Rhein on Energy and Climate

The EU Commission wants the EU to reduce C02 emissions beyond the 20 percent over 1990 defined so far as the EU target for 2020, but without reciprocity from other industrialised countries, which it had asked for until now.

Four main reasons would militate in favour of a more ambitious approach:

Higher oil and coal prices resulting from a declining value of the Euro will force EU operators to reduce their fossil energy inputs anyhow. Setting a more ambitious official reduction target would make this situation more visible.

The temporary decline of EU emissions in 2008-09, due to the recession, will facilitate achieving medium term reduction targets.

EU economic growth is expected to remain sluggish during the coming 10 years, which will tend to keep emissions at lower than expected levels.

The EU is making good progress in reducing its emissions, due to improved energy efficiency and rising investments in wind energy. It should continue on this path with the ambition of becoming the most advanced low-carbon economy by 2050, as stipulated by the European Council.

Last not least, the EU would set an example for other developed and emerging countries by showing that it is possible to reconcile an ambitious climate policy with economic development. The EU can do so more easily than many emerging countries thanks to having phased out most of its energy-intensive industries during the last 40 years.

A tougher climate target will give a boost to the transformation of the European energy sector. The EU power industry needs to replace up to 200 GW existing power plants before 2020. It is crucial avoiding that these be not replaced by coal-fired power plants – with an expected life-time of 40-50 years. The higher the price of C02 emission certificates, which will be a corollary of a tougher emission target, the stronger the incentive to invest in wind, nuclear, solar or gas technologies, as well as in improving inter-connections. This in turn will help making the EU more resistant to rising prices of coal in the future.

Spurring modernisation of the energy sector will by the same token give the EU equipment industry a competitive edge in world markets.

Industry is dead against a higher target for C02 emissions. It fears competition from China and other countries with lower electricity prices and threatens to outsource energy-intensive facilities. Such apprehensions are exaggerated. For the normal high value-added manufacturing company energy prices have become an almost marginal cost factor, and energy-intensive producers, e.g. aluminium, will anyhow have to look for cheap hydro-energy in Norway or Canada.

The power industry with heavy reliance on coal-fired plants will be most directly hit by lower emission quotas. But the most forward looking companies have already taken provisions for cutting their C02 emissions at a faster rate than the 20 reduction target for 2020. EON, the biggest European Utility, has just announced a huge investment package aiming to cut its C02 emissions by half until 2030!

Hopefully governments will not be too much impressed by the – familiar – warnings from industry.

The EU has two possibilities for facilitating the necessary transformations:

By imposing structural funds, during 2014-20, to be used exclusively for accelerating Europe’s transformation to a low-emission society

By setting aside revenues accruing from the auction of emission certificates to offer loan facilities.

Brussels 08.05.10 Eberhard Rhein

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