EUROPEAN UNION: July 29, 2008


The European Commission in January presented draft reforms to the European Union's energy sector to aid the climate change fight, based on targets agreed by EU leaders last March.


France, which took over the EU presidency earlier in July, faces the tough task of balancing the interests of western European countries with those of eastern Europe, which fears emissions curbs will push up power prices and hurt growth.

Brussels hopes for an agreement among member states by the end of 2008 and European Parliament approval by March next year.

Following are the main elements in the EU plan and east European proposal:


OVERALL GOALS

* 20 percent reduction in emissions of greenhouse gases in 2020 compared to 1990 levels. The cut would be increased to 30 percent if there is an international climate change deal.

* 20 percent of energy demand to be sourced from renewables such as solar, wind, wave, hydro and biomass by 2020, versus 8.5 percent now.

* 10 percent of biofuels in transport fuel.


COSTS AND BENEFITS -- EUROPEAN COMMISSION

* Overall cost estimated at about 0.5 percent of GDP or 60 billion euros (US$86.53 billion) a year.

* Electricity prices to rise 10-15 percent by 2020.

* Reduction of energy imports worth 50 billion euros a year

* Reduced need for air pollution control, saving 11 billion euros a year by 2020.

* Spur innovation in energy sector, efficiency improvements, global political leadership on fighting climate change.


EMISSIONS TRADING FROM 2013-2020

* The trading scheme allocates fixed quotas of carbon dioxide (CO2) emissions permits to mainly energy intensive industries, but allows companies to trade the credits among themselves. The EU launched it in 2005.

* Emissions trading scheme (ETS) to be extended to more industries, such as chemicals and aluminium. Other greenhouse gases apart from CO2 to be included, covering 40 percent of total EU greenhouse gases in all.

* Quota of emissions permits to be cut by 21 percent from 2005 emissions levels.

* Full auctioning of emissions permits to the power sector.

* Propose by 2010 which energy-intensive industries should get free permits.

* National allocation plans for C02 emissions to be abandoned in favour of a single cap by sector for the whole EU, with member states receiving auctioning rights.

* Revenues from auctioning at about 50 billion euros (US$73.09 billion) annually by 2020, to go to member states, 20 percent of which should be used to combat climate change.


EAST EUROPEAN PROPOSAL

* A joint proposal by Poland, Hungary, Slovakia, Romania, Bulgaria, Latvia, Lithuania and Estonia seeks auctioning of permits for the power sector phased in from a starting level of 20 percent in 2013, increasing by 10 percent a year.

* Poland has said it would seek to build a blocking minority in the European Council.

* The Czech Republic said in March it opposed the auctioning plan. But Prague has not joined the Polish proposal so far.

* France says its approach would be not to change the auctioning system but to seek a major redistribution of proceeds to help east European countries modernise their energy sectors.


EMISSIONS OUTSIDE ETS

* Emissions from sectors not covered by ETS, such as transport, building, services and agriculture, to be cut by average 10 percent from 2005 levels in 2020.

* National targets will depend on GDP per capita and range from -20 percent to +20 percent of 2005 emissions. Bulgaria allowed to increase emissions by 20 percent; Denmark, Luxembourg to cut by 20 percent; Germany and France to cut by 14 percent.


RENEWABLES AND BIOFUELS

* Targets for power production from renewable energy sources to increase for all countries, taking into account ability to produce renewables.

* Biofuels to be used in at least 10 percent of road transport fuels by 2020, subject to environment rules.

* Key biofuels criteria: a real carbon emissions saving of at least 35 percent compared with oil; not from land of "high biodiversity" or high carbon stocks; must use best agricultural practices.

* Countries unable to reach their goals to be allowed to pay other EU states to produce renewables on their behalf.


PROMOTING CARBON CAPTURE AND STORAGE

* First rules and economic incentives to govern the capture, transport and underground storage of carbon.


GUIDELINES ON STATE AID TO PROMOTE ENVIRONMENT PROTECTION

* State aid for environment-friendly generation schemes will be allowed to cover the difference between production costs and market prices, capped by the project's overall cost. The EU normally bans state aid that distorts competition.


REUTERS NEWS SERVICE