The Dutch Climate Agreement Proposal: envisaged CO2 reduction and development of renewables in The Netherlands

On 10 July 2018, a proposal for the key elements of the Climate Agreement went to the Dutch Minister of Economic Affairs and Climate. This proposal sets out how the Netherlands plans to meet the requirements of the Paris Climate Agreement through a 49% reduction in CO2 emissions by 2030 (from 1990 levels), or – if possible – to take the lead in Europe by exceeding this target and achieving a reduction of 55% by 2030.

The Climate Agreement represents one of the largest and most ambitious climate projects in Dutch history. The four-month process that led to this proposal was described by the chairman of the national Climate Agreement Consultation as "polderen ­('reaching consensus and collaboration') in a way never seen before in the Netherlands".

Although not final yet, the proposal gives insight into the Netherlands' development strategy for CO2 reduction and renewable energy for the period up to 2030.

INTRODUCTION

Last June, Dutch political parties reached broad support for a Climate Act that sets out the objectives for CO2 emission reduction and renewable energy: 49% CO2 emission reduction from 1990 levels by 2030, and a 95% reduction by 2050 as well as achieving 100% CO2 neutral energy in 2050.

How the Netherlands will achieve these objectives was debated over the past four months during a climate consultation that involved more than 100 organisations. Participants in this consultation were divided into five main sector groups – electricity, mobility, agriculture and land use, industry and built environment. Each of these groups (referred to as 'tables') was given its own reduction target: for electricity, 20.2 Mton Co2; mobility, 3.4 Mton Co2; agriculture and land use, 3.5 Mton Co2; industry, 7.3 Mton Co2 and built environment, 14.3 Mton Co2. Each group had to come up with a plan for meeting its target.

In addition, two practice groups were established (labour market and education, and finance) that will focus on cross-sector prerequisites for the planned transition.

The following summarises how each sector group plans to reach their emission-reduction targets.

KEY FEATURES SECTOR GROUPS

Electricity

The Sector Group Electricity aims to accelerate the transition from fossil fuels to renewables. One factor hindering the preparation of a concrete action plan is a lack of clarity on future electricity demand, since such demand is strongly influenced by developments in industry. For this reason, the Sector Group Electricity came up with three scenarios: a basic scenario (electricity demand of 84 TWh), a basic plus scenario (demand of 110 TWh) and an acceleration scenario (demand of 120 TWh).

The basic scenario assumes that the share of renewable electricity will increase from 17 TWh in 2017 to 84 TWh in 2030. This assumption includes an increased demand of 12 TWh due to electrification in other sectors. The basic plus scenario assumes a larger electricity demand in other sectors (38 TWh), whereas the acceleration scenario assumes a CO2 reduction level of 55% instead of 49%. An assessment by the PBL Netherlands Assessment Agency (Planbureau voor de Leefomgeving) later this summer should provide clarity on electricity demand due to electrification in other sectors.

*The sector group assumes that emission-free dispatchable generation – of which additional renewables can be a part – can supply 15-40 TWh.

To meet the planned increase in electricity demand in the basic scenario, the Sector Group Electricity proposes to allocate additional areas for the construction of offshore wind parks that should result in additional emission reductions of 49 TWh by 2030 (corresponding to 11.5GW additional offshore wind capacity), and a reduction in production costs to 3-4 ct/kWh (with costs related to the completion of an offshore grid reimbursed through transportation tariffs).

In addition, by 2030 an additional 35 TWh in emission reductions should come from onshore renewables, and average production costs should be reduced to 3-4 ct/KWh (onshore wind) and 3-6 ct/KWh (solar PV). It will be up to provinces and municipalities to develop regional energy strategies to determine how they plan to achieve targets in their respective regions. Tenders and local participation are expected to play a significant role in this transition since the aim is for 50% of onshore renewable production capacity to be owned by local communities.

These developments will have to go hand in hand with ambitious cost reductions. The renewable energy incentive scheme (SDE+ subsidy) is expected to remain available until 2025. Where necessary, alternative instruments may be considered after 2025 to guarantee cost-efficient investment security (e.g. through the introduction of supplier obligations (requiring energy suppliers by law to procure renewable energy equal to a certain proportion of their total energy supply, or alternatively, to buy a corresponding number of guarantees of origin) and additional incentives to further increase electricity demand.)

In the electricity system of the future, flexibility will play a crucial role (e.g. in the form of demand management, storage and interconnection with other countries.) A broad programme is being developed for grid managers and local governments to make flexibility options available in a timely fashion.

Built environment

The key task for the Sector Group Built Environment was to develop a plan to transform 7 million existing houses and 1 million buildings into well insulated and sustainably heated houses and buildings that use renewable electricity and – preferably – generate their own energy or a portion of it.

To achieve this, municipalities will play a key role. In consultation with inhabitants and building owners, they will have to adopt a transition plan for heating by 2021, which will include a detailed implementation plan with the aim of increasing the number of new structures constructed without gas connections, ultimately resulting in up to 75% of newly built homes being natural gas free by 2021.

To encourage a reduction in gas consumption, taxes on gas will be increased while taxes on electricity will be reduced. Over all, this will result in a total reduction in taxes for Dutch households. To facilitate financing of the required transformation measures, building-related loans will be introduced. When houses are sold, these loans will transfer to the new owners.

Insulation requirements and renewable heat options for buildings will have to increase, and related costs will have to be reduced up to 50% by 2030. During this period the current investment subsidy renewable energy (ISDE) and renewable energy incentive scheme (SDE+) will be maintained. Insulation requirements may even become mandatory after 2030.

In addition, geothermal energy will be expanded from the current 3 PJ to 50 PJ by 2030 and to over 200 PJ by 2050. In aquathermal energy, levels of 80 to 120 PJ must be realised by 2050. A three-year aquathermal pilot project will begin in 2019.

Industry

The Sector Group Industry aims for a transition to an industry with a strong international competitive position and CO2 emissions at levels close to zero by focusing on electrification, process efficiency and heat use, and the circular use of raw materials through the use of hydrogen as a raw material and the alteration and recycling of other raw materials (e.g. through carbon capture and usage or CCU, biomass, mechanical/chemical recycling and waste-to-chemicals).

This target will be accomplished by increasing investments in innovation, developing a tender scheme to realise cost efficient investments, and international cooperation focused on maintaining a level playing field. To achieve all of this, government support of approximately EUR 550 million to 1 billion per year will be required.

Because no cost efficient alternatives are currently available, carbon capture and storage (CCS) is seen as a necessary short-term tool to reduce emissions.

Agriculture and Land Use

The Sector Group Agriculture and Land Use aims to make the transition to an internationally competitive agrofood sector that will use innovative methods to create a sustainable food supply.

Key objectives include a reduction of methane emissions in the livestock sector of 1 Mton CO2 by 2030, a reduction in CO2 (1.8 to 2 Mton by 2030) through smarter use of land, and CO2 reductions in the horticulture sector (1.8 Mton by 2030) through innovations and the use of geothermal energy. In addition, food waste must be reduced 50% by 2030, and there must be a dietary shift from animal proteins to vegetable proteins.

Mobility

The aim of the Sector Group Mobility is to come to an integral approach for mobility that includes clean mobility modalities and the optimal use of all modalities and infrastructure. To accomplish this, there should be a focus on infrastructure, flow of goods, available mobility modalities and mobility services. Possible actions include electrification, emission-free public transport, the use of biofuels (for heavy trucks, maritime transport and aviation), and – in the medium to long term – the use of green hydrogen for transport, promoting of the usage of bikes and public transportation, and improvements in traffic flows and transfers between modalities.

KEY FEATURES OF THE PRACTICE GROUPS

Labour Market and Education

The Climate Agreement is expected to significantly shift labour demand in various sectors. In certain sectors, the demand for professionals will increase. In other sectors, jobs will be lost. In addition, jobs will undergo changes in profile, and additional skills will be needed. To manage these changes efficiently, a timely response to labour-market needs will be important and to facilitate this, the practice group Labour Market and Education will present a specific package of measures per sector in the second half of 2018.

Finance

Because the successful implementation of the Climate Agreement will require a significant investment, the Agreement will aim to provide a platform where financers and developers of sustainability initiatives can come together. In the second half of 2018, the Practice Group Finance will present practical suggestions to connect supply and demand, and provide advice on the feasibility of projects proposed by the different sector groups.

CONCLUSION

During the summer of 2018, the key elements of the Climate Agreement proposal will be assessed by the PBL Netherlands Environmental Assessment Agency and Statistics Netherlands (Centraal Bureau voor de Statistiek). After the publication of their findings at the end of the summer, the sector groups will continue to develop their proposals.

The Dutch government is expected to express its view on the Agreement proposal in September, which will be followed by a discussion in parliament. The Climate Act will be debated in parliament at the same time that the Agreement is being discussed.

Finalisation of the Climate Agreement and Climate Act is aimed for the end of 2018 or the beginning of 2019. When accepted, the Netherlands will be the seventh country in the world with a climate act.