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Proposal for Dutch Climate Agreement: envisaged developments in CO2 reduction and renewables in the Netherlands

24/07/2018

On 10 July 2018 a proposal for the key elements of the Climate Agreement was presented to the Dutch Minister of Economic Affairs and Climate. This proposal sets out how the Netherlands plans to meet the Paris Climate Agreement by reducing CO2 emissions with 49% by 2030 (compared to 1990) and, where possible take the lead in Europe by exceeding this target and achieve a reduction of 55% by 2030.

The Climate Agreement is one of the biggest climate projects in Dutch history. The process during the past four months which has led to this proposal is described by the chairman of the national Climate Agreement Consultation as "polderen ­('reaching consensus and collaborate') in a way never seen before in the Netherlands".

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

INTRODUCTION

Last June political parties reached broad support for a Climate Act that sets out the objectives in relation to CO2 emission reduction and renewable energy: 49% CO2 emission reduction compared to 1990 by 2030 and 95% by 2050, as well as 100% CO2 neutral energy in 2050. The manner in which the Netherlands aims to achieve these objectives has been debated over the last four months during a climate consultation by more than hundred organizations. Participants to 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 and had to come up with a plan for meeting its target.

In addition to the Sector Groups, two Practice Groups were established (Labour Market and Education; and Finance) that will focus on cross sectoral prerequisites for the envisaged transition.

Below we will summarize the manner in which each Sector Group and Practice Group plans to contribute to the desired emission reduction.

KEY FEATURES SECTOR GROUPS

Electricity

The sector group Electricity aims to accelerate the transition from fossil fuels to renewables. One thing which hinders the preparation of a concrete action plan is the lack of clarity on future electricity demand, since this is strongly influenced by developments in the industry. For this reason the sector group Electricity came up with three scenario's: a basic scenario (electricity demand amounting to 84 TWh), a basic plus scenario (electricity demand of 110 TWh) and an acceleration scenario (electricity 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 increase in electricity demand of 12 TWh due to electrification in other sectors. The basic plus scenario assumes a larger electricity demand of other sectors (38 TWh), whereas the acceleration scenario assumes a reduction increase of 55% (instead of 49%). An assessment by the PBL Netherlands Assessment Agency (Planbureau voor de Leefomgeving) that will take place later this summer aims to offer more clarity on the expected increase in electricity demand due to electrification in other sectors.

Source

Basic

Basic plus

Acceleration

12 TWh demand increase

38 TWh demand increase

Offshore wind

49 TWh

110 TWh

120 TWh

Onshore renewables

35 TWh

Additional renewables

TBA*

TBA

TBA

Total

84 TWh

110 TWh

120 TWh

*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 envisaged increase in electricity demand of the basic scenario the sector group Electricity proposes to allocate additional areas for the construction of offshore wind parks resulting in additional emissions reductions of 49 TWh by 2030 (corresponding to 11.5GW additional offshore wind capacity) and to reduce production costs to 3-4 ct/kWh, whereby costs related to the realisation of an offshore grid will be reimbursed through the transportation tariffs.

In addition, it is proposed that in 2030 an additional 35 TWh of emission reductions will have to come from onshore renewables, and that average production costs will be reduced to 3-4 ct/KWh (onshore wind) and 3-6 ct/KWh (solar PV) in 2030. This target is technique neutral, but it is expected that the reduction will mostly be realised by an increase in onshore wind and solar PV capacity. It will be up to provinces and municipalities to develop regional energy strategies to determine how they plan to realize the target in their region. It is envisaged that tenders and local participation will play a significant role in this transition. The aim is that 50% of onshore renewable production capacity will be owned by the local community.

These developments will have to go hand in hand with ambitious cost reductions. It is expected that the renewable energy incentive scheme, the SDE+ subsidy, will remain available for up to 2025. Where necessary alternative instruments may be considered after 2025 to guarantee investment security in a cost efficient manner, such as a supplier's obligation and 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 therefore being developed for grid managers and (local) governments to facilitate the timely availability of flexibility options.

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 isolated, sustainably heated, houses and building that use renewable electricity and preferably generate (part of) their own energy.

To achieve this, municipalities will play a key role. In consultation with inhabitants and building owners they will have to adopt a transition vision on heating ultimately by 2021, including a detailed implementation plan, with the aim to increasingly built new constructions without a gas connection, resulting in up to 75% of the new build-homes being free from gas in 2021.

To stimulate a lower gas consumption, taxes on gas will be increased, whereas taxes on electricity will be reduced. On balance this will result in a tax reduction for households. To facilitate financing of the required transformation measures building related loans will be introduced. Consequently, when houses are sold, the loans will transfer to the new owners.

The supply of isolation measures and renewable heat options will have to significantly increase and related costs will have to be reduced with 15%-50% by 2030, whereby the current investment subsidy renewable energy (ISDE) and renewable energy incentive scheme (SDE+) will be continued. The implementation of isolation measures may even become mandatory as from 2030.

Furthermore, geothermal energy will be expanded from the current 3 PJ to 50 PJ in 2030 and over 200 PJ in 2050. The same applies to aquathermal energy: in 2050 80 – 120 PJ must be realised. It is envisaged that a three-year aquathermal pilot will commence in 2019.

Industry

The sector group Industry aims for a transition to a circular industry with a strong international competitive position and CO2 emissions at levels close to zero. Efforts of this sector group Industry are directed towards electrification, process efficiency and heat use and the circular use of raw materials (through the use of hydrogen as raw material and the alteration and recycling of raw materials e.g. by carbon capture and usage (CCU), biomass, mechanical/chemical recycling and waste-to-chemicals).

This will be accomplished by increased investment in innovation, the development of a tender scheme to realise cost efficient investments and international cooperation to maintain a level playing field. To achieve this government support will be required of approximately EUR 550 – 1,000 million per year.

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

Agriculture and Land Use

The sector group Agriculture and Land Use aims to achieve a transition to an internationally competitive agrofood sector that contributes to a sustainable food supply through the use of innovative methods.

Key objectives to realise this are the reduction of methane emissions by the livestock sector with 1 Mton CO2 by 2030, the reduction of CO2 by a smarter use of land and by the horticulture sector (respectively of 1.8-2 Mton and 1.8 Mton CO2 by 2030) (e.g. through innovations and the use of geothermal energy). In addition, food waste has to be reduced by 50% in 2030 and a shift from a diet based on animal proteins to vegetable proteins.

Mobility

The aim of the sector group mobility is to come to an integral approach of mobility with clean mobility modalities and an optimal use of all modalities and infrastructure. The envisaged actions to accomplish this focus on the infrastructure, the flow of goods, the available mobility modalities and mobility services. Examples of actions include electrification, emission free public bus and group transport, the use of biofuels for heavy trucks, maritime transport and aviation and in the medium- and longer term the use of green hydrogen for transport, the promotion of the usage of bikes and public transportation and the improvement of traffic flows and transfers between modalities.

KEY FEATURES 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, whereas in other sectors jobs will be lost. In addition, jobs will undergo a change of character, and consequently additional skills will be needed. To manage these changes in the best possible way, a timely response to labour market needs is important. To facilitate this, in the second half of 2018 the practice group Labour Market and Education will present a specific package of measures per sector.

Finance

The successful implementation of the Climate Agreement will require significant investments. The Climate Agreement will therefore aim to provide a platform where financers and developers of sustainability initiatives come together. In the second half of 2018 the practice group Finance will present practical suggestions to connect supply and demand and advice on the feasibility of projects that are proposed by the different sector groups.

CONCLUSION

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

The Dutch government is expected to express its view on the proposal in September, which will be followed by a discussion in Parliament. Simultaneously the Climate Act will be discussed in Parliament.

Finalization of the Climate Agreement and Climate Act is aimed for the end of 2018/beginning of 2019, which will make the Netherlands the 7th country in the world with a Climate Act.

Auteurs

De foto van Cecilia Weijden
Cecilia van der Weijden
Partner
Amsterdam
Marcellina-Rietvelt-CMS-NL
Marcellina Rietvelt
Advocaat
Amsterdam