Reports

Unwrapping the EU climate change package: a question of delivery?

28 February 2008


Stavros Dimas, European Commissioner for the Environment, stressed that the EU’s top priority was to get a “comprehensive international agreement on climate change by the end of 2009”, as foreseen in Bali last year. However, Europe cannot solve the global problem of climate change on its own, so must work with other international partners to achieve this.

The Bali agreement was an important breakthrough, said Commissioner Dimas, as it brought all countries, including the US, on board and provided a “roadmap” for the key issues to be discussed at future negotiations.

He was “optimistic” about reaching this global agreement by 2009, but said it would require the EU to cooperate more closely and strategically with key partners, both at international meetings like the G-8 and through bilateral discussions. This would complement the United Nations’ process for reaching a post-2012 climate change agreement.

The “battle against climate change” requires additional funding - including from public/private partnerships and the private sector - for green finance, investment and trade streams to support clean, ‘climate-friendly’ technologies, adapt to the effects of climate change and tackle deforestation.

The EU must continue to show leadership, and the Commission’s climate and energy package (adopted on 23 January) sets ambitious targets and shows developing countries both that emission cuts are necessary and can be compatible with economic growth and can even boost competitiveness. It also provides an example that could be tailored to their national circumstances.

Emissions Trade Scheme - “the keystone” of the energy package

The EU Emission Trading Scheme is the “keystone of the package”, said the Commissioner. The new proposals would make it more environmentally and economically efficient, and increase harmonisation in order to create a level playing field within the Union.

First, the proposals suggest introducing an EU-wide ‘cap’ on the total number of CO2 allowances (replacing the current system of national allocation plans) to be implemented by 2020. The proposals also allow for the cap to be adjusted when the international agreement comes into force.

Secondly, the proposals suggest distributing the allowances through “auctioning”, as this would avoid unwanted distributional effects and create a bigger incentive for investing in a low-carbon economy. The Commission is proposing scrapping the free allocation to electricity generators from the beginning of the third trading period, and phasing it out for the remaining sectors by 2020.

However, the Commission accepts that this could pose problems for energy-intensive sectors which operate in an international market, as they would risk losing market share if they pass the cost of CO2 allowances to their customers. These companies could therefore be tempted to move their production abroad, creating a ‘carbon leakage’ which could cost European jobs and lead to higher global emissions as production ‘abroad’ would be subject to fewer constraints.

To prevent this, the Commission will identify the sectors potentially at risk, review of the impact of the international negotiations once they are completed, and make appropriate proposals if necessary. These could involve adjusting the proportion of free allowances or requiring importers to purchase allowances for their products.

Commissioner Dimas believed that the EU Emissions Trading System (ETS) was a “solid building block” for a future international agreement on climate change and for the global carbon market to achieve global emission reductions at least cost.

“Effort-sharing”

A second major plank in the scheme is “effort-sharing” - setting legally binding targets for each Member State to cut greenhouse gas emissions in sectors not covered by the EU ETS.

These national targets are based on the principle of fairness between Member States and the need for sustainable economic growth across the EU. Member States with a relatively low per capita GDP would be able to increase their greenhouse emissions (although they would be required to make a serious effort to limit this), while those with a relatively high per capita GDP would have to reduce them compared to 2005 levels.

In addition, no Member State would have to reduce - or be able to increase - its emissions by more than 20% compared with the 2005 level. All these changes would be phased in between 2013 and 2020.

Mechanisms and credits

While Clean Development Mechanisms (CDM) and Joint Implementation (JI) credits are important, their use needs to be properly managed to provide incentives for innovation in energy saving, and to show the international community that the EU is ready to sign up to the international agreement. So the Commission wants to limit the use of CDMs and JIs until that agreement is signed. After this, their use could be increased.

In addition, the Commission wants to develop European projects for Carbon Capture and Storage (CCS), as well as encouraging its use in countries like China or India which rely on fossil fuel to generate electricity. The new energy package contains a regulatory framework for managing CCS in Europe and, as the stored carbon dioxide is recognised as not having been emitted under the ETS, this will stimulate CSS technology. Such technologies are expected to help meet the climate and energy objectives and reduce costs by about €60 billion in 2030.

This draft legislation is now being discussed in the European Parliament and the Council. The Commissioner insisted that it was very important that the proposals are not watered down in the legislative process and that the package is adopted as soon as possible - and certainly before the end of the present legislature.

This is essential if the EU wants to retain the international leadership in fighting climate change, and influence the negotiating process which should be finalised by the end of 2009. The climate action and renewable energy package therefore has a crucial role to play in future climate policy, both in the EU and externally.