European masterplan

The European Commission has officially unveiled its much-anticipated (and much-leaked) energy package, containing cross-continental proposals on how to reach the targets agreed last year. The headline figures are to cut CO2 emissions by at least 20% by 2020 (rising to 30% if global targets can be agreed), and to source 20% of energy supply from renewable generation.

The primary mechanism is the extension of the EU Emissions Trading System (ETS). The first phase of this programme was a less than spectacular success, with too many permits doled out by compliant national governments to favoured power generators. The extended scheme, beginning in 2013, will include full auctioning of permits to the power sector which (economists say) will help maintain a realistic price and thus achieve genuine emission reductions. Auctions will be phased in for other sectors including refineries and aviation.

Revenues from the permit auctions will partly go towards supporting innovation in renewables, carbon capture and storage, and other relevant R&D. This will be managed on a national basis - in the UK, distribution is likely to be managed by the Carbon Trust. As pan-European revenues from the ETS are projected to reach up to Euro50bn a year, this clearly has the potential to give European cleantech industry a huge funding boost.

The extended ETS should also be good news for companies supplying renewable energy or renewables installations to industry, and those offering the gamut of efficiency-improving products and services. Not forgetting the permit trading houses, of course.

The ETS will also be extended to cover greenhouse gases other than CO2 and involve all major industrial emitters. Year-on-year reductions will aim to reduce total emissions under the scheme by 21% from 2005 levels.

Net emission reductions of 10% are meanwhile mandated for industries not covered by the ETS, including buildings, transport, agriculture and waste. National targets vary, depending on the state of economic development, with rich countries facing tougher targets - the UK has a legally binding 16% target while Poland, for instance, is allowed an increase of up to 14% in non-ETS emissions.

The binding target for the share of renewables in energy supply also varies depending on national circumstance - the UK has a 15% target, while Sweden aims for 49%. Trading between nations is allowed - and nuclear doesn't count.

Controversially, the overall renewables target also includes a 10% biofuels target in each member state. The UK Environmental Audit Committee this week called for a moratorium on increasing the biofuel allocation until robust sustainability standards can be put in place. Most crop-based biofuels will have a tough time proving their sustainable credentials - cellulosic and algal fuels have a much stronger case, but are as yet some way from commercialisation.

Another point that may prove key for innovative cleantech companies is that state aid for renewable power generation schemes will be allowed, so long as it just covers the difference between production costs and market prices. That should help any national government which wants to boost its renewables industry.

It's a decent enough set of proposals, offering plenty of opportunities for cleantech companies. It's questionable whether the targets are tough enough - the stated aim is to cap the mean global temperature increase at 2°C. According to the latest science, that's probably rather naive. But the main thing now is to get the international mechanisms in place, and to develop the cleantech industries, that will allow further necessary reductions to be achieved.