Since the introduction of the common currency, the 16 member countries, that have presently adopted the Euro, form an informal group within the EU institutional framework where they discuss their specific concerns on monetary and fiscal policies. This has often been very useful. The Lisbon Treaty has therefore formally confirmed the Euro group.

Backed by this innovation, Jean-Claude Juncker, its just reconfirmed chairman, has launched three initiatives to enhance the standing of the Euro-group:

·      A secretariat,

·      A seat in the G 20,

·      The possibility for several or all member states to emit Eurobonds.

None of these three initiatives seems very attractive. None of them would help to advance the EU policy-wise.

First, the Euro-group should not try to turn into “bureaucratic machinery” within the EU. It is not meant to prepare policy papers or adopt formal decisions. By 2020 almost all EU countries, with the possible exception of the UK, should be expected to have introduced the Euro. That should remain the overriding objective of the EU. A Secretariat would give undue importance to an “institution” that should disappear as soon as possible.

Second, the idea of giving the Euro group a status in the G 20 is even more abstruse. The G 20 mission is much broader than monetary or fiscal policy. To the annoyance of other members Europe disposes already of five seats at the G 20 (ECB/Commission, France, Germany, Italy, and UK). When issues of money and finance are discussed in the G 20 the ECB president and the Commissioner for Economics and Finance are the best placed to defend the interests of EU member inside and outside the eurozone. It is strategically much more important to fight for a single EU seats than spoil any energy for an additional seat for the eurozone, which will not be appreciated by our partners.

Thirdly, the suggestion for several Euro group countries to jointly emit bonds does not seem be more acceptable. Certainly, it would make sense for countries with a weak credit rating. But why should a country with AAA rating join hands with a BBB country to obtain funding in the European bond market?

In conclusion, Jean-Claude Juncker has done excellent work for the EU in the past. He should continue to do so in future, but beware of overstepping his limits.

Brussels, 18.01. 10   Eberhard Rhein

At the Commission Hearings by the EP, January 15, the new Climate Commissioner, Connie Hedegaard, has pleaded in favour of continuing to rely on the UN machinery as the way to reach an international agreement on climate change. After two years of unsuccessful preparations, in the UN framework, for the Copenhagen Climate Conference, this is a rather bold statement. Where does she take her optimism that preparing for Mexico will be more effective and allow concluding the Mexico meeting, due to start in only 10 months, more successfully than Copenhagen?

What role could the EU play to obtain a more successful outcome in Mexico? What role will other major emitter countries allow her to play? These are the questions the EU has to address very rapidly.

First of all, the EU should draw its lessons from the Copenhagen disaster.

The EU Environment ministers have done so at their informal meeting in Seville But it is important enough for heads of government to address it again at their forthcoming meeting in Brussels, February 11.

Second, the Commission should rapidly submit proposals for EU diplomatic action during 2010. The Climate Commissioner needs clear directives from the heads of government as to the objectives to pursue; and individual member states should abstain from intervening in her diplomatic action.

Third, any diplomatic action should focus on the main emitter countries. It is with these the EU needs to prepare a deal for Mexico. Without a prior consent among the “Big Few” on the commitments and actions to be agreed upon in Mexico there is no point in convening another jumbo meeting with 193 countries.

Fourth, the EU needs a serious assessment of the respective interests of the main players in containing climate change. The EU is likely to suffer much less than China, India, Brazil, Australia, USA or South Africa from rising temperatures, droughts, melting glaciers etc. Its strong commitment to fight climate change stems more from a responsibility for humanity than fears about its own survival.

But the EU must also better understand the obstacles that emerging countries encounter in fighting climate change, offer them concrete assistance to define and implement effective action against climate change.

Fifth, the immediate target for any diplomatic climate action must be the USA. The Mexico Climate Conference is bound to fail again if the US Congress has not adopted its Climate Act by October 2010.

The EP and the Commission should therefore hold intensive discussions in the Senate and try to convince reluctant members of the absolute need to adopt their pending legislation.

Sixth, the UN machinery may still be useful for reaching a global agreement on climate change, but only if there is a radical change the rules of procedure. A unanimity requirement among close to 200 member countries is bound to stall the process at the expense of humanity. This is the message the EU should pass on to those countries that share with her the main responsibility for preserving sustainable climate conditions on earth.

Brussels 17.01.10                             Eberhard Rhein

In December 2008 the EU has decided onto providing at least 20 percent of its energy needs - the equivalent of 30 percent of its electricity consumption - supply from renewable sources by 2020 latest. To that end, it will need to generate about one third of its electricity from renewables.

This is anything but easy! At present, only 15 percent of In 2009 less than five percent of EU electricity is generated from wind, concentrated or photovoltaic solar or biomass renewables, most of it from hydro, wind power and biomass.

Contrary to fossil power plants renewable sources are available only far away from the big electricity consumption centres, in the North Sea and across the Mediterranean; and their supply is discontinuous due to nature’s vagaries.

The EU is therefore confronted with a “grid problem” of unprecedented technical, economic and financial dimensions. At the 2050 horizon, when essentially all its electricity will have to come from renewable or nuclear sources, it will have to build a high-voltage direct current super-grid, connecting European industrial and private consumers from huge off-shore wind parks in the North Sea and concentrated solar power plants in the Mediterranean including the Sahara. This combination will by the same token such a trans-European super-grid balance will help balancing out the sharp fluctuations of wind and solar power generation uneven supplies from wind and solar radiation.

Europe will start in the North Sea, and the UK will lead the movement. As the country possessing by far the biggest potential for off-shore wind (and wave power generation) in Europe it has a vital interest in developing and developing this potential and connecting the its wind-parks to both its domestic grid, the other North Sea coastal countries and the rest of Europe.

On January 8. 2010, the UK government has taken an  important  step by awarding licenses to several international consortia for the installation of some 6000 wind turbines with a total capacity of 32 GW in nine areas stretching as far as 200 km off the coast and reaching depths of up to 60 m. With an estimated investment of € 100 billion it will be the biggest and most demanding off-shore wind power programme ever realised anywhere on earth.

In parallel, Germany, Denmark, Belgium, France and Sweden are pursuing similar programmes, but at a tiny scale, due to their small sea areas.

The programme will take at least 10 years to complete. It will confront the engineering industry with unprecedented challenges, requiring new technologies for foundations, assembling, servicing and, last not least, transmitting the electricity to the consumers.

To make sense, the wind parks need to be connected to the consumption centres in the UK and continental Europe. It is therefore normal for the countries around the North Sea – and the EU to address the transmission of electricity in a comprehensive and long-term perspective.

At the end of January, the nine countries around the North Sea countries, including Luxembourg and Sweden will meet at the end of January 2010 to define the outlines of the North Sea super-grid, the the details to will be agreed upon later upon before in the end of the year.

Norway will have to become an be an indispensable partner: in this group. thanks to its It disposes of 30 GW hydro power capacities, only two thirds of many hydro-power stations it which are already exploited. Wind and hydro electricity form an ideal alliance: When there is an excess of wind power it will be pumped up into the dams in view of supplying hydro-power in lull periods.

Thanks to this combination, plus the wide geographic coverage of the wind farms, it will be possible to cope with fluctuating winds, the major handicap of wind power.disposes the biggest electricity storage facilities in northern Europe. Wind generators will sell  their excess electricity to Norwegian hydro-power companies be stored in their dams for transmittal  to regional clients in lull periods.

Building these interconnections across the North Sea - and the Baltic - over  several over hundreds of kilometres and linking them to the continental network still in the making will be a daunting challenge in terms of technology, financing, ownership and profitability.

The 16 cm diameter cables must, of course,  be, be water-proof and have a a longevity longevity of up to 40 years and more.. The system must include inter-connectors for adding more wind or wave parks in the future.

The system will need to be installed in phases, the first one to be completed around 2020. The Its financing needs, which might easily exceed € 20 billion, should to be shared between the utilitiesthe operators, possibly with the participation of and governments. Jointly theThe utilities y might should ideally establish a consortium for running owning and operating the grid. This would be an elegant way of separating ownership of generation from transmission, which still waits for a solution on land.

The profitability will be next to impossible to calculate. it will depends on many parameters, above all the installation cost per km of installed cable and the transmission charges to be agreed upon..

In any event, the EU has not much choice. In view of enhancing its energy security and reducing C02 emissions by more than 80 percent until the middle of the century, off-shore wind energy will be indispensable. This being said, the North Sea wind potential, estimated at some 100 GW, will be able to cover no more than 10 percent of EU electricity demand!

But the progressive harvesting of the North Sea wind potential and its connection to a European-wide grid will give the EU a precious lead in what will become a standard technology in the coming decades in all countries with extensive coastal areas with water depths up to 60 meters, like China, USA, Canada or Brazil. Above all it will send a clear signal to the rest of the world that the EU is serious about implementing its ambitious emission targets for 2020.

Brussels, 10.01.10    Eberhard Rhein

As of January 1st, the new Brazilian climate legislation (“National Policy on Climate Change Act”) has entered into force. It fixes ambitious targets. By 2020 green house gas emissions should be 39 percent lower than “business as usual”, which should bring back Brazil‘s emissions back to 1994 levels.

To reach this objective, Brazil must first and foremost stop the deforestation of the Amazonas tropical forests, which is responsible for as much as two thirds of its GHH HHHG emissions. It will secondly have to generate even more electricity from hydro-power, wind and biomass, which combined account already for 85 percent of total electricity generation. And it will have to oblige its industry to reduce emissions.

No country possesses such a wealth of renewable energy resources. Its population density is one of the lowest on earth (23 inhabitants per km2). Its hydro-power resources are comparable to those of Congo, Russia and Canada. Its 150 GW wind energy potential is equally impressive, and its biomass potential would suffice to completely run its automobile fleet.

It was therefore only logical that for the bill to envisage the gradual phasing out of the use of fossil energy as the long-term goal. Unfortunately the government has decided to drop this objective in the final text. Still, if the country proceeds with the development of its hydro-power and wind potential it should be able to supply essentially all of its electricity needs from renewable sources.

Green NGOs have criticised the law for allowing more large-scale hydro power developments and have put in doubt the government’s commitment to implement a vigorous policy on climate change.

Whatever the shortcomings of the law, it comes at a most opportune moment, one month before all countries are due to submit their emission reduction targets to the UN. It shows all major emitter countries what is possible with the right political determination.

Brazil will benefit from its new policy approach.

First of all, it will boost to its image as a country committed to the fight against climate change.

Second, by containing its demand for fossil energy it will be able to export more energy, both oil and electricity.

Third, it will help secure its own ecological and economic survival, which depends on the conservation of the Amazonas forests.

It is therefore more than appropriate for others to take a close look at Brazil’s climate change policy and, hopefully, find some inspiration.

Brussels, 04.01.10   Eberhard Rhein

As of January 1, 2010, France was supposed to have launched its ecological tax reform, under which fossil energy would be taxed at increasingly higher rates and taxes on income and would be lowered correspondingly.

On December 27th, the Conseil d`Etat has, however, declared the envisaged legislation as unconstitutional, on the grounds that it contained too many exceptions, thus violating the principle of equal taxation for all.

Basically the draft bill aims at containing the level of C02 emissions by making the use of fossil energy more expensive. To that end, the existing excise tax rates on gasoline, diesel and fuel should be raised and cover also gas, coal and electricity. They should be based on their respective C02 content and a C02 price of € 17/ton, 20 percent above the prevailing C02 market price.

The price impact of the law would be less than 10 percent, highest on gas and coal, which had not been taxed so far and lowest on gasoline, with a low C02 content and already subject to high taxes.

With these elements, plus the envisaged reduction of taxes on low incomes, the bill represents quite a revolution in European tax systems. It exempts, however, major C02 emitters like power generation, heavy industries, cement and aviation, which are or will be covered by EU climate regulations. Nor does it include agriculture.

The government has reacted immediately to the court ruling and announce that it will submit a revised draft before the end of January, which should also include the energy-intensive sectors that had been excluded.

This shows that the French government is determined to use the carbon tax on all use of fossil energy as an additional tool for reducing C02 emissions.

There are, of course, limits to such a strategy. France will hardly dare to shoot at gasoline or fuel prices of € 2/litre or more. It needs to mind possible repercussions on the competitiveness of its industry and low income group.

But by applying a carbon tax and using the market price per ton of C02 as the reference, France would reach beyond the EU cap and trade system and distribute the burden of its climate policy on all everybody.

The constitutional ruling may in retrospect prove to be a blessing in disguise. It will impose carbon taxes also on the energy-intensive sectors falling under EU climate regulation, even if only temporarily.

All EU member states are due to submit their national climate programmes on how to implement 2020 emission before July 2010. The controversy on the carbon tax in France might induce several among them to follow the French example and also propose to introduce carbon taxation, as the outgoing Swedish Presidency had exhorted all of them to do last June.

Brussels 04.01.10 Eberhard Rhein

The signature of a $ 20 billion contract, at the end of 2009, between the United Arab Republic and a South Korean industrial consortium under the leadership of the Korea Electric Company for the construction of four nuclear 1400 MW power plants marks a milestone in global energy cooperation:

·      The UAE will be the first Arab country to enter nuclear power generation. Others like Egypt, Kuwait, Saudi Arabia and even Jordan have also declared their interest in covering some of their growing energy needs by nuclear reactors.

·      For the first time, the South Korean nuclear industry openly defies established American, Japanese, European and Russian competitors, not only for the construction of the reactors but also for the supply of enriched uranium.

·      For the UAE, the construction of the four reactors forms part of its long-term energy strategy. Though the country possesses 10 percent of global oil reserves, the government has concluded that oil is too precious to be burnt in power plants and be rather conserved, as long as possible, as a precious raw material for high value- added  chemicals, fertilisers etc. It will therefore cover its domestic electricity needs from gas, nuclear, wind and solar sources. The ongoing construction of a $ 40 billion petrochemical complex, the world’s biggest, is to be seen as a crucial component of its long-term energy strategy.

The developments in the UEA should teach Europe at least four lessons:

·      The Gulf countries, possessing by far the biggest oil and gas reserves, start realising that the time has come to use these more economically and switch to non-fossil energies wherever possible. That is a very positive signal for humanity and the climate.

·      The Gulf countries will in the future transform more of their oil and gas production into base chemicals, from urea to polyethylene and export these instead of crude oil or LNG.

·      The European nuclear industry will have to brace for a new, highly competitive player. It will have to join forces in order to keep up with the powerful Korean consortia.

·      The time horizon for energy projects will stretch increasingly beyond 10-20 years, extending in some cases even to 80-100 years, as the nuclear arrangements between South Korea and the UAE demonstrate.

Brussels 04.01.10  Eberhard Rhein

Fighting climate change requires action by all countries, but in particular the small number of major  emitting countries- China, USA, EU, Russia, Japan, India, Gulf states, Brazil, Mexico, Canada, Australia, Korea, South Africa – on which effective mitigation of global climate change hinges.

Up to now only the EU and Japan have taken stringent actions they had committed to under the Kyoto Protocol. All other countries have ignored climate change and continued increasing emissions instead of reducing them, putting narrow national economic interests beyond the requirements of the planet.

The USA and China have been the two main wrong-doers. They posture as “reckless super-powers” refusing to take effective action, whatever the impact on the planet. Combined they account for some 40 percent of global green house emissions (14 GT in 2007), and so far neither is prepared to sign up legally binding commitments, as demanded by the international community, above all the EU.

By declining to join the Kyoto protocol in 1997 the USA has done more damage to the global climate in the past 10 years than any other country on earth.  Instead of reducing its emissions by some 5 percent like between 1990 and 2010 as it ought to have done like all other OECD countries, it has taken exception and increased emissions by a quarter since 1990.

No country on earth has dared to call the USA to order and make it accountable to humanity. All governments have cowardly resigned to accept the perverse consequences of US “democracy”! Some governments like the Canadian, Australian, and Korean were even quite happy to hide behind the US refusal.

In 2009 the US Administration has finally understood the need for the USA to act. But it is hamstrung by the Congress and powerful economic interests. After one year of deliberations it has not been able to adopt an even meagre legislation, which would at best reduce emissions by four percent until 2020 instead of the 25-40 percent called for by the scientific community.

All this happens in the name of national sovereignty, which forbids other countries to have a say in “domestic affairs” of any country. But the level of US green house emissions has long ceased to be a domestic affair. It will increasingly affect the living conditions of hundreds of millions of human beings in Africa, Asia and Latin America.

The case of China is similar.

Since 1997 it has become the single biggest emitter country. But in the name of national sovereignty and to boost its economic development it refuses to submit climate data/actions to international monitoring and take any international commitments for curbing, let alone reducing its emissions. The only pledge it has made so far is to enhance its macro-economic energy efficiency. But with scheduled GDP growth rates in the order of 8 percent annually energy efficiency must jump dramatically before leading to a decline of emissions. Under the pledges made so far Chinese emissions are bound to grow substantially over next two decades, making it next to impossible to stabilise global emissions at safe levels.

The examples of the USA and China demonstrate the absolute need for a “global climate authority”, composed of the major emitter countries, with powers to “impose” emission reductions and enforce them by appropriate “sanctions”. The 2050 global reduction objectives – 50 percent for all countries and 80 percent for developed countries – need to be transformed into binding targets for individual countries, which will have to modify their energy policies accordingly. Emission quotas to individual countries should be attributed on the basis of past emissions, per capita emissions and future emission paths.

This will be the challenge for 2010! For it to be  achieved requires first of all the rapid adoption of  the US climate legislation, which will be a major step forward towards attaining an 80 percent reduction until 2050 and give a powerful push to China to follow suit.

The EU has to be the driving force, with the new climate commissioner travelling around the world and trying to convince other governments and legislatures that the EU approach to climate policy can be an inspiration for them.

Brussels, 19.12.09  Eberhard Rhein

“Political pressure on governments and utilities to refrain from building new coal-fired power plants is rising across Europe. Citizens no longer want to have them in their neighbourhood. As a result as many as seven projects have been abandoned in Germany only in the course of 2009, the last most recentlymost recently in Lubmin in a tourism area on the Baltic coastBaltic incoast a tourism area after several years of persistent civil society resistance.

Coal-fired power plants are attractive from a cost-perspective. Coal is abundantly available and cheap; modern energy-efficient coal-fired power plants can easily compete with nuclear power plants. Only gas-fired power plants are more attractive, at least at present very low gas prices.

But coal-fired power plants are big emitters of produce high C02 emissions, and their lifetime reaches 40 years. A plant commissioned today will therefore continue to operate in 2050!

This Building new coal-fired power plants is inconsistent with the EU proclaimed objective of reducing C02 emissions byemissions by at least 80 percent until 2050. The EU will only be able to reach that target if essentially all electricity is produced from non-fossil fossil sources fuels, as about 20 percent of its green house gas emissions are incompressible for technical reasons.

EU governments therefore act irresponsibly by authorising new coal-fired power plants to be built. The EU therefore has no choice but to ban new coal-fired power plants with the exception of those for which authorisation have already been granted.

The EU does not require a major increase of its power capacity does not need to increase in the coming decades:

· Economic growth will slow down to less than one percent per year, due to declining a stagnating active population and saturation of demand.

· The EUThe EU is will rapidly turning into a mature service society with fewwith few heavy energy-intensive industries operating on its territoryits territory.

· Its eEnergy demand is bound to is set to decline due to higher energy efficiency. As of 2020 its energy demand should be at least 10least 10 percent belower than in 20102010 levels.

· The overdue creation of a single electricity marketelectricity market and a trans- European grid allowing electricity to be transmitted from one country to another will lead to a much better utilisation of available capacities. Member states and regions no longer need to strive for “independence of supply”!

· Ageing power capacities should be replaced by wind, biomass nuclear and solar capacities.

The sooner this becomes a firm EU position the easier it will be for the two member states with major coal producing capacity – Poland and Germany – to prepare for the necessary closures their mines and the relocation of the miners.

Member states with plans to expand their capacity of coal- fuelled power plants will object to such restrictions of their policy-making freedom and refer to the carbon cap-trade system as sufficient to bring about the necessary changes.

But the 2013-20 system of carbon cap-trade does not appear sufficiently deterrent to prevent utilities from wishing to invest in more fossil power plants.

The Commission should tackle these issues in 2010 when member states` action programmes for the reduction of their C02 emissions until 2020 manifest possible inconsistencies.

Brussels, 15.12. 09 Eberhard Rhein”

In June 2009, the Swedish prime minister had suggested member states to introduce C02 taxes as an additional instrument for tackling climate change. But neither the Swedish Presidency nor the Commission followed up on this suggestion.

So far only two member states seem have on their own decided to prepared to go ahead with C02 taxation.

Ireland has just decided to introduce a C02 tax covering gasoline, diesel, fuel and gas as of 2010. The initial rate would be fixed at € 15/ton, the equivalent of the present C02 market price for C02 (€ 14) under the European carbon trading system or some four cents/litre of gasoline.

The French government is also scheduled to introduce a C02 tax in the course of 2010, gowhich would cover introduce such a gasoline, diesel, gas, fuel, coal and electricity at an initial rate of € 17/ton.

Other member states – Finland, Slovenia and Denmark – boast of having introduced C02 taxation already years ago, but at even lower levels and covering only vehicles.

It is time to put some order into this confusing picture. To this end, the European Commission should once again, after its failed over-ambitious proposals in the early 1990s, seize the issue and prepare a green paper as the basis for legislative action by EU all governments.

It is out of question for the EU to impose an EU-wide C02 tax. All the Commission should do is to present the pros and cons of such tax, define the basic rules for its integrating into the EU climate policy tool box and make a recommendation for its introduction by member states.

The EU climate policy is composed of two separate components:

• One EU-wide providing for a C02 cap and trade system, which covers big emitters like power, steel, metallurgy, heavy chemicals, cement etc, altogether some 40 percent of EU green house gas emissions.
• The other, concerning 60 percent of emissions, requiring action by member states. These will have to define national strategies for reaching their assigned reduction targets and submit them before June 2010 to the Commission. C02 taxes should normally be expected to be a key instrument for reaching sectors like agriculture and buildings.

To be effective C02 taxes need to be high. France and Ireland will set their C02 taxes at the level of C02 prices. That should be the minimum for achieving some effectiveness.

More important, they need to reach out to fuel, gas and electricity and areas not inadequately taxed presently, like buildings, trucks and agricultural machinery.

The introduction of C02 taxation will not be popular. It is therefore essential to phase it in progressively and raise it over time.

Like any other excise tax this one is regressive, striking low-income households relatively more than well-to-do people. Compensation therefore seems politically necessary, e.g. taxes asreducing the level of VAT.

All these issues should be carefully discussed at the European level on the basis of a green paper to be submitted by the Commission in early 2010.

Brussels, 14.12.09
Eberhard Rhein