On March 19 and 20, 2009 European Union leaders gathered in Brussels for the EU Spring Summit. A main topic of discussion at the meeting was Energy and Climate Change and the Presidency Conclusions adopted at the end of the Council meeting included several actions in this field.

This Client Alert also gives an update on several related EU initiatives such as the international climate change negotiations for the Copenhagen meeting in December 2009, current EU incentives for renewable energies, the strategic review of the EU's energy policy as well as the international financing of climate change (see EU Climate Change Package Adopted).

Spring Council

The EU Heads of State and Government agreed on the following elements, which can be found in the Presidency Conclusions adopted by the Council on 20 March 2009: 

• The Commission will present at the beginning of 2010 a proposal for a new EU Energy Security and Infrastructure Instrument. 
• The existing legislation on the security of gas will be revised this year. 
• The Energy Efficiency Package should be adopted by the Council by the end of 2009 and the Commission should propose a revised Energy Efficiency Action Plan as soon as possible (see on this point Commission Communication of 13 November 2008). 
• An agreement between the Council and the European Parliament on the third package for the Internal Energy Market is sought before the end of the European elections. 
• Importance of diversity of energy sources, including renewables. 
• Reaffirmation of the EU's commitment to a 30% emission reduction if a satisfactory international agreement on the issue is signed (see on this point the climate change package adopted by the European Parliament in December 2008 and expected to be formally adopted by the Council in April 2009 (see EU Climate Change Package Adopted). 
• Need for a global carbon market and a revised Clean Development Mechanism.

The Council postponed the adoption of its position on the international financing of climate change to its June meeting (see also section on this specific point).

EU Position for Copenhagen

The Commission adopted a Communication on the issue on 28 January 2009, the Environment Council and the General Affairs Council both offered their contribution to the Spring Summit on the issue but the "specifics of the EU's contribution" will be discussed further at the June Summit. No agreement has been reached at this stage. As a reminder, the main aspects of the Commission's position on the issue are the following:

• determination to reach an agreement in December 2009;
• willingness to work with other developed countries on reduction targets with a view to reaching a 30% emission reduction in 2020 compared to 1990;
• bilateral partnerships with the US and other developed countries;
• creation of an OECD-wide carbon market by 2015 and extension to more advanced developing countries by 2020.

The Council agreed with the substance of these 4 points in its Conclusions last week, even if it was not as specific as the Commission. It reiterated its objective of reaching an agreement and its commitment to a 30% reduction in case of a satisfactory international agreement. The Council also agreed on the importance of the transatlantic relationship in the fight against climate change and of a global carbon market.

Other elements were also included in the Commission's text but so far have not been endorsed by the Council: 

• work with developing countries in order to reach a reduction of 15-30% below business as usual in 2020; 
• readiness to provide a substantial financial contribution in support of actions by developing countries.

Renewable Energies Funding

Renewable energies being among the highest priorities for the 2007-2013 budgetary period, various funding opportunities are already currently available.

The Seventh Framework Programme (FP7) is clearly the most significant source of funding, with a combined contribution of over € 1.3 billion for 2007 and 2008. However, funding under FP7 is dedicated mainly to research activities and actions supporting research.

Other important sources of funding dedicated to the energy and environment fields include the Competition & Innovation Framework Programme (CIP), in particular the Intelligent Energy-Europe Programme (IEE), and the Structural Funds. Detailed information on the amounts available through these programmes is described below.

FP7 - Seventh Research Framework Programme (2007-2013)

The programme has a total budget of over € 50 billion for the period 2007-2013. The bulk of this is earmarked for cooperation research projects (€ 32 billion). Fundamental research will receive € 7.5 billion, the People Programme will be provided with funding of € 4.75 billion, the Capacities programme has € 4 billion and Euratom € 2.7 billion. FP7 will contribute in total up to a maximum of € 1 billion to the Risk-sharing Finance Facility (€ 0.8 billion from the Cooperation and € 0.2 billion from the Capacities (research infrastructures) parts of FP7), which will be matched by the same amount from the EIB.

Concerning individual projects, the basic principle of funding in FP7 is co-financing. This means that, in general, the Commission does not "purchase" research services by placing contracts and paying a price. Rather, it gives grants to projects, thus contributing a certain percentage to the overall costs.

CIP - Competitiveness & Innovation Framework Programme (2007-2013)

The CIP is divided into three operational programmes: Entrepreneurship and Innovation Programme (EIP), Information Communication Technologies Policy Support Programme (ICT PSP) and Intelligent Energy Europe (IEE).

The CIP has a total budget of over € 3.6 billion for the period 2007-2013:

• € 2,170 million for EIP (of which more than € 1,100 million is for financial instruments and € 430 million for promoting eco-innovation); 
• € 730 million for the ICT-PSP; and 
• € 730 million for the IEE programme.

EU cohesion policy: structural funds

Based on the information provided by the Managing Authorities of the Member States and regions during the planning phase of the programming period 2007-2013, the EU investment for innovation and research in 2007-2013 will be approximately € 86 billion, which corresponds to almost 25% of the total new envelope for the 27 Member States. Of this amount:

• € 50 billion is allocated to R&D and innovation in the narrow sense, including € 10.2 billion to RTD infrastructure and centres of competence, € 9 billion for investment in firms directly linked to research,
  
  € 5.8 for R&TD activities in research centres, € 5.7 billion for assistance to R&TD, particularly in SMEs, € 5.6 billion for technology transfer and the improvement of cooperation of networks, € 4.9 billion in developing human potential in the field of research and innovation and € 2.6 billion to assistance to SMEs for the promotion of environmentally-friendly products and production processes; 
• € 8.3 billion to entrepreneurship, including € 5.2 billion for advanced support services for firms and € 3.2 billion to support self-employment and business start-up (in addition to this, some € 13.6 billion is planned for other, not necessarily innovative, investments in firms); 
• € 13.2 billion to innovative information and communication technologies to foster the demand side of ICT, in particular € 5.2 billion for services and applications for citizens (e-health, e-government, e-learning, e-inclusion, traffic management, etc.) and € 2.1 billion for services and applications for SMEs (e-commerce, education and training, networking, etc.); and 
• € 14.5 billion to human capital, including € 9.7 billion for the development of life-long learning systems and strategies in firms, training and services for employees to step up their adaptability to promoting entrepreneurship and change; € 2.8 billion for the development of special services for employment, training and support in connection with restructuring and development of systems anticipating future skills needs and € 1.9 billion for the design and dissemination of innovative and more productive ways of organising work.

More than € 2 billion or 27% of the total available budget for territorial cooperation will go into research and innovation related activities.

Summary table of Energy, Environment and Transport Funds budgets in 2008

Second Strategic Energy Review

The European Commission recently announced plans to review its energy efficiency action plan adopted in 2006 after having noticed that to date only approximately a third of the 85 measures listed in the plan had been implemented.

Energy Commissioner Andris Piebalgs insists on the need to revise the action plan considering the extended scope of Community legislation introduced in this area in the past year (i.e. the extension of the product list for the Eco-design Directive; the recast Energy Performance of Buildings Directive; etc.) and also considering the Second Strategic Energy Review proposed in November 2008 and which aims to go beyond the 20% reduction in energy consumption by 2020 currently contained in the action plan.

The Commission is thus currently re-evaluating the action plan and will propose a revised version by the end of 2009. However, details of the content of the future plan have not yet been revealed.

In terms of funding, the European Commission recently indicated that it is currently investigating how to increase the impact of existing funds and developing proposals to address the issue of who will finance the ambitious energy efficiency measures.

The Commission is currently preparing, together with the European Investment Bank (EIB) and other financial organizations, the Sustainable Energy Financing Initiative which will help mobilize large-scale private funding for investment in energy efficiency as well as financing for cleaner energies.

Meanwhile, the EIB is set to increase its financing for climate change and energy infrastructure by as much as € 6 billion per year, while the European Bank for Reconstruction and Development (BERD) will double its efforts for energy efficiency, climate change and financing in municipalities.

Click here to review the Action Plan for Energy Efficiency adopted in 2006. 
Click here to review the Second Strategic Energy Review.

International Financing of Climate Change

Last week's European Heads of State and Government meeting should have given a strong message on the international financing of climate change. With the Copenhagen meeting less than 8 months away, a breakthrough on this vital aspect of the global deal needs to be achieved as quickly as possible.

The basis for the relatively weak Council conclusions can be found in the run up to the Council.

The European Commission attempted to push this issue forward by publishing its quite well received policy document, but without the figures which had been in (leaked) drafts.

Neither the Environment Ministers nor the Economic and Finance Ministers were in a position to put any figures on the rather vague commitment that the EU would pay its fair share.

Chief UN negotiator Yvo de Boer speaking in the media (FT) fears that a lack of quantified commitment on the part of the Europeans will damage preparations for Copenhagen as it will not induce developing countries to come to the negotiations. These countries are seeking reassurance that their commitment will be funded over the next decade by the main developed emitting countries. The EU was expected to set the ball rolling and to put pressure on the USA to match its commitment. The worst case scenario is that the makings of the deal will start to seriously unravel.

It is likely that the exceptional financial and economic crisis will in some way be blamed for EU deficiencies. Whilst it must be accepted that this is indeed a serious test not only of the ingenuity of those charged with coming up with solutions to rescue the global financial system but also of public finances, negotiators such as de Boer hope it also provides a rare opportunity to make substantial headway in greening the global economy.

The coming weeks will provide numerous opportunities for economic and finance ministers to mark out the new territory if they so wish.

Commentators anticipate advances will be made in May/June. The Commission is expected to present a detailed assessment to the June Ecofin meeting on private investment and public funding covering all aspects: mitigation, technology, REDD (Reduced Emissions from Deforestation and Degradation in Developing Countries) and adaptation as well as the policy implications: budgetary, macroeconomic and institutional, of such investment. Both the most senior economic and policy governmental advisors (EPC (Economic Policy Committee) and EFC (Economic and Financial Committee)) are charged with further work on coordinated or joint carbon auctioning and international financing.

This Alert is provided for your convenience and does not constitute legal advice. It is prepared for the general information of our clients and other interested persons. This Alert should not be acted upon in any specific situation without appropriate legal advice, and it may include links to websites other than the White & Case website. White & Case LLP has no responsibility for any websites other than its own, and does not endorse the information, content, presentation or accuracy, or make any warranty, express or implied, regarding any other website.

This Alert is protected by copyright. Material appearing herein may be reproduced or translated with appropriate credit.

©2009 White & Case LLP