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Enel and the global perspective on climate change

  • GRI
    

The United Nations Framework Conventions on Climate Change: from the COP21 to the COP25

The agreement reached during the 2015 United Nations Climate Change Conference in Paris (COP21) marked a fundamental step forward in the combat against climate change. The conference resulted in a plan to control climate-altering emissions over the medium and long term, with the support of a solid regulatory governance, which has traditionally been uncertain due to continual political changes.

The main aim of the agreement is to limit the increase in global temperature to below 2 °C and to strive not to exceed 1.5 °C.

In November 2016, COP22 was held in Marrakesh. Participants made progress with the technical discussions on procedures to implement the Paris Agreement for post-2020 and the strength of the political commitment following Paris Agreement was confirmed.

In the short term, implementing instruments will be necessary for the continuity of the operations and to ensure stability for longterm investments. However, 2017 was the year of the COP23, which was held in Bonn and looked at issues regarding the transparency of monitoring, reporting and verification procedures and the criteria for periodic assessment and the potential updating of the relevant targets.

The COP24, the last climate conference organized by the UN in Katowice, Poland, ended on December 15, 2018, the aim was to implement the Paris Agreement through a series of clear rules for assessing the commitments made by each individual country with a view to tackling climate change.

This goal was achieved with the unanimous approval of the so-called “Paris Rulebook”, as required by the regulation, which actually outlines the criteria for reporting, monitoring and reviewing the commitments made. On the other hand, as announced in the COP24 closing statement, COP25 will take place in Chile in December 2019.

The Enel Group recognizes the vital role that the private sector must play in upholding the shared commitments made in the framework of the various COP meetings held over the years. In particular, the transformation in the energy sector are heading precisely in this direction and there is no turning back: the trend is toward a system that relies increasingly on renewable energies, decarbonization, energy efficiency and digitalization.

Enel is leading this transformation and is fully aware of the positive contribution that such events driven by the United Nations can make to tackle climate change.

Thus, the Group supports them every year, participating in and running various events and discussions relating to the energy transition, continuously promoting the development of ambitious targets and requesting governments to introduce clear climate guidelines that will contribute to achieve a low-carbon economy by 2050.

The regulatory framework on climate change in 2018

Regulation greenhouse gas emissions

The European Parliament and the Council formally approved a review of the EU’s ETS Directive for the 2020-2030 period, which then came into force on April 8, 2018. In order to meet the target of an overall reduction in greenhouse gas emissions of 40% by 2030 in relation to 1990 levels, those sectors involved in the EU’s Emissions Trading System (EU-ETS) will need to reduce their own emissions by 43% in relation to their 2005 levels. The new ETS Directive will make this possible through a series of interrelated measures. In order to accelerate the emissions reduction process, the overall number of emission permits will be reduced as of 2021 at an annual rate of 2.2%, as opposed to the current rate of 1.74%. The market stability reserve (MSR) – the mechanism introduced by the EU to reduce the abundance of emission permits on the market and improve the resilience of the ETS to withstand future shocks – has been substantially reinforced.

The "Cliean Energy for All Europeans" legislative package

On November 30, 2016, the European Commission released the “Clean Energy for all Europeans” legislative package containing a series of legislative proposals regarding European policy on climate and energy. The package notably contained the following Regulations and Directives, some of them revised, others brand-new: The Electricity Regulation, the ACER Regulation, the Risk-Preparedness Regulation, the Energy Union Governance Regulation, the Electricity Directive, the Renewable Energy Directive, the Energy Efficiency Directive and the Energy Performance in Buildings Directive. 

The most relevant Directives and Regulations to the electricity sector are as follows:

  • Review of the European Directive and Regulation on the domestic electricity market- On December 19, 2018 the European Parliament and Council of the European Union reached a political agreement on two of the main dossiers relating to the “Clean Energy for All Europeans” legislative package released on November 30, 2016, namely the European Directive and Regulation on the domestic electricity market. The agreement that the European legislators reached represents a major milestone with regards to the updating of the Community regulatory framework and that of the Member States with a view to efficiently incorporating renewable sources and new technologies into the electricity system, standardizing the functioning of the markets, providing efficient indications with regards to investments and guaranteeing that customers are put at the heart of the matter;
  • Directive EU 2018/2001 on the promotion of the use of energy from renewable sources - The new directive on the promotion of the use of energy from renewable sources produced by the European Parliament and the Council of December 11, 2018 was published in the Official Journal of the European Union on December 21, 2018. The primary objective of Directive 2018/2001, which abrogates Directive 2009/28, is to accelerate the energy transition in favor of developing renewable energies. With this in mind, the directive sets a new binding European target for 2030 of energy from renewable sources accounting for at least 32% of the Union’s gross final energy consumption, including a provision for this figure to be revised upwards by 2023
  • Directive EU 2018/2002 on energy efficiency - The new directive on energy efficiency produced by the European Parliament and the Council of December 11, 2018 was published in the Official Journal of the European Union on December 21, 2018. The directive sets a new European energy efficiency target for 2030 of at least 32.5% in relation to the baseline scenario, including a provision for this figure to be revised upwards by 2023. It also places an obligation on Member States to achieve an annual reduction in final-use energy consumption of 0.8% over the 2021-2030 period that must be adhered to through a series of mandatory schemes involving energy operators or alternative measures. The Member States must adopt the provisions of the directive by June 25, 2020;
  • Directive (EU) 2018/844 on the energy performance of buildings - Directive (EU) 2018/844 on the energy performance of buildings, which modifies the previous directive on the matter and part of the directive on energy efficiency, came into force on June 9, 2018. The new directive provides that each European Union Member State introduce a long-term strategy to support the renovation of the country’s residential and non-residential buildings in both the public and private sectors with a view to achieving a decarbonized and highly energy-efficient building stock by 2050;
  • Regulation (EU) 2018/1999 on the Governance of the Energy Union and Climate Action - The new Regulation (EU) 2018/1999 on the Governance of the Energy Union and Climate Action was published in the Official Journal of the European Union at the same time as the directives on the promotion of the use of energy from renewable sources and on energy efficiency. This regulation introduced a governance mechanism aimed at achieving the Community objectives regarding greenhouse gas emissions in accordance with the Paris Agreement and the Community objectives for 2030 with regards to energy and climate. The Regulation also seeks to ensure greater regulatory certainty as well as greater certainty for investors.

"Clean mobility" legislative package

The European Commission completed the release of the “Clean mobility” package it began working on in 2017 during 2018. The package comprises three parts, the first two of which were published in 2017 and the third in May 2018, and contains a series of legislative proposals and other initiatives designed to make traffic safer, reduce CO2 emissions and air pollution, and support the development of zero and low-emission vehicles and the creation of a European battery production network.

Enel's positioning

The decision-making and regulatory processes of the European Union (EU) are shaping the current energy transition. This, in turn, has an effect on companies’ business models and on the behavior of consumers and citizens, and directly impacts national legislation in the countries where the Group operates. Furthermore, given its transnational nature and current global challenges, the European legislative process is becoming increasingly complex, requiring ever closer cooperation between the EU institutions and other stakeholders.

With all this in mind, Enel decided several years ago to introduce a Europe and Euro-Mediterranean Affairs Function to monitor relevant topics and represent the Group before institutions, organizations, associations and other active counterparts at European level. One specific unit is responsible for consolidating and representing the Group’s position on policies relating to climate change, low-carbon policies, international regulation of the carbon market, the environment, and security of supply. This unit also allows Enel to support climate protection initiatives and continue to engage institutional stakeholders, trade associations, non-governmental organizations and the academic world. This sort of engagement with stakeholders also helps to develop the European regulatory framework towards ambitious climate targets. It also guarantees a certain coordination between the various business areas and the various countries in which the Group operates with a view to ensuring that all regulatory processes, at both national and European level, of which the company is encouraged to be part are fully in keeping with Enel’s strategy for promoting a low-carbon energy model and the electrification of energy demand.

To that effect, and with reference to the EU’s ETS Directive, Enel recognizes the role of the Directive in providing an adequate price signal associated with CO2 emissions and believes the “cap and trade” mechanism to be the most effective way of reducing emissions, particularly in the case of industrialized economies, since setting a target in terms of absolute value ensures that the environmental target can be applied whilst the price signal set by the market guarantees economic efficiency. Enel therefore welcomes the outcome of the EU’s ETS Directive for the 2021- 2030 period and considers the latter to be the basis for the EU’s climate policies, supplemented with other policies that make it possible to achieve climate targets whilst at the same time protecting the competitiveness of the EU. The obligations imposed by the EU’s ETS system have been largely integrated into Enel’s long-term strategy aimed at achieving decarbonization by 2050 by increasing renewable capacity and gradually reducing thermal capacity. In this respect, a price signal that is stable in the long-term for investments in low-carbon technologies and consistency between European and national policies are vital to strengthening the role of the EU’s ETS in driving a reduction in emissions. Furthermore, the EU’s ETS system allows to use a framework that is already standardized at EU level and that guarantees technological neutrality and the equal treatment of market operators. Based on these considerations, the Enel Group does not support the introduction of national taxes on CO2 (or carbon price plans) in sectors covered by the EU’s ETS since this would significantly distort competition within the EU single market and increase the overall cost of achieving the desired environmental outcome.

Over the course of 2018 Enel took part in various public consultations, meetings, conferences, workshops and other events relating to the “Clean Energy for All Europeans” legislative package, welcoming the acknowledgment of energy efficiency as a key pillar of the low-carbon energy transition and helping to establish a reliable system for the purposes of increasing renewable energies. In this respect, Enel firmly believes that energy efficiency is vital to decarbonizing economic systems and that the switch to electricity as a more efficient energy carrier plays an important role in achieving energy efficiency targets. Many sectors (including the residential, tertiary, industrial and transport sectors) have developed highly efficient and mature electrification technologies, often with negative greenhouse gas abatement costs and substantial fringe benefits. Nevertheless, their commitment is hindered by the presence of major non-economic barriers.

In this respect, the Enel Group continues to call for action in tackling non-economic barriers complemented by an incentivizing regulatory framework to encourage the penetration of efficient electrification technologies within the market.

2018 was a significant year for European energy efficiency policy, not least because it saw the publication of the review of the Directive on energy efficiency, but efforts in this respect must be continued and stepped up.

Enel supports the binding targets set by the new directive on renewable sources as they are fully aligned to Enel’s investment strategy, of which renewable energies is one of the main drivers. Enel also supports the call for Member States to remove obstacles to the development of PPAs (Power Purchase Agreements) – a mechanism widely used by Enel Green Power in other countries such as United States and Mexico – and to promote the adoption of this mechanism throughout Europe. Furthermore, the Group welcomes and supports the Regulation on the Governance of the Energy Union inasmuch as it provides clarity, credibility and stability with regards to the framework for energy and climate policy, as well as involving low-carbon investment by the energy sector.

Finally, the package on mobility is naturally part of European commitments to the Paris Agreement, and to that effect, Enel welcomes the guidelines and targets set in this respect, based on a belief that they will bring with them business opportunities in the electricity sector and contribute to creating jobs and generating sustainable economic growth. Enel therefore played an active role in various work programs aimed at developing electric mobility initiatives and promoting sustainable transport as a whole in 2018.