A leaked Commission document assessing the effects of a strengthened 2020 climate target was seen today by Sandbag. Arriving a week ahead of an important Environment Committee vote on the 2050 Low Carbon Roadmap, the leaked paper contends that it is in Europe's economic interests to strengthen its 2020 carbon target to affordably meet its longer term climate commitments.

The Commission is particularly keen to highlight dangers within the EU Emissions Trading System, stating that "falls in the emissions of the ETS has paradoxically increased the risk of Europe getting locked into new high carbon investments [leading] to higher mitigation costs after 2020". This echoes warnings in much of Sandbag’s analysis, and was captured in the title of our 2010 ETS report "Cap or Trap?".

Economic modelling by the Commission suggests that this increase in domestic ambition will cost an additional €25 billion in "system costs" in 2020 while purchasing a further 5% of reductions through international offsets in order to reach a 30% target would cost a further €8 billion. This makes the price of a move to 30% some €33 billion up from current commitments in the Climate and Energy Package.

It is difficult to disaggregate exactly what these costs involve, but analysis within the report shows that in most cases, additional energy investment is more than offset by fuel savings. The report finds the EU as a whole would be required to spend an additional €18bn annually over 2016-2020, while saving €20bn a year in fuel.

In addition the paper explicitly states that the €25 billion spent on domestic emissions reductions does not factor in the co-benefits from decreased air pollution, which it calculates will save Europe €6.1-10.6 billion annually by 2020 . This potentially reduces the bill to around €14 billion that year. These air pollution co-benefits represent ongoing savings to Europe, as well as extending the collective European lifespan by over 3 million years.

The Commission is also keen to highlight options to minimize the costs of the transition to a higher target for "Lower Income Member States", exploring a combination of measures which could keep these costs below 0.02% of their GDP in 2020. The paper proposes devoting more of the European Budget (especially the Cohesion Fund) to assisting their decarbonisation; it emphasises opportunities to trade non-ETS reductions under the Effort-Sharing Decision, and proposes that the required adjustment to the ETS cap are made through reducing the auctioned permits for higher income states only. On this last measure, the Commission calculates that it would generate additional revenues of €1.9 billion to the higher income states in 2020, while generating €5.4 billion additional revenue for the smaller income states up 83% from the existing package. The paper highlights that lower income states would need to auction their permit entitlement to fully benefit from this revenue, and discourages them from handing out too many free permits to their electricity sectors.

The overall changes to the ETS assumed in the Commission's model are not clear, however they do explain that it presumes emissions cuts of 34% in the traded sector (inclusive of aviation) by 2020, and that this amounts to removing 341Mt from the current 2020 budget. Assuming this reduction is achieved by removing steady increments over 2014-2020 this amounts to a withdrawal of 1.36Gt from the Phase 3 budget.

Such an intervention in the ETS corresponds closely to proposals being voted on in the EU Environment committee next week, and due also to be voted on as changes to the Energy Efficiency Directive by the Industry Committee next month. In fact, the Environment Committee has already passed these in its December vote on the Energy Efficiency Directive.

The Commission clearly finds the evidence base for a higher climate target and a tighter ETS cap compelling, but needs a clear signal from Parliament that it will support action to achieve this. The upcoming votes provide an excellent opportunity for them to do so.