must fulfil in order to be counted towards the 10 % renewable fuels target for transport. For example, biofuels grown on cleared land previously occupied by wetlands or forests are excluded. However, the criteria do not cover indirect land-use change, even though the carbon-storage capacity of the cleared forest is lost in both cases if the agricultural land surface has to remain unchanged. This is due to the fact that ILUC emissions cannot be directly observed and can only be modelled. To take these indirect effects into account, the share of biofuels from food crops that can be counted towards the 10 % target is capped¹⁴⁹.

102

Biofuels produced directly from food or feed crops are known as first-generation or conventional biofuels. Biofuels produced from waste, agricultural residues, non-food crops and algae are known as advanced biofuels. Advanced biofuels do not compete directly with food and feed crops for land. Biofuels from waste, such as used cooking oil, are already commercially available. Some other production processes of advanced biofuels, such as using straw residues, are at an early stage of development¹⁵⁰.

Agriculture and forestry

103

The EU agriculture sector accounted for 11 % of greenhouse gas emissions in 2015. Emissions from agriculture decreased by 20 % between 1990 and 2013, for example due to a reduction in cattle numbers and improvements in farm-management practices¹⁵¹. Since 2014, agriculture emissions have risen again.

104

Agricultural greenhouse gas emissions are mainly nitrous oxide and methane, both of which are more potent greenhouse gases than CO₂¹⁵². Emissions come mainly from the digestion process of livestock and agricultural soil management (see Figure 15).

105

The EU regulates the agricultural sector mainly by means of the Common Agricultural Policy (CAP). Forestry policy remains a Member State competence, although some funding for forestry measures is available under the CAP. All recipients of direct payments under the CAP must comply with cross-compliance rules¹⁵³. Some of these rules benefit the environment and also target climate change, for example by promoting the maintenance of organic matter in soil. Farmers receive additional payments – ‘greening payments’ – if they fulfil voluntary commitments which contribute to environmental and climate objectives¹⁵⁴.

106

The CAP also funds rural development measures, some of which target climate change, including investments in renewable energy or forestry measures to support carbon storage.

107

Solutions for reducing emissions in the agricultural sector exist, such as more efficient use of fertilisers or different cattle breeding practices¹⁵⁵. However, there is an often-unchallenged premise that such solutions are more costly than mitigation actions in other sectors¹⁵⁶. According to the Commission, only a relatively limited contribution to emission reductions can realistically be expected from the agricultural sector¹⁵⁷. It has suggested integrating a part of the carbon storage potential of soils and vegetation in the Effort Sharing Regulation for 2030 (see paragraph 38).

108

In climate policy, the concept of LULUCF (Land Use, Land-Use Change and Forestry) has been developed to take account of the storage and emission potential of this land-based sector (see Box 7). In 2015, the LULUCF sector absorbed enough CO₂ to offset around 7 % of the EU’s total greenhouse gas emissions; in other words, it absorbed enough CO₂ to offset the total amount of greenhouse gases emitted by Spain. But, since 2008, the sector’s storage capacity has been reduced as a result of factors such as the ageing of forests.

109

Up to now, the LULUCF sector’s ability to store greenhouse gases has not been taken into account in the calculations of progress towards the EU’s 2020 greenhouse gas emissions reduction targets. This is partly because the sector’s effects on greenhouse gas emissions are much more difficult to assess than the effects of other sectors. At the same time, the sector’s storage capacity is influenced by decisions taken in other sectors. For example, the increasing use of biomass to produce renewable energy, while reducing emissions in the energy supply sector, could bring about a reduction in carbon storage capacity (see paragraph 100).

110

As a first step towards including LULUCF activities in its CO₂ reduction commitment, the EU has drawn up accounting rules, based on the UN rules for the Kyoto Protocol reporting¹⁵⁸. In July 2016, the Commission proposed how the sector could be counted towards the 2030 greenhouse gas emissions reduction targets¹⁵⁹. This would mean that emissions of other sectors could be offset by the storage capacity of LULUCF, up to certain limits¹⁶⁰. The use of this flexibility mechanism ‘could potentially cover an underachievement of the ESR target in 2030 of roughly two percentage points’¹⁶¹.

Waste and the circular economy

111

The remainder of the EU’s greenhouse gas emissions come from waste, which accounts for 3 % of the EU’s total greenhouse gas emissions. Emissions from waste decreased by 42 % between 1990 and 2015.

112

The EU’s action on waste, mostly through legislation, includes reducing greenhouse gas emissions directly by reducing emissions from landfill¹⁶² and indirectly by preventing waste and by recycling materials which would otherwise have been extracted and processed. As a result, better waste management avoids emissions in other sectors of the economy, such as energy supply, agriculture, manufacturing and transport. For example, waste recycling in France saved the equivalent of 5 % of national greenhouse gas emissions in 2014¹⁶³.

113

One concept supporting prevention and recycling of waste is the ‘circular economy’¹⁶⁴. For example, the design of a product can be altered to facilitate product reuse or recycling, by selecting different materials, standardising components and ensuring easy, end-of-life separation.

Adaptation

Expected changes in temperature and rainfall

114

Adaptation to climate change is ‘the process of adjustment to actual or expected climate and its effects’¹⁶⁵. On average, in 2016, the world was already 1.1°C warmer than in the pre-industrial period. Even if the objective of the Paris Agreement – keeping the global temperature rise this century well below 2°C – is achieved, adaptation to climate change is necessary. The 2°C increase scenario is a global average: even if it is achieved, temperatures will increase by far more than 2°C in certain regions (see Figure 16). During the winter, temperatures could increase by an average of 5 to 8°C in some parts of Scandinavia. In the summer, temperatures could increase by an average of 3 to 4°C in most of Spain and in northern Scandinavia¹⁶⁶.

115

Changes in rain and snow patterns could also be significant (see Figure 17). Winter precipitation could increase by more than 25 % in some parts of central Europe and Scandinavia. Summer precipitation levels could decrease by more than 50 % on much of the EU’s Mediterranean coast.

116

These changes in precipitation levels will increase the risk of flooding and soil erosion in many parts of Europe. The annual number of floods requiring insurance pay-outs has tripled since 1980 (10 in 1980 to 38 in 2015 and 29 in 2016)¹⁶⁸. An increase in the global mean sea level will result in more frequent and severe floods in coastal areas. Storms will become more destructive¹⁶⁹.

117

Soil erosion, combined with water shortages and higher temperatures which increase evaporation, increases the risk of desertification. Studies indicate that up to 44% of Spain, 33 % of Portugal, and nearly 20 % of Greece and Italy are at high risk of erosion¹⁷⁰. These Member States will suffer from increased temperature and lower precipitation (see Figure 16 and Figure 17). Twelve EU Member States have declared that they are affected by desertification¹⁷¹.

Impact of climate change on society

118

Climate change will also have wide-ranging societal consequences: for example, consequences for human health. Severe health risks and deaths may arise from extreme weather events such as storms and floods, periods of extreme heat or cold, or more widespread diseases. For example, from 1980 to 2013, two-thirds of all fatalities resulting from natural phenomena in the EU were caused by heatwaves¹⁷².

119

Climate change will also impact key economic sectors and does so already¹⁷³. Agriculture will be affected by water availability, temperature, new pests and invasive species. While yields could increase in northern areas, production in southern areas could decrease by 30 %¹⁷⁴. Impacts on the marine environment will affect the fishing industry¹⁷⁵. The forestry sector will see shifts in the range of tree species, an increase in the risk of forest fires and an increase in the prevalence of insect pests. Shorter snow seasons or drought and heatwaves will affect tourism.

120

Economic activity, and therefore jobs, could shift between economic sectors. While net effects remain uncertain, job opportunities could be created in areas such as reinforcing or constructing flood and coastal defences and in renewable energy¹⁷⁶.

121

Patterns in energy demand will change: there will be less demand for energy for heating in winter, and more demand for energy for cooling in summer. Energy-production capacity could be restricted, for example, due to lower hydropower or nuclear plant cooling capacity.

122

Extreme weather events, such as floods, drought and storms, and gradual changes, such as sea level rises, could cause more people to migrate both within Europe and into Europe¹⁷⁷. For example, several reports¹⁷⁸ have suggested that a recent three-year drought in Syria was a contributory factor to the outbreak of the Syrian civil war. There is a risk of a lack of preparation for migration caused by climate change¹⁷⁹.

EU and national adaptation strategies

123

Since the impacts of climate change vary significantly between the EU’s regions and even within Member States, it is likely that most adaptation initiatives will be taken at regional or local level. However, some impacts of climate change transcend the borders of individual Member States – a river basin flooded as a result of climate change, for example, could encompass the territory of more than one country.

124

Compared to early action in mitigation, the basis for EU action in the area of adaptation, the EU’s strategy on adaptation to climate change, was adopted only in 2013¹⁸⁰. It encourages Member States and cities to take action, rather than mandating it. For example, it states that Member States should adopt a national adaptation strategy by 2017 and start implementing it by 2020. Certain cities launched a voluntary commitment based on the Covenant of Mayors initiative. The Commission offers support, for example, through its European Climate Adaptation Platform, Climate-ADAPT, which allows users to access and share data, good practices and information on expected climate change in Europe.

125

The Commission is monitoring and assessing the national adaption strategies and will consider proposing a legally binding instrument in 2017 if Member States’ actions are deemed to be insufficient¹⁸¹. By April 2017, 22 Member States had adopted a national adaptation strategy¹⁸².

126

Adaptation is also addressed, to varying extents, in EU sectoral legislation. For example, the Water Framework Directive¹⁸³ concerns water quality and quantity aspects, so it indirectly focuses on drought issues; the Floods Directive¹⁸⁴ deals with floods prevention; The Birds Directive¹⁸⁵ and the Habitats Directive¹⁸⁶, amongst others, address biodiversity protection.

Supporting EU action on energy and climate policies

127

Three key, cross-cutting themes support the EU’s action in energy and climate policies:

• research and innovation;
• financing; and
• evidence-based policy-making and implementation.

Research and innovation

128

Achieving energy and climate change targets worldwide, and transforming the EU into a low-carbon society, will rely on the development of new technologies in a number of sectors such as energy supply and transport¹⁸⁷. For most of these sectors, low-carbon alternatives are not available yet, let alone at competitive cost levels.

129

The EU Framework Programme for Research and Innovation, known as Horizon 2020, is the EU’s main research and innovation funding instrument¹⁸⁸. As part of its commitment to spending one euro out of five on climate action (see paragraph 133), the EU has committed to spending at least 35 % of Horizon 2020 funding – 27 billion euro from 2014 to 2020 – on research for climate change mitigation and adaptation. In addition, initiatives such as the Integrated Strategic Energy Technology (SET) Plan have set targets at European level, to reduce the cost and improve the performance of key low-carbon technologies to make them more competitive against conventional energy sources and to accelerate the decarbonisation of the EU’s energy system.

130

In several energy-related areas, Europe has a ‘deployment deficit’ as it struggles to bring promising innovations to market ¹⁸⁹. New, disruptive business models and services, societal innovation and new policy and financial mechanisms will be required to bring technologies to the market¹⁹⁰.

131

Several initiatives tried to address this. For example, the 2016 Commission initiative on accelerating clean energy innovation set out a range of measures to improve the regulatory, economic and investment environment for innovation in clean-energy technologies and systems¹⁹¹. The initiative emphasised the links to the Commission’s agenda on growth and jobs and to the EU’s competitiveness¹⁹⁰. It further suggested that future EU funding should focus on:

• decarbonising the EU building stock by 2050: from nearly-zero energy buildings to energy-plus districts;
• strengthening EU leadership on renewables;
• developing affordable and integrated energy storage solutions; and
• electro-mobility and a more integrated urban transport system.

Public and private financing for climate-change mitigation and adaptation

132

The scale of the economic costs of climate change for the EU remain uncertain, but they are likely to be substantial (see Box 8 for some estimates).

133

Financing will need to come from both public and private sources. The relatively small size of the EU’s budget only allows it to finance a fraction of this work directly. To ensure coherence in legislative action and to make the best use of the EU budget, the EU has decided to incorporate, or ‘mainstream’, climate considerations into all policy and funding instruments. This included setting a target of spending one euro in every five, i.e. around 212 billion euro, on climate-related action under the EU’s 2014-2020 financial framework.

134

The EU is also acting internationally, notably through financing climate action in developing countries (see paragraph 20). For example, in 2015, the EU, EIB and Member States provided 17.6 billion euro to help developing countries tackle climate change¹⁹⁵.

135

Furthermore, the EU is increasingly making use of financial instruments to attract private investment, both from within the EU budget¹⁹⁶ and from outside, for example, with the European Fund for Strategic Investments (EFSI)¹⁹⁷ and several private-public partnerships with industry¹⁹⁸. The EIB has also committed at least 25 % of its lending portfolio to low-carbon and climate-resilient growth.

136

Private sector investment might not be limited to mitigation, but could also include adaptation measures, both to build resilience to the consequences of climate change, and to benefit from new business opportunities it creates¹⁹⁹.

Evidence-based policy-making and implementation

137

Likewise, in the public sector, policy-makers, when designing new policies, should properly assess the likely effect of various policy options. The Commission aims to take political decisions ‘in an open, transparent manner, informed by the best available evidence and backed by the comprehensive involvement of stakeholders’²⁰⁰. For example, it prepares impact assessments²⁰¹, which are mandatory for all initiatives with significant economic, environmental or social impacts²⁰², and carries out evaluations of the implementation of policies.

138

In impact assessments, the Commission relies extensively on data and modelling to compare policy alternatives. Data is provided by the European Environment Agency (EEA), Eurostat, or via several initiatives financed by the EU such as the Commission’s Climate Services, Copernicus, or the portal Climate-Adapt²⁰³. Multiple models can be used to simulate, for example, energy supply, demand and prices; greenhouse gas emissions from various sectors; and social and economic outcomes. In the Commission, the Joint Research Centre (JRC) provides such modelling capacity.

139

All such models, while valuable, have certain limitations which their users need to be aware of²⁰⁴. Depending on the models used, these include:

• the sensitivity of results to individual assumptions, for example discount rates in calculating the return on investments;
• a limited level of detail such as effects on individual households²⁰⁵; and
• the difficulty of taking into account future technological breakthroughs, societal changes and the interrelated effects of climate change²⁰⁶.

140

Despite such limitations, it is generally agreed that policy decisions should be informed by the prudent use of a variety of models and scenarios.

Part II – What the ECA and EU SAIs are doing in energy and climate change

The role of the EU Supreme Audit Institutions in energy and climate change

141

Supreme Audit Institutions (SAIs) perform independent, external audit on public financial management. They can play a key role in promoting the transparency, accountability, efficiency and effectiveness of public administrations. SAIs not only audit financial accounts and the legality and regularity of financial management, but also assess the value for money – economy, efficiency and effectiveness – of the full range of governmental activities in public administration²⁰⁷.

142

SAIs of the EU Member States and the ECA, here collectively referred to as the EU SAIs, produce reports related to energy and climate change. They also cooperate in the area of energy and climate change, notably in the INTOSAI²⁰⁸ and EUROSAI²⁰⁹ Working Groups on Environmental Auditing and in the Contact Committee of the SAIs of the European Union. Cooperation includes the development of audit standards, guidelines, sharing of audit methodologies and reports; they also perform some audits together²¹⁰.

143

This report provides a synthesis of EU SAIs’ work on energy and climate change over the past five years. It covers 269 reports by EU SAIs dealing with energy and climate between 2012 and March 2017²¹¹. It includes an overview of where EU SAIs have conducted performance audits and highlights, where possible, emerging patterns of findings. A list of the EU SAIs’ audits and a summary of the 41 ECA reports included in this analysis is available on the ECA’s website. This analysis follows the structure of Part I of this landscape review: it starts with audits in the energy sector and the EU ETS, followed by audits in other greenhouse gas-emitting sectors, audits on adaptation to climate change and audits on horizontal and cross-cutting topics. Finally, we also identify areas where less audit work has taken place.

Overview of the EU Supreme Audit Institutions’ work in energy and climate change

144

The analysis of audit reports of EU SAIs shows that:

• EU SAIs have covered a wide range of different topics within the area of energy and climate change;
• They produced, on average, about 50 audits per year related to energy and climate change: around two audits per EU SAI per year;
• The distribution of audit reports amongst EU SAIs varies. The majority of SAIs replied to our survey that energy and climate change are ranked as a low priority in their work planning;
• Audits on energy made up the largest share of the reports done (38 % – see Figure 18);
• Mitigation-related audits, i.e. on energy, EU-ETS and other sectors which emit greenhouse gases (190 reports) outnumber audits on adaptation (53 reports) by 4 to 1.

Energy

145

Most energy audits cover renewable energy and energy efficiency, and, in slightly lower numbers, the energy market and security of supply and nuclear energy (see Figure 19). The following sections will deal with audit findings in each of these areas in turn, starting with the internal energy market and security of supply.

Internal energy market and security of supply

146

The objective of the internal energy market is to allow the free flow and trade of gas and electricity across the EU (see paragraph 65). A functioning internal energy market is the basis for the security of the EU’s energy supply. EU SAIs audit reports have identified the following issues:

• Progress has been made, but the EU’s objective of completing the internal energy market has not been reached, with differences remaining in the way Member States implement the EU legal framework and administer their markets;
• Energy infrastructure is not yet designed for fully integrated markets, and does not provide effective security of supply;
• Cooperation issues between Member States regarding cross-border infrastructure are still causing problems.

147

In 2015, the ECA²¹² found that progress in joining the markets in Europe had been made, but that problems remained with the implementation of the EU legal framework. Important differences²¹³ in how Member States organised their energy markets were holding back progress towards completing the EU’s internal energy market; they also meant that important differences in wholesale prices remained.

148

National SAIs had similar findings: the SAIs of Bulgaria in 2013²¹⁴ and France²¹⁵ in 2015, for example, published reports stating that energy trading conditions still did not resemble a free market, or that the promised benefits of open energy markets for SMEs and households had not yet become a reality.

149

The 2015 ECA audit also found that energy infrastructure, within and between Member States, was generally not yet designed for fully integrated markets, and therefore did not provide effective security of energy supply.

150

Our 2015 audit also showed that the electricity interconnection target (see paragraph 70) between Member States had often not been met and that built infrastructure was not always used to full capacity. We also found that, besides the limited availability of physical interconnections between Spain and France, the integration of Spain and Portugal into the EU energy market required improvements to the internal electricity grid systems, both in Spain and in France.

151

Developing cross-border cooperation infrastructure requires cooperation amongst neighbouring Member States. Our 2015 audit found some good examples, such as the Baltic Energy Market Interconnection Plan (BEMIP), a cooperation between several Member States and the Commission²¹⁶.

152

But there are also examples of problems of infrastructure in one Member State leading to issues in a neighbouring country. For example, in 2014, the Polish SAI²¹⁷ found that unscheduled electricity flows from Germany through Poland to the Czech and Slovak grids were destabilising the Polish energy grid, limiting its capacity to accept power imports.

153

One of the few EU SAI audits considering the energy transition (see paragraphs 72 to 79) in a comprehensive manner was the 2016 German SAI audit²¹⁸ on measures for the implementation of the energy transition in Germany. The audit found that the Federal Ministry of Economic Affairs and Energy lacked an overview of the total cost of energy transition, that different layers of government were not coordinated and that supported measures were selected without taking their cost-effectiveness into consideration. While it welcomed the government publishing a monitoring report, together with an independent evaluation, targets and evaluation of affordability and security of supply questions were not sufficiently addressed. The audit said that the German energy transition could not be implemented without taking into account the EU’s internal energy market.

Renewable energy

154

On a global, macro level, recent years have seen rapid growth in renewable industries and falling costs, for instance of wind and solar. Yet on a micro, national and EU level, EU SAIs’ reports on renewable energy, identified:

• obstacles to investments;
• lack of cost-effectiveness; and
• issues with monitoring and evaluation.

155

EU SAIs reports identified obstacles which hampered investments in renewable energy, in the following areas:

• Regulatory environment: Reports, including our 2014 audit²²³, highlighted institutional and legal barriers and multiple revisions of the national legal frameworks, including retroactive changes in the subsidy regimes, as obstacles to investment. In 2012, the Italian SAI²¹⁹ underlined a highly variable legal framework between regions; and the Polish SAI²²⁰ found delays in the preparation of new rules governing renewable energy production²²¹;
• Challenges in integrating electricity from renewables into the market: A 2016 Swedish SAI²²² audit highlighted the challenges in the electricity market. It found that the expected low electricity price did not provide enough incentives for the market to invest in the capacity necessary to balance the increasing share of intermittent renewable energy in the grid. Our 2014 audit found issues regarding renewable energy producers securing permits for grid connection;
• Limited use of the EU budget for renewable energy: While Member States mainly finance renewable energy from national funds, low use of available EU funds could hamper investment. Our 2014 report found a slow uptake of EU funds for renewable energy projects compared, for example, to energy efficiency projects. In the cases where EU funds were used, we found that the audited projects delivered outputs as planned and most of them were sufficiently mature and ready for implementation²²³. Between 2013 and 2015, the Italian²¹⁹ and Romanian²²⁴ SAIs made similar findings on the limited use of EU funds for renewables.

156

Cost-effectiveness of measures and the level of public support were recurring themes in audit reports on renewable energy (see examples in Box 9). We found in 2014 that cost-effectiveness had not been the guiding principle in planning and implementing renewable-energy projects. We also found instances where more public funding had been provided than was necessary for projects to be economically viable.

157

Insufficient monitoring and evaluation of renewable energy programmes was another theme identified in several SAI audits. For example, in 2016, the German SAI found that programmes lacked targets, leading to the inability to monitor their results²³⁰. Similarly, in 2014, a Czech SAI audit and an ECA audit²³¹ found that objectives and performance indicators set for the audited programmes were imprecise and/or not based on reliable baseline data.

Energy efficiency

158

In audits on energy efficiency, EU SAIs noted:

• delays in reaching targets and launching programmes;
• a lack of cost-effectiveness; and
• gaps in programme monitoring and evaluation.

159

Delays and associated risks in reaching EU or national targets were reported by several SAIs between 2013 and 2015. For example, the Portuguese²³² and the Slovak²³³ SAIs reported delays in implementing energy efficiency measures for public buildings. The Czech²³⁴ and Danish²³⁵ SAIs calculated that their countries would miss their energy efficiency targets. The Slovak SAI (2015), the Bulgarian SAI (2015), the Romanian SAI (2014) and the Portuguese SAI (2013)²³⁶ reported on delays in the launch of energy efficiency programmes due to complicated national regulations, and a lack of available staff to manage the programmes.

160

In our 2012 audit²³⁷, we found that cost-effectiveness had often been ignored when energy-efficiency measures were being selected for public funding. These issues continued to be flagged in audits on public building renovation measures by the Polish SAI (2015), the Slovak SAI (2015) and the Romanian SAI (2014)²³⁸. In contrast, a 2017 Slovak audit report concluded that the national and EU funding spent on the renovation of residential buildings was cost-effective²³⁹.

161

Weaknesses in monitoring and evaluating energy efficiency programmes were found by the German SAI (2016), the Slovak SAI (2015), the Polish SAI (2015), the Slovenian SAI (2013) and the Portuguese SAI (2013). For example, measures had poorly defined objectives²⁴⁰ or no reliable indicators for measuring the achievement of objectives existed²⁴¹.

Nuclear energy

162

Most of the EU SAIs reports on nuclear energy related to the costs of running and maintaining or decommissioning nuclear power plants²⁴². EU SAIs found:

• significant cost increases and uncertainties;
• a lack of adequate provision for costs or shortfalls in funding; and
• delays.

163

In 2016, we carried out an audit²⁴³ to assess what progress had been made in three EU nuclear decommissioning assistance programmes in Lithuania, Bulgaria and Slovakia since our last audit in 2011. We found that progress had been made in low-radioactivity areas, such as turbine halls, but that the decommissioning of reactor buildings had yet to begin. Many decommissioning projects had been subject to delays and cost increases.

164

We found that the three Member States faced financial challenges, in particular Lithuania which, in 2015, had a financing gap of 1.56 billion euro until completion of decommissioning. Liabilities for future costs had not been properly accounted for in the three Member States.

165

Looking at the issue of final disposal, our audit found that total estimated costs of the three decommissioning programmes would double if the cost of final disposal of high-level waste and spent fuel were to be included. Talks regarding potential final disposal solutions were only at conceptual stages despite such solutions needing several decades to implement.

166

Other EU SAI reports show similar findings on cost increases and uncertainties. A 2014 French SAI²⁴⁴ audit found that, between 2010 and 2013, the cost of nuclear energy had increased from 50 euro/MWh to 60 euro/MWh. This 21 % increase was due to increasing maintenance costs as a result of extensions to the operating life of some nuclear plants. The report also found increasing future costs and underlined the high uncertainty linked to the decommissioning costs and final disposal of nuclear waste. In 2016 the French SAI estimated the total maintenance costs of the French nuclear plants at 100 billion euros over the period 2014-2030²⁴⁵. The UK SAI reported in 2015 on cost increases and uncertainties of cost estimation in nuclear decommissioning²⁴⁶.

The EU Emissions Trading System

167

Nearly all EU ETS-related EU SAI audits published after 2012 covered phase 2 of the system, which ran from 2008 to 2012. Only one SAI report²⁴⁷ has addressed the third phase of the EU ETS, which runs from 2013 to 2020. These SAI reports called into question:

• the scheme’s effectiveness, due to a surplus of allowances and the resulting low prices of allowances;
• the lack of sound justification for the national support provided to energy-intensive companies said to be at risk of carbon leakage; and
• specific aspects of implementation.

168

For several years, the price of EU ETS allowances has been significantly lower than forecast (see paragraph 32). A 2012 cooperative audit, involving seven SAIs²⁴⁸, found that these low prices were hampering the effectiveness of the EU ETS; the German²⁴⁹ and French²⁵⁰ SAIs reached a similar conclusion in 2014. The low EU ETS allowance prices reduced the incentive for companies to invest in cleaner technology to reduce emissions in the long term. Low prices were found to be mainly the result of an oversupply of allowances²⁵¹, but also due to the growth of energy efficiency²⁵² or renewable energy policies²⁵³. In 2014, when examining the ‘back-loading’ of allowances to address this EU ETS market imbalance (see paragraph 33), the German SAI noted that these measures would not offer a long-term solution²⁵⁴.

169

Two EU SAI audit reports dealt with the ‘compensation’ support granted by some Member States to companies relating to the risk of ‘carbon leakage’ (see paragraph 30). Reporting on the EU ETS and climate-related taxes, a 2012 Swedish report²⁵⁵ concluded that Sweden’s government, its agencies, and its parliament did not have a basis for assessing whether various industry sectors were actually at risk of carbon leakage. Examining compensation paid to electricity intensive industry in Germany, a 2016 SAI report²⁵⁶ found that the responsible ministry had not investigated whether high electricity costs were actually encouraging companies to relocate or whether such costs were offset by gains in energy efficiency.

170

EU SAIs also assessed the implementation of the EU ETS, highlighting issues with:

• the effectiveness of the mechanisms by which emissions are reduced by investing in countries outside the EU (Luxembourg, 2014; Germany, 2014; Portugal, 2011)²⁵⁷;
• Value Added Tax (VAT) fraud which affected emissions trading at least in 2008 and 2009 (Cooperative audit from Denmark, Finland, Latvia, Lithuania, Norway, Poland, Sweden, 2012; Germany, 2014; Portugal, 2011)²⁵⁸. Since that period, at least 22 Member States have begun to use the reverse charge mechanism to combat tax fraud; in theory, this should also reduce the risk of VAT fraud affecting the EU ETS;
• safeguards aimed at protecting market integrity which were not sufficiently robust and systems for monitoring and reporting emissions that were not harmonised and contained weaknesses (ECA, 2015)²⁵⁹.

Transport

171

Relevant transport audits were concerned with the reduction of greenhouse gas emissions in the transport sector directly, or dealt with low-carbon transport modes, or a shift to such transport modes. Notwithstanding that audits on high-carbon methods of transport, such as road and air transport, might raise important value-for-money issues²⁶⁰, such reports were not deemed relevant unless they directly addressed energy or climate change issues. Apart from audits on biofuels, we only found one audit on high-carbon modes of transport with such a direct link, namely a report on car emissions by the Maltese SAI²⁶¹.

172

The relevant EU SAI audits on transport noted:

• the shift in transport of goods from road to rail and maritime/inland waterways was not being achieved;
• issues with the design and effectiveness of biofuels policy.

173

Several EU SAI reports (Czech Republic, 2017 and 2014; Austria, 2015) found that the necessary shift in the transportation of goods from road to the less-carbon-emitting rail and maritime/inland waterways transport modes is not being achieved²⁶². In 2015²⁶³ and 2016²⁶⁴, we found that both inland waterway transport and rail failed to compete with road transport. We also found, in 2016²⁶⁵, ineffective and unsustainable investments in ports.

174

Biofuels schemes were audited by several EU SAIs (ECA, 2016; France, 2016 and 2012; Bulgaria, 2015; Portugal, 2014; Poland, 2014; Slovakia, 2014)²⁶⁶. In our 2016 report, we found weaknesses in the Commission’s procedures for recognising and supervising voluntary schemes to certify sustainable biofuels²⁶⁷. Underlying statistics were unreliable, because there was nothing to stop Member States from including in their statistics biofuels whose sustainability was unverified.

175

In 2014 and 2015, Member States SAIs (Bulgaria, Portugal, Poland)²⁶⁸ had found that intermediate national biofuel targets²⁶⁹ had not been met. A 2016 report from France reported that the target for biodiesel might be achieved, but expressed doubts about the achievement of the bioethanol target²⁷⁰. The SAIs of Slovakia (2014) and France (2012) highlighted the limited impact of biofuels on energy independence²⁷¹ or total greenhouse gas emissions reductions²⁷².

Agriculture and forestry

176

Except for one ECA audit in 2012²⁷³, all the EU SAI reports analysed in the sector of agriculture and forestry, and with a potential link to emission and storage of greenhouse gases, related solely to forestry. We found no reports on the greenhouse gas emissions from agriculture.

177

The SAIs of Belgium (2016) and Romania (2014), as well as the ECA (2015), found various issues related to deforestation, such as non-systematic compensation of deforested land, or inadequate action against illegal logging²⁷⁴. An ECA report from 2014²⁷⁵ concluded that EU funding for preventing forest fires and restoring damaged forests had not been managed well.

178

Other reports addressed the cost-effectiveness of forestry measures. In 2017, the Portuguese SAI criticised the selection of projects and the quality of ex-ante and ex-post evaluations²⁷⁶. In 2016, the Lithuanian SAI found high management costs, low absorption rates, and delays²⁷⁷. In 2015, the French SAI underlined the lack of coordination between forestry programmes²⁷⁸.

Waste and the circular economy

179

EU SAI reports on waste covered mainly:

• the implementation and enforcement of waste legislation;
• the effectiveness of the management of municipal waste.

180

Several EU SAI reports (Portugal, 2015; Lithuania, 2013; Romania, 2013; ECA, 2012; and a 2012 joint report of eight national SAIs)²⁷⁹ identified issues related to poor or delayed implementation of the waste legislation, in particular with regard to landfill.

181

Several, mostly more recent, reports (France, 2017; Latvia, 2017 and 2015; Estonia, 2016; Slovenia, 2015; UK, 2014; Lithuania, 2013) focused on the effectiveness of the management of municipal waste, such as waste from households, institutions and small businesses²⁸⁰. Audits found weaknesses in the governance of municipal waste management, such as the lack of appropriate set-up or oversight of the achievement of targets and low recycling rates.

182

The ECA’s 2016 report on food waste²⁸¹ concluded that EU action to date had not been sufficient and that the EU strategy on food waste had to be strengthened and better coordinated.

Adaptation

183

Around 20 % of the EU SAI reports addressed adaptation to climate change. Of these, one third dealt with flooding (see Box 10 for details of findings).

184

Other audits dealt with issues such as water supply and quality²⁸⁷, disaster prevention and management measures²⁸⁸ and biodiversity.

185

Member States’ adaptation strategies were addressed in 2012 by a cooperative audit by nine EU and non-EU SAIs²⁸⁹. The audit concluded that governments were not sufficiently prepared for the expected impact of climate change. The EU has since adopted a strategy for adapting to climate change, which encourages all Member States to adopt comprehensive adaptation strategies (see paragraph 124).

Audits on cross-cutting topics

186

Approximately 10 % of audits concerned cross-cutting issues which can affect various economic sectors or areas of energy and climate measures. Four clusters emerged:

• climate and energy research;
• financing of mitigation and adaptation, including taxes;
• meta-audits/reviews, or audits of the whole energy and climate change area;
• evidence-based policy making and implementation.

187

Six EU SAIs specifically reported on energy and climate research. In 2014, the French SAI²⁹⁰ highlighted that technological breakthroughs were needed in order for the energy transition to be successful, but that no existing mature technologies appeared to be able to ensure the security of the energy system in 2030, and that there was no guarantee that any future breakthroughs would be technically and economically accessible. Three reports (Denmark, 2013; Sweden, 2012; Finland, 2011)²⁹¹ covered general research programmes or particular projects. In their reports, SAIs generally underlined the importance of research and innovation for climate and energy but stated that its potential had not been fully explored or clearly understood. Three other audits (United Kingdom, 2017 and 2012; Poland, 2015)²⁹² concerned ‘clean coal technologies’ and highlighted ineffective procurement procedures and ineffective support for the development of such technologies.

188

Certain audits (e.g. Latvia, 2017; ECA, 2013 and 2016; Netherlands, 2014, Spain, 2012) concerned the financing of investments across sectors such as infrastructure in energy and transport in Member States, within and outside the EU²⁹³. For example, in our 2016 audit²⁹⁴, we identified a serious risk that the target of spending at least 1 euro in every 5 of the EU budget on climate action between 2014 and 2020 would not be met. We found a more and better-focused climate action funding under the European Regional Development Fund and the Cohesion Fund, but no significant shift towards climate action in the areas of agriculture, rural development and fisheries. We also found that prompt action is required in the research area as the contribution from research funding is falling significantly behind.

189

Some audits dealt with climate-related taxes or the effect of tax system changes on green investments. For example, the Swedish SAI²⁹⁵ found that government and agency reporting did not provide a comprehensive picture of the costs and effects of climate-related taxes. It also highlighted limitations on models used by the government to model economic effects. A 2016 French audit report²⁹⁶ found that tax advantages and support given to environmentally unfavourable activities outweighing support given to sustainable activities.

190

Some SAIs produced audits on their national climate change strategies²⁹⁷. The SAIs of the Netherlands (2015), France (2014), Sweden (2013) and Finland (2012) published meta-audits and overviews which drew together their national findings in the area of energy and climate change²⁹⁸.

191

Certain audit findings have been related to data and methods used by governments to design and implement policies. For example, our 2016 audit on energy security of supply²⁹⁹ highlighted issues with gas-demand modelling. The 2012 Swedish SAI report also highlighted limitations of economic models used by their government³⁰⁰.

Areas where limited audit work had taken place

192

EU SAIs have covered a variety of subjects in the area of energy and climate change, with many relevant findings. However, some areas of energy and climate have, so far, received less audit coverage:

• adaptation (see paragraph 144);
• EU and national greenhouse gases inventories and Land Use, Land use Change and Forestry (LULUCF);
• the third phase of the EU ETS (see paragraph 167);
• emissions from road transport (see paragraph 171); and
• emissions from agriculture (see paragraph 176).

193

We surveyed the 28 EU SAIs on the challenges they faced when auditing energy and climate. The most common issues raised were the low prioritisation of energy and climate topics; unclear policy objectives and therefore inadequate criteria for audit; and a lack of expertise.

194

Adaptation to climate change has been audited far less often than climate mitigation (see paragraph 144). Of reports dealing with adaptation, one third were about floods. Some reports addressed water shortages in drinking water systems or in specific irrigation systems, but none had addressed the relationship between water scarcity and climate change. We also found no audits focused on adaptation in specific sectors such as agriculture, infrastructure planning, health, or biodiversity. There were some early audits on Member States’ preparedness for adaptation around 2012, but none since the 2013 EU’s adaptation strategy recommended that Member States draw up adaptation strategies.

195

When asked why adaptation had not been audited more, EU SAIs replied:

• adaptation is still a recent policy;
• adaptation measures often consist in small size, dispersed projects; when these projects are financed by municipalities, SAIs might lack an adequate audit mandate;
• adaptation measures are complex to audit, due to their cross-sectoral/cross-border and long-term nature; and
• certain Member State SAIs assessed the risk linked to adaptation as low.

196

Emissions reductions targets use EU and national inventories of greenhouse gas emissions as a baseline (see paragraph 26). These inventories are also used to check whether Member States’ emissions are in line with the Effort-Sharing Decision (see paragraph 35) and the international commitments under the UNFCCC (see paragraph 18). They may also play an important role in future under the Paris Agreement. We found one EU SAI audit from 2009³⁰¹ that had dealt with them directly. The Estonian SAI audited its national efforts to reduce greenhouse gas emissions and concluded that there was a risk that Estonia’s emissions might be higher than declared, for several reasons:

• a lack of data and methodological weaknesses, not all sectors and pollutants had been included;
• the method used to calculate the amount of greenhouse gases absorbed by forests was flawed; and
• the effect of land-use changes had not been assessed.

197

The Romanian SAI³⁰² did not audit these inventories directly in 2011, but made reference to a 2010 UNFCCC report which had identified non-compliance issues in Romania’s greenhouse gas inventory. As a result, Romania had been suspended from participating in the international emissions-trading scheme set up under the Kyoto Protocol. Lithuania³⁰³ had faced similar issues in the first half of 2012. In 2011, the Portuguese SAI³⁰⁴ found discrepancies between the emissions accounting methods used by the Portuguese authorities and those required by the Kyoto Protocol.

198

According to the EU SAIs, audit work on EU and national inventories of greenhouse gas emissions and Land Use, Land Use Change and Forestry had been limited because of the limited financial importance of these inventories and the lack of technical expertise.

Part III – Main challenges

199

Part I of this landscape review described what the EU is doing in the field of energy and climate change and part II highlighted findings made by EU SAIs in this field. Based on this work, we identified seven areas where we see major challenges in the field of energy and climate change. In each area, we identify the challenges to provide context for the current consideration of the major transformations underway, to stimulate debate among stakeholders, and to identify potential opportunities and risks for audit in the future.

1. Energy and climate change governance

200

The EU has set itself climate- and energy-related targets for the years 2020 and 2030 and objectives for 2050: to reduce greenhouse gas emissions, to improve energy efficiency and to increase renewable energy (see paragraph 21). It has also set itself the goals of developing a functioning internal energy market, delivering security of supply, and integrating renewables. Much progress has been made (see paragraph 22). Current projections show that more progress is needed to reach the 2030 targets and the 2050 objectives (see paragraph 23).

201

The delivery of the EU’s objectives can only be achieved through a mix of legislative and non-legislative measures at EU, national, regional and local levels. In both energy and climate change, the EU and the Member States have shared competence (see paragraph 11) and need to work together in a spirit of solidarity and trust³⁰⁵. Member States retain sole competence in certain areas, such as their national energy supply mix.

202

Energy and climate change need to be addressed together. Energy production and consumption accounts for 79 % of EU greenhouse gas emissions (see paragraph 39). In addition, choices in one Member State can affect the situation in other Member States and the achievement of overall EU targets. Effective governance systems are needed in the EU to manage and monitor energy and climate measures, to reduce risks, to avoid overlaps and to ensure progress, while finding cost-effective solutions.

203

The EU and national governments have committed to reduce greenhouse gas emissions (see paragraph 19). Greenhouse gas inventories play a fundamental role in monitoring progress on greenhouse gas emission reduction targets (see paragraph 26). The EU, Member State authorities and the UNFCCC verify these inventories, which often include complex estimations.

204

Tracking the extent to which financial commitments addressing the energy transition and climate change are delivered is challenging. The EU has committed to spending at least 1 euro in every 5 of its budget on climate action between 2014 and 2020 (see paragraph 133). The ECA’s 2016 audit showed that meeting this target was at serious risk (see paragraph 188). Developed countries have committed to providing 100 billion USD each year by 2020 to support developing countries’ efforts to adapt to and to mitigate climate change (see paragraph 20), though responsibility for meeting this target has not been shared out.

205

Public audits can play an important role in ensuring public accountability on the achievement of governmental targets and commitments. Such audits can play a key role in maintaining citizens’ trust in their governments and in the EU. However, the EU SAIs’ roles have, to date, been limited with regard to auditing some important energy and climate governance systems and monitoring processes, such as greenhouse gases inventories (see paragraphs 196 to 197).

2. Evidence-based policy

206

Policy-making and policy implementation should be informed by the best available data, modelling and analysis (see paragraph 137). This is a challenge for energy and climate change topics because of their complexity, the relative novelty of some of the data, and the pace of change arising from both energy transitions and climate change.

207

The European Commission relies on a wide range of data, modelling techniques and impact analysis to help it assess alternative policy options for energy and climate (see paragraph 138). Past audits have highlighted issues with data collection (see paragraphs 157 and 161), models and impact analysis (see paragraph 191).

208

Good data, analysis and models remain important tools for assessing energy and climate policy options, and will be needed for the integrated national energy and climate plans that Member States would have to prepare in the framework of the proposed Regulation of the Governance of the Energy Union (see paragraph 79), if current proposals are agreed.

3. The energy transition

209

The production and consumption of energy accounts for 79 % of EU greenhouse gas emissions (see paragraph 39). In the last decades, the EU has made progress towards making its energy sector more sustainable, affordable and secure. But the transition of the EU energy sector to low-carbon energy sources has much further to go and still faces many challenges.

210

A significant decline in EU energy production from fossil fuels is expected, alongside a continued growth in renewable energy production (see paragraph 48). Energy production from renewable sources helps mitigate climate change and, by reducing the import dependency, they increase the EU’s security of supply. At the same time, the integration of renewable energy production into the energy system presents challenges. Profound changes are still needed in the electricity system to deal with challenges such as the variability of energy production from intermittent renewable sources, storage, decentralised energy production and more dynamic demand management (see paragraphs 73 to 76). Energy infrastructure within and between Member States is not yet fully designed for integrated markets (see paragraphs 68 to 71). Similarly, the transport sector will have to undergo changes in energy use, switching to less carbon-intensive transport modes and using biofuels and alternative fuels, such as electricity (see paragraph 98). Energy efficiency measures could further transform the energy system (see paragraphs 42 to 43).

211

Infrastructure investments will need to be based on a long-term understanding of their climate and other impacts. For example, coal is the energy source which emits the largest relative amount of greenhouse gases (see Figure 8). Investments in any new coal mines and coal-fired plants would lock energy companies into using these assets for decades, with no certainty that efficient and effective technology will be available to capture or to limit their greenhouse gas emissions (see paragraph 56). In addition, such investment would lead to further overcapacity in a saturated market (see paragraph 74), thereby leading to further difficulty in attracting investments in renewable energy capacity.

212

Existing assets may need to be shut down earlier than anticipated – becoming what is known as ‘stranded assets’ because of an increase in carbon price or a change in climate or energy legislation. Such investments, for example, in coal or nuclear plants, are often concentrated in certain regions which may heavily depend on the economic activity and jobs arising (see paragraph 77). This creates a need for planning social adjustments, when closures of established energy industries are necessary to support the energy transition.

213

Apart from its effects on mitigating climate change, the energy transition can offer benefits in areas such as air quality improvement, reduction of import dependency and growth through green jobs has to be taken into account.

4. Using research and innovation effectively

214

Achieving longer term energy and climate targets will require new technologies to be developed and used widely in several sectors (see paragraphs 128 to 129). Research and innovation must therefore play a key role in transforming the EU into a low-carbon society by delivering better performing and cost-competitive low-carbon technologies. Much progress has been achieved – for example, in renewable energy technologies – but there is still significant potential for further developments. The power sector will also require better and more cost-efficient energy storage and carbon capture technologies, such as for remaining gas-fired plants (see paragraphs 56 and 76). Achieving significant emissions reductions in transport will require the development of alternative fuels (see paragraphs 97 to 102), but vehicles using such fuels still suffer from technical constraints, such as limited range, and high costs.

215

It often takes many years for a new technology to become usable on an industrial scale. Therefore, extensive progress in developing the technologies needed to reduce emissions between 2030 and 2050 will have to be made in the next decade. There is currently no certainty that such future technological breakthroughs will be both technically possible and widely, economically accessible by 2030 (see paragraph 187). The EU is still a major centre for climate change mitigation innovations and investments in research and development. Worldwide investment in renewable energy has resulted in decreasing costs and significant growth. However, in some fields, the EU still has a ‘deployment deficit’, as it struggles to commercialise promising, energy-related innovations (see paragraph 130).

216

Energy innovation depends upon contributions by a wide range of stakeholders, from companies and consumers to local, regional and national authorities, to EU institutions. Market design and public authorities play a major role in providing an innovation-enabling environment. Public financing often plays only a relatively small part in this, but can still be key in certain fields such as early-stage innovation. The ECA’s 2016 audit showed that the target of planning to spend 35 % of the Horizon 2020 budget on climate action was at risk (see paragraph 188).

5. Planning for and tackling adaptation

217

The effects of climate change are already being experienced. Climate change will affect EU citizens in many ways, including increased incidence of droughts and flooding, forest fires, effects on food production, damage to private and public infrastructure and demands for greater protection, changing health risks, impacts on employment, migration, etc. (see paragraphs 118 to 122). The EU and Member States need to plan to adapt. The Paris Agreement is the first international treaty which recognises the need for adaptation to climate change (see paragraph 19). In 2013, the EU had already prepared an adaptation strategy and invited Member States to prepare their own national strategies (see paragraph 124).

218

Climate, environmental, societal and economic models can be used to describe and forecast the impacts of climate change. This is an important but challenging task (see paragraphs 138 to 139)³⁰⁶. For example, sea level rises or the desertification of some regions could trigger population movements within and to Europe (see paragraph 122). It will be a great challenge for the EU and Member States correctly to anticipate and plan adaptation, reducing the need to act late, in response to events, which would cost more and put unforeseen pressure on public budgets.

6. Financing

219

In order to reach the EU’s 2030 climate and energy targets, the Commission has estimated that about 1 115 billion euro investments will be needed annually over the 2020-2030 period: mostly in transport and in the residential and services sector (see Box 8). These investments in climate change mitigation will need to come from both public and private sources. In the case of regulatory or market failures, states may step in, as they have done in the case of renewable energy (see paragraph 75), helping to contribute to the global growth of this new industry and the resultant significant decrease of the cost of renewable energy (see paragraph 64). A more robust carbon price would also be a powerful tool, with the potential to stimulate more private investment in low-carbon assets and energy efficiency (see paragraph 32).

220

The costs of adapting to climate change are difficult to predict (see Box 8), even more so the likely benefits of adaptation investments, posing challenges for the traditional assessments of value for money audit, cost-benefit analysis, and performance monitoring. Adaptation requires long-term planning and decisions about major infrastructure, such as water supply infrastructure, irrigation systems and flood defences. In the absence of the right incentives, market forces and conventional cost-benefit analyses may not lead to the optimal investments for such long-term adaptation measures. Public funding may need to be mobilised on a large scale to overcome market failures. But private-sector companies should also invest substantially in adaptation, because it is in their long-term interest to be climate-resilient and to explore the associated new business opportunities (see paragraph 136).

221

In the energy sector, one key challenge faced by the EU and the respective Member States is the decommissioning of nuclear power plants. In the EU, 90 nuclear power plants have already been shut down, but are not yet decommissioned. A further 50 currently operational reactors are estimated to be shut down by the end of 2025. According to the Commission, estimated total cost for the management of spent fuel and radioactive waste is about 400 billion euro (see paragraph 59).

222

A recent ECA audit of nuclear decommissioning in three EU Member States found that total estimated costs would double if the cost of final disposal of high-level waste and spent fuel were included (see paragraph 163). According to a Commission report, concepts for disposal of intermediate level waste, high-level waste and spent fuel, such as site selection or development of design, are not specific in most of the Member States (see paragraph 59).

223

Decommissioning nuclear power plants and disposing of nuclear waste is therefore a pressing and costly challenge for the EU and its Member States. However, it also provides many opportunities for business and employment (see paragraph 58).

7. Involving EU citizens

224

The transition to a low-carbon economy will affect all sectors of the economy and society. It will affect how citizens live, travel, consume, plan and invest. In 2014, direct households’ emissions represented 24 % of greenhouse gas emissions³⁰⁷. Consumption choices influence many other sources of greenhouse gas emissions. The integration of the citizen in the energy transition is now seen as essential, both for understanding, endorsing and paying for necessary transitions, and also to encourage active participation. This will require changes in behaviour, for example, both in how energy is produced and consumed. EU citizens can directly reduce EU emissions, for example by purchasing energy-efficient homes, using energy-efficient devices (see paragraphs 85 to 87), producing renewable energy (see paragraphs 62 to 64), and using sustainable transport (see paragraphs 90 and 96).

225

Citizens can be engaged on individual, local, city, regional, national and European levels, but local administrations are often closest to them. They have much potential to engage more citizens through bottom-up actions and movements such as the ‘Covenant of Mayors for Climate & Energy’ (see paragraph 124).

This landscape review was adopted by Chamber I at its meeting of 21 June 2017.

Glossary and abbreviations

Adaptation to climate change: The process of adjusting to actual or expected climate change and its effects.

Anthropogenic emissions: Emissions derived from human activities, as opposed to those occurring naturally without human influence.

Carbon capture and storage (CCS): A set of technologies aimed at capturing, transporting, and storing CO₂ emitted from power plants and industrial facilities. The goal of CCS is to prevent CO₂ from reaching the atmosphere by storing it in suitable geological formations.

CO₂-equivalent (CO₂e): This unit is used to consolidate the volumes of all greenhouse gases in one single number. It represents the amount of carbon dioxide (CO₂) emissions that would cause the same climate warming, over a given period, as an emitted amount of a given greenhouse gas or mixture of greenhouse gases.

Cohesion Policy: EU policy aiming at improving economic, territorial and social cohesion within the EU by reducing the development gap among the various regions. Cohesion Policy is delivered through three main funds: the European Regional Development Fund (ERDF); the European Social Fund (ESF); and the Cohesion Fund (CF). Together with the European Agricultural Fund for Rural Development (EAFRD) and the European Maritime and Fisheries Fund (EMFF), they make up the European Structural and Investment Funds (ESIF).

Conference of the Parties (COP): The supreme decision-making body of the United Nations Framework Convention on Climate Change (UNFCCC). All States that are Parties to the Convention are represented at the COP, at which they review the implementation of the Convention and any other legal instruments that the COP adopts and take decisions necessary to promote effective implementation. The EU and its Member States are both Parties to the Convention, and take part in meetings of the COP.

Cost-effectiveness: The relationship between resources used and results achieved. High cost-effectiveness is a requirement of EU spending.

European Economic Area (EEA): The EEA provides for the free movement of persons, goods, services and capital within the European Single Market. It includes all EU Member States and Iceland, Liechtenstein and Norway.

Effort-sharing: The emissions reductions of the sectors not covered by the EU Emissions Trading System are regulated by the 2009 Effort Sharing Decision (ESD). These sectors include transport (except aviation and international shipping), agriculture and forestry, buildings and waste, as well as industrial sectors not covered by the EU Emissions Trading System.

Feed-in tariffs: Tariffs which guarantee continuous retail prices for renewable energy plant operators for a given period.

Global warming potential (GWP): Relative measure of how much heat a tonne of a specific greenhouse gas traps in the atmosphere in comparison to the amount of heat trapped by a similar mass of carbon dioxide.

Greenhouse gases (GHG): Gases acting as a blanket in the Earth’s atmosphere, trapping heat and warming the Earth’s surface through what is known as the ‘greenhouse effect’. The main greenhouse gases are carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O) and fluorinated gases (HFCs, PFCs, SF₆ and NF₃).

Intergovernmental Panel on Climate Change (IPCC): The leading international scientific body for the assessment of climate change. It was established by the United Nations Environment Programme (UNEP) and the World Meteorological Organization (WMO) in 1988 to provide the world with a clear scientific view on the current state of knowledge in climate change and its potential environmental and socioeconomic impacts.

Intermittency: Sources of energy which do not continuously produce energy due to some factor which cannot be directly controlled, are described as intermittent. For example, wind turbines do not produce energy when no wind is blowing. Solar power plants do not produce at night, or when a thick cloud layer hides the sun.

International aviation/international shipping: In this report, international aviation/shipping refers to flights/shipping between the EU and a non-EU country airport/port. This distinction is made because, in greenhouse gases inventories, the emissions of international aviation/shipping and intra-EU aviation/shipping are counted separately.

Land use, land use change and forestry (LULUCF): Introduced in the Kyoto Protocol in 1997, LULUCF is defined by the United Nations Climate Change Secretariat as a ‘greenhouse gas inventory sector that covers emissions and removals of greenhouse gases resulting from direct human-induced land use, land-use change and forestry activities’.

Mitigation of climate change: A human intervention to reduce the sources, or enhance the capacity of sinks, of greenhouse gases.

Nationally Determined Contribution (NDC): In the context of the Paris Agreement, all Parties have, on a voluntary basis, to propose national greenhouse gas emission reduction targets through ‘Nationally Determined Contributions’ (NDCs). On a regular basis, the Parties will hold facilitative dialogues to take stock of the collective efforts to progress towards the long-term goal and update their NDCs.

Renewable energy: Energy collected from renewable resources, which are naturally replenished on a human timescale, such as sunlight, wind, biomass and geothermal heat.

Retail energy prices and wholesale energy prices: Retail energy prices are the prices paid by the final consumer of energy. They include taxes, other surcharges and discounts which vary between Member States. Wholesale prices are prices paid to energy importers or producers by the providers that sell the energy products to final customers.

Sink: Any process, activity or mechanism that removes a greenhouse gas from the atmosphere.

Stranded assets: Assets that have suffered from unanticipated or premature closures, write-downs, devaluations or conversion to liabilities.

United Nations Framework Convention on Climate Change (UNFCCC): The United Nations Framework Convention on Climate Change (UNFCCC) is an international environmental treaty negotiated at the Earth Summit in Rio de Janeiro in 1992. The UNFCCC’s objective is to stabilise greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner. The UNFCCC is also the name of the United Nations Secretariat charged with supporting the operation of the Convention.

ECA team

This ECA Landscape Review considers broad themes on the basis of the Court’s research and accumulated knowledge and experience, and special reports by the ECA and other EU Supreme Audit Institutions since 2012. It is intended to serve as a basis for consultation and dialogue with the ECA’s stakeholders and for the future audit work of the ECA.

This report was adopted by Audit Chamber I which specialises in sustainable use of natural resources. The task was led by ECA Member Phil Wynn Owen, Dean of Chamber I. The head of task was Olivier Prigent, with Bertrand Tanguy as deputy head of task.

Contact

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More information on the European Union is available on the internet (http://europa.eu).

Luxembourg: Publications Office of the European Union, 2017

Print	ISBN 978-92-872-7572-1	doi:10.2865/929963	QJ-02-17-490-EN-C
PDF	ISBN 978-92-872-7578-3	doi:10.2865/38310	QJ-02-17-490-EN-N
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© European Union, 2017

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