Energy subsidies and renewable energy targets

Bonn, 3 June 2004

Energy subsidies and renewable energy targets

Speech by Professor Jacqueline McGlade
Executive Director, European Environment Agency

International Conference for Renewable Energies, Bonn, Germany 3 June 2004

Good afternoon,

The European Environment Agency is dedicated to providing sound independent information on the environment, so that the European Union and our member countries can make informed decisions about improving the environment, integrating environmental considerations into economic policies and moving towards sustainability. We have 31 member countries, the 25 EU Member States, the three candidate countries and the three member countries of the European Economic Area. This afternoon I will focus my statement on energy subsidies and on renewable energy targets.

We have compiled information on energy subsidies across the previous 15 EU Member States and prepared, for this conference, a report on energy subsidies in the EU. Although consistent subsidy data are not yet available on which to evaluate the appropriateness of the subsidies for the different fuels, there are a number of things we are able to say.

The European Community and the EU-15 Member States together provide almost 30 billion Euros a year to the energy sector in different forms of support: cash transfers, tax exemptions and rebates, regulatory support mechanisms, price controls, trade restrictions etc. 30 billion Euros is a significant amount. It represents almost a half percent of the EU-15's GDP. It is obvious that this level of subsidy makes it important to ensure that their effects reflect the interests of society as a whole.

Both at EU and at international level we are committed to moving away from environmentally harmful subsidies. To begin to do so we need to agree on what constitutes an energy subsidy and look to a harmonised reporting framework.

Two thirds of the energy subsides in EU-15 (almost 22 billion Euros) go to support fossil fuel production and consumption, while 1/6 (or 5 billion Euros) goes to support renewable energies. From an environmental perspective, the level of support to fossil fuels remains high. Support for renewable energy is however increasing steadily and is now significantly higher on a per unit of energy basis than for other fuels. In this regard the EU-15 states seem to have recognised that renewable energy is a much less mature industry with greater need for technological and market support.

Energy market liberalisation and privatisation in Europe have led to lower energy prices, greater price volatility and increased commercial risk for new capacity investment across all fuel types. Energy planners have begun to voice concerns over current limited levels of private sector investment in new capacity, given projected energy demand growth over the next 30 years. These concerns are heightened by the projected retirement of a substantial number of fossil-fuel fired plants in the EU-15, where any delay in decommissioning will make it more difficult to reduce greenhouse gas emissions in accordance with our international obligations.

Renewables can play a role in reducing greenhouse gas emissions and securing energy supply. These benefits are reflected in the indicative EU renewable energy targets for 2010. These targets will, however, not be met at current levels of political and financial support.

Unlike government, individual companies carry little or no obligation to address long-term energy security of supply or environment challenges. It is the responsibility of governments to ensure through market pricing and legislative frameworks that the market responds to these concerns. Governments would be prudent to value the environmental and security of supply benefits of renewable energies, and to set long term price signals for industry development that reflect these benefits.

A final point on renewable energy targets:

As I said, the European Union has set renewable energy targets for 2010. Although with the current policies and measures in place we have difficulties in meeting these targets, the sheer fact of having targets has brought us to higher levels of renewables than otherwise would have been the case. I do believe this is an important positive message for us to take away.

However, markets need long-term investment security, which is why it is important to also set 2020 targets.

The European Environment Agency will be examining in the coming years a set of such targets for Europe for 2020 from an environmental perspective to support Europe's policy makers.

Thank you for your attention.