Rhein on Energy and Climate

During the last eight months the EU has been wavering about whether or not to lift its 2020 emissions target from 20 to 30 percent.

The official EU line has been dictated by its desire to use additional cuts as leverage in the international climate negotiations. It has therefore linked them to equivalent gestures by the main developed countries, in particular the USA. Such gestures have not come forth so far. The US Senate has been unable to agree on a comprehensive climate legislation and is unlikely to do so in the coming months. This prevents Canada and possibly Australia from introducing more effective legislation. Japan` s weak new government also finds it more difficult to act.

Internally, the EU has been split. Countries like UK, Denmark, Sweden, Finland, and France have been favourable to a unilateral cut, while Poland and Italy have been opposed and Germany unable to make up its mind. These positions reflect different economic interests. Poland remains concerned about the impact on its coal industry. Italy has not yet invested enough in “green energies”; and Germany is torn between its important coal-fired power sector and advanced green energy sector.

Beyond those divisions we note an interesting development in the business community: the energy-intensive sectors – steel, cement, aluminium and heavy chemicals – are increasingly pitted against those in favour of a more courageous energy and climate policy, like wind, solar and engineering companies. As of January 25th, shortly after the disillusioning results of the Copenhagen Climate Conference, an influential group of European Multinationals, among which Vodafone, Shell, Philips and Tesco, have addressed an open letter to Presidents Barroso and Van Rompuy expressing their concerns about losing the competitive edge in green energy and having to pay to pay much higher prices by delaying action.

In an “Option Paper on raising the emission target and the risks of carbon leakage” of May 26th, the Commission has made a convincing plea for a 30 percent emission target. But it failed to make a formal proposition considering the conditions not yet ripe for such a step in view of the internal economic and financial situation and the lack of response from the international community.

The Commission has advanced five strong arguments for raising the emission target:

A faster than expected advance towards the 20 percent target.

In 2010 the EU will have implemented already two thirds of its 20 percent target, due to higher energy efficiency, a more rapid shift towards alternative energies and lower economic growth.

Its relative cheapness.

With an extra cost of only € 11 billion during 2013-20 the EU would be able to reduce its emissions by 30 percent, due to the fall of C02 market prices and the faster progress made already.

The need to implement a reduction of 80-95 percent until 2050.

The European Council had fixed this target in 2009 as the EU contribution to a global climate strategy for halving emissions until the middle of the century.

With only 20 percent of that long-term target implemented in 2020, the EU would have to fight an extremely difficult and costly up-hill battle to achieve a further reduction of 60-75 percent in only 30 years. Every year of delay in tackling the long-term objective would cost the EU billions of extra Euros.

Energy security concerns.

According to the latest IEA projections the world has to brace itself for rising oil scarcity and higher oil prices in the second half of the decade. The IEA projects an oil price of ä 150/barril around 2020. This would lead to a substantially higher EU import bill which the the EU would be able to compensate by stepping up its efforts for raising energy efficiency.

The low risk of “carbon leakage.”

The risk of carbon leakage resulting from a 30 percent reduction target is minimal: The energy intensive sectors will be able to draw on considerable volumes of unused emission allowances and remain exempt from auctioning their allowances. The bulk of business will be affected by slightly higher electricity rates, but which have only a marginal bearing on their overall costs.

On July 15th, almost two months after the publication of the Commission paper something unusual in European politics happened:

The environment ministers of the three major EU countries – France, Germany and UK – published a joint article in three leading European newspapers entitled “Europe needs to reduce emissions by 30%.”

The article sent a clear signal to business and citizens that Germany had allied with those member countries in favour of a tougher stance.

But it also raised a furious and exaggerated outcry by European business, arguing that it has been so bruised by the financial crisis and hit by stiff competition from countries that have not taken harsh climate measures that it cannot afford to be subject to additional climate constraints.

The article also contains messages to the European Commission and third countries.

The Commission will have to review the issues one again after the summer recess and hopefully come to the conclusion that the time has become ripe. It can count on the support from key member countries, a sizeable fraction of the European Parliament for a more aggressive climate policy. Its arguments are compelling. It should therefore be able to convince business as well as hesitant member states of the need for advancing towards a sustainable energy system based on energy efficiency, wind, hydro, solar , nuclear and carbon capture& storage technologies.

Nothing should keep the Commission from delaying any longer a formal proposal. In view of the Cancun Climate Conference a draft proposal for a 30 percent cut would be a powerful signal to the rest of the world that the EU means business, but expects comparable action from other emitter countries.

Brussels 16.07. 10 Eberhard Rhein

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