Tackling climate change

The international scientific community is now in agreement that climate change, a genuine threat to the future generations, is largely the result of human activity.

According to the international scientific community the correlation between greenhouse gas emissions and global warming is incontrovertible proof of the link between the two phenomena. On the basis of this evidence, at the end of 2015 the European Union and 195 other countries signed the Paris Agreement during the United Nations COP 21 conference, a milestone in the global effort to combat climate change caused by man.

The Agreement, which came into force in 2016, commits signatories to adopt plans to reduce greenhouse gas emissions in order to keep the Earth's average temperature increase "well below" 2 °C and to take all possible actions to limit this increase to 1.5 °C; the plans adopted must be reviewed every 5 years on the basis of eventual variations from the forecasts

The Clean Energy Package for all Europeans

As far back as October 2014 the leaders of the European Union had set up the "Energy Union", which established three main goals to achieve by 2030: 
  • a reduction of at least 40% in greenhouse gas emissions (compared to the levels recorded in 1990);
  • at least 27% of the EU's final energy consumption deriving from renewable energy;
  • an improvement of at least 27% in energy efficiency. In November 2016 Europe subsequently renewed its commitment to achieving these targets through the adoption of the "Clean Energy Package for all Europeans" (CEP), a series of regulations and directives to make the decarbonisation of energy across the continent a reality.

The CEP consists of eight legislative proposals destined to come into force as of 1 January 2021 including, in particular, the revised renewable energy directive, the Energy Union Governance regulation proposal, the revised internal electricity market directive and a directive regarding common regulations in the internal electricity market. It took over two years of negotiations between the European Commission, the European Parliament and the European Council to draft the regulations; all of the texts have now been consolidated and a large number of the measures have been officially published.

In terms of ERG's business activities, the most interesting parts of the CEP are:
1. the recast Renewable Energy Directive to 2030 (REDII);
2. energy union governance regulation;
3. market design, i.e. the updating of the Electricity Market Directive and Regulation.
  • The European Directive
    The current Renewable Energy Directive was recast according to the new time horizon of 2030. The revised version was published in the Official Journal of the European Union in December 2018 and should be transposed into the national legislation of Member States by June 2021.

    In terms of content, the new Directive introduces the following elements: 
    • a binding renewable energy target for the EU of 32% of gross final consumption by 2030, higher than the Commission's initial proposal of 27%;
    • confirmation of the possibility of supporting renewable energy generation through competitive and non-discriminatory mechanisms;
    • specific provisions designed to guarantee the stability of support schemes, to protect the profitability of plants and to avoid retroactive changes;
    • the commitment to developing Corporate Power Purchase Agreements, long-term procurement contracts for energy produced from renewable sources;
    • new measures to facilitate and streamline the permitting process with specific focus on the repowering of existing renewable energy plants (maximum duration of the procedure 1 year and 2 years only in exceptional cases);
    • a new regulatory framework for Guarantees of Origin by which these are issued and made available to electricity producers.
  • Governance
    The Regulation on the Governance of the Energy Union provides practical information on the obligations of Member States with regard to achieving their 2030 renewable energy targets. This Regulation was also published in the European Union Official Journal in late December and is immediately applicable among Member States, without any need for transposition.

    It introduces the obligation for Member States to draft National Energy and Climate Plans which define volumes, timeframes and practical implementations of the individual energy/ environmental ambitions of each Member State through to 2030.

    The National Energy and Climate Plan proposal was sent by Member States to the European Commission by the first few days of 2019. According to the timetable, the Commission will provide Member States with feedback by June 2019; the final version of the Plan must then be sent to Brussels, reviewed and corrected, by 31 December 2019.
  • Market Design
    The updating of the Electricity Market Directive and Regulation constitutes the so-called Market Design. The main aspects of the measures are:

    1. the reform of the wholesale electricity market with the aim of promoting the flexibility of the electricity system in order to better support the generation of intermittent renewable electricity;

    2. the introduction of new emission limits as part of the capacity remuneration mechanisms (CRM) which drive a reduction in coal-powered plants and the elimination of permanent incentives for the continued use of obsolete technologies;

    3. new electricity dispatching rules with the aim of prioritising the dispatching of renewable energies and the opening up of network service markets to these energies;

    4. the creation of the necessary market conditions for the adequate development of electricity storage systems.

The Italian National Energy and Climate Plan Proposal (PNEC)

On the basis of the 2017 National Energy Strategy (Strategia Energetica Nazionale, SEN) and the provisions of the aforementioned Governance Regulation, on 8 January 2019 the Ministry for Economic Development, together with the Ministry for the Environment and the Ministry for Transport, presented the integrated Italian National Energy and Climate Plan proposal (Piano Nazionale integrato per l'Energia e il Clima, PNEC) to the European Commission (EC).

The PNEC aims to define the national goals, policies and lines of action that Italy intends to put into practice between now and 2030 to contribute to achieving the 2030 climate and energy goals adopted at European level. The draft undergoes Strategic Environmental Assessment (SEA) and, in parallel, the various parties involved are widely consulted also through a dedicated internet portal.

The PNEC is structured according to the 5 dimensions already identified by the Clean Energy Package and SEN: Decarbonisation, Energy efficiency, Energy security, the Internal energy market, Research, innovation and competitiveness. It also identifies a number of priority measures common to each of the 5 dimensions:
• the development of electric RES in particular PV and Wind – phase out of coal by 2025;
• the prioritisation of measures designed to limit the consumption of soil, the continuity/ repowering of existing RES farms while protecting the landscape;
• streamlining of the permitting process for investments required for the transition and stability of the regulatory framework;
• electrification of energy demand (transport, civil);
• evolution of the energy system from centralised to distributed with self-consumption and RES;
• R&D focused in particular on the storage of energy from RES;
• energy efficiency also in civil engineering and public administration;
• updating of the public governance of the environment and energy on the basis of the carbon-neutral concept;
• assessment of any additional transition tools (e.g. environment tax).

The PNEC sets goals for 2030 in terms of
• the percentage of final energy consumption deriving from renewable sources;
• energy efficiency;
• the reduction of greenhouse gas emissions largely in line with those of the SEN: 30% of final gross energy consumption from renewable energy - which translates to 55.4% for the electricity sector thanks mainly to wind and photovoltaic technologies – and a 43% reduction in energy consumption compared with the PRIMES model of 2007.

The growth trend in electric RES proposed by the plan involves a non-linear profile: slower growth until 2025, faster afterwards (as foreseen by the SEN) due to the rallying effect of solar energy, while the growth of wind energy will be quicker from the outset. Compared with the economic situation under current policies, the PNEC proposes to make investments of around EUR 184 billion, EUR 52 billion of which in the electricity sector. The planned investments should also create an average of around 115,000 temporary jobs a year in the 2017-2030 period - 18,000 in the electricity sector – as well as around 6,700 permanent jobs in the electricity output sector, net of the departure of fossil fuels and bio energies from the sector.

EU-ETS scheme: review of the ETS directive

The EU emissions trading system (EU ETS) was launched in 2005 to promote reductions of greenhouse gas emissions in a cost-effective and economically efficient manner. The system sets a limit on the amount of greenhouse gases that can be emitted by heavy energy-using industries, energy producers and airlines. Emission  allowances are capped by the EU and businesses can buy or receive individual allowances.

The cap is reduced over time so that total emissions gradually fall. The ETS system is regarded as the European Union's main tool for meeting its greenhouse gas emission reduction targets for 2020 and 2030. In recent years the economic crisis has contributed to a fall in emissions and a reduced demand for emission allowances. Together with other possible factors, this has led to a fall in coal prices and the accumulation of large numbers of excess allowances in the system with the risk that the EU ETS is not able to provide incentives to reduce emissions in a cost-effective way or to drive low-carbon innovation.

This market situation, together with the need to adapt the system to the 2030 decarbonisation targets, have made the structural review of the system a necessity ahead of the fourth phase of the Emission Trading System between 2021 and 2030. After over two years of discussions, in March 2018 the Official Journal of the European Union published the new Directive 2018/410 (EU), which amends Directive 2003/87/EC (the ETS Directive). Member States are required to transpose the regulation by 9 October 2019.

To speed up the emission reduction process, as of 2021 the total amount of emission allowances will fall at an annual rate of 2.2% compared with the current rate of 1.74%. The market stability reserve (MSR) - the mechanism introduced by the EU to reduce the surplus of allowances on the carbon market and to improve the resilience of the ETS to future shocks - will be significantly strengthened. Between 2019 and 2023 the quantity of allowances in the reserve will double to 24% of the allowances in circulation.

The regular feeding rate of 12% will be restored as of 2024. As a long-term measure to improve the functioning of the system and if not otherwise decided during the first review of the market stability reserve in 2021, as of 2023 the number of allowances in the reserve will be limited to the previous year's auction volume. All allowances held in the system above this quantity will no longer be valid. The amended EU ETS Directive contains predictable, strong and fair regulations to combat the risk of transferring CO2 emissions. The system of free allocation will be prolonged for another decade and has been revised to focus on sectors at the highest risk of relocating their production outside of the EU.

These sectors will receive 100% of their allocation for free. For less exposed sectors, free allocation shall be phased out after 2026 from a maximum of 30% to 0 at the end of phase 4 (2030). A considerable number of free allowances will be set aside for new and growing installations. This number consists of allowances that were not allocated from the total amount available for free allocation by the end of phase 3 (2020) and 200 million allowances from the MSR. Finally, more flexible rules have been set to better align the level of free allocation with actual production levels. Overall, more than 6 billion allowances are expected to be allocated to industry for free over the period 2021-2030.

Climate Change: a sustainable approach to development

Climate Change: a sustainable approach to development

At the event "Climate Change: a sustainable approach to development" that we organized at the headquarters of Civita in Rome on July 6, we presented the 2015 edition of our Sustainability Report. After ERG Group's Chairman, Edoardo Garrone, introduced the event, Mario Tozzi, a geologist and science writer, gave his keynote speech, dedicated precisely to the issues of climate change.

Columnist Enrico Cisnetto moderated  the round table discussion with Luca Bettonte, CEO of the ERG Group, Walter Ganapini, Director General of ARPA Umbria, Mario Molteni, Professor of Business Economics at the Università Cattolica del Sacro Cuore of Milan and Scientific Director of CSR Manager Network Italy, Rossella Muroni, President of Legambiente and Edo Ronchi, President of the Foundation for Sustainable Development.

The conclusions were drawn by Ermete Realacci, President of the Commission for Environment, Land and Public Works of the Chamber of Deputies.

We followed the event with our live tweeting and a live Periscope broadcast on our @ergnow Twitter channel.