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The European Union is in danger of losing its self-assigned role as the champion of climate change mitigation with member states increasingly worried about the economic implications of taking on far-reaching commitments.
European heads of state agreed in October to maintain the EU’s current greenhouse gas reduction targets and timelines. They resolved to adopt new legislation in December 2008, spelling out the obligations and incentives through which countries and industries would reach the goal of bringing CO2 emissions 20 percent below their 1990 level by 2020. By that date, renewable energy should account for 20 percent of the EU’s overall energy mix and energy efficiency should be improved by 20 percent.
However, commitment to these targets, and ways to achieve them, remains tenuous. Going into the October summit, coal-dependent Poland – backed by seven other recently acceded Eastern and Central European countries – threatened to veto the initiative. The coalition signed on to it only reluctantly once European leaders agreed that the final legislative package would ‘have regard’ to each member state’s specific situation. Polish Prime Minister Donald Tusk told a news conference that EU leaders had agreed to adopt the final climate package by consensus rather the qualified majority that is usually required.
Concerned about the competitiveness of their energy-intensive industries in an economic downturn, Germany and Italy also called for reconsidering the targets. “We do not think that now is the time to be playing the role of Don Quixote, when the big producers of CO2, such as the United States or China, are totally against adherence to our targets”, Italian premier Silvio Berlusconi said.
Both the European Commission and Parliament are still working on the legislation. Its central pillar is an emissions trading system (ETS), through which polluting industries will be required to buy carbon allowances. The legislation will detail which industries will be concerned, when they will required purchase emission rights, the extent to which they could offset emissions through financing greenhouse gas reduction or forest conservation projects in developing countries, how the revenues of the ETS would be spent and a myriad of other details.
Just a week before the EU summit, the European Parliament’s environment committee voted in favour of three reports on the main elements of the future climate package: emissions trading, greenhouse gas reduction ‘effort’ sharing and CO2 capture and storage.
Banking on an International Agreement
The texts are heavily predicated on countries reaching a new international agreement covering greenhouse gas reductions after the Kyoto Protocol expires in 2012. For instance, the committee said that half of the money amassed through the auctioning of EU emissions rights should be earmarked for an international fund to assist those developing countries that have ratified the post-Kyoto instrument in reducing their greenhouse emissions and adapting to climate change. If such a treaty is place in place, European companies could offset 5 percent of their emissions through investing in forest preservation in developing countries. In addition, the EU should increase its 2020 greenhouse gas reduction target from 20 to 30 percent if an international climate change deal is reached in Copenhagen in 2010 (see page 22).
In the absence of a new international treaty and binding sectoral agreements, the European Commission should examine the feasibility of including importers of energy-intensive goods in the emissions trading scheme, or setting up a border adjustment mechanism, the committee said. This, of course, is what developing countries fear will happen. Border measures taken unilaterally to protect domestic industries (import duties, obligation to buy emissions allowances and the like) are among those where multilateral trade rules are most likely to clash with WTO Members’ efforts to tackle climate change.
Power Sector Targeted
With regard to internal measures, the environment committee proposed that power-generation plants should buy permits for all their emissions as of 2013. The committee also backed a controversial proposal to finance 12 large-scale demonstration plants on carbon capture and storage (CCS). A proposed new limit for power sector emissions would in practice oblige coal-fired power plants in particular to equip themselves with CCS technology after 2015. Critics claim the technology is too expensive (around €1 billion per installation) and that the output of CCS-equipped plants is significantly smaller than that of conventional producers.
Energy-intensive industries – such as steel, cement and chemical producers – would have until 2020 before needing to pay for the totality of their emissions. The longer transition period would allow a degree of protection to companies most vulnerable to competition from manufacturers in countries with less stringent climate change policies.
Beware of Carbon Leakage
Industry lobbies slammed the committee’s draft legislation. Hammering on the theme of ‘carbon leakage’, they maintained that the proposed measures were too costly and would put EU producers at a disadvantage vis-à-vis those in Asia and elsewhere, causing companies to either go bust or relocate to countries with laxer environmental standards. Summing up the lobby groups’ position, Patrick de Schrynmakers of the European Aluminium Association said: “Europe will export jobs and import energy intensive products, with no environmental gain.”
Many now fear that accommodating the ‘specific concerns’ of member states in the climate change package would create dozens of exceptions for sectors such as coal-based power generation, steel, aluminium or chemicals and thus weaken the EU’s emissions trading scheme, a well as the likelihood of achieving the 20 percent reduction target.
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