“Responding to the challenge of climate change,” European Commission president, José Manuel Barroso, said last month, “is the ultimate political test for our generation.” He spoke as the European Commission released the specifics of an ambitious set of proposals that were first agreed last year, when European Union heads of state proposed a package of new policies on climate change and energy.
The EU decided in March 2007 to unilaterally implement a target of cutting greenhouse gases to 20% below 1990 levels by 2020, and reduce emissions further — to 30% below 1990 levels — if other major economies would also take on ambitious commitments. To back this up, a legally binding target was agreed upon for 20% of Europe’s energy supply to be renewable by 2020, as well as a 20% efficiency target for 2020. Ten to 12 carbon capture and storage demonstration plants were slated to be up and running by 2015. Last month, specifics were also released on the future of the EU Emissions Trading Scheme (ETS), which concludes its current phase in 2012. The ETS is a policy approach that sets binding caps on key sectors in the European economy, such as the power industry, allowing companies to sell permits if they can go below their target, for others to buy if they need additional permits.
So, how ambitious was the package? Looking at it point-by-point, one finds strengths and weaknesses. The proposal for a revised ETS is one such strong point. If the Commission’s proposal is adopted, the scheme will be greatly improved by expanding the covered sectors to include, for instance, aluminium and ammonia. Another development is that in the first phase, companies were given pollution permits straight away, an approach dubbed “grandfathering.” The new proposal, however, moves away from giving out permits, requiring companies to buy them, a system known as auctioning. This approach will ensure that the polluter actually pays the cost of the environmental damage from the carbon dioxide emitted. It will also generate revenues, some of which will be allocated for climate protection on a member-state level. These revenues could also be allocated for elements of the post-2012 international agreement: adaptation, avoided deforestation or technology transfer, for instance. In these respects, the European market can serve as a model for other countries as they move forward in their own emissions trading debates.
The package’s draft Renewable Energy Directive also provides a good basis for future development. By proposing national binding targets, the Commission places renewables at the centre of the low-carbon economy, emphasising their development and reducing costs for the international community.
The main weakness of the Commission package, however, is its proposal on carbon capture and storage (CCS). The capture and storage in geological formations of carbon dioxide from power plants and other installations is often cited as a part of the solution to climate change. The challenge, however, is that this technology has yet to be demonstrated on a large scale.
In 2007, the Commission put forward an ambitious plan to tackle global coal use, not only by building 12 large scale demonstration plants using CCS, but also by aiming to make CCS mandatory for all new plants by 2020 and retrofitting all plants built after 2010. This was also aimed at creating the new technology needed to tackle rapidly growing coal emissions in China, India and the US.
However, the 2008 proposal signals a retreat by the European Commission from its ambition to make the EU the first advanced economy to decarbonise the power sector. Though much has been made of the EU’s renewable energy package in the media and political circles,, over 75% of new power capacity in Europe will come from fossil fuels, even with the 20% renewables target in place. High gas prices and fears over energy dependence on Russia are making coal the new fuel of choice, with 40 major new coal power plants planned to be built in the next five years. This will undermine the EU’s own 2050 emission targets to reduce emissions 60% below 1990 levels.
This aspect of the new climate package is a step backward. It fails to provide guaranteed EU funding for the demonstration plants, and may only look at mandatory deployment of CCS as a possible last resort if private sector investment is slow. This has implications for other nations, as some of the demonstrations should occur in countries such as China and India. It is critical to develop a more centrally funded mechanism for these demonstrations if they are to be built in a time-frame relevant to keeping the global average temperature rise below two degrees Celsius above pre-industrial levels. To avoid the devastating impacts associated with that temperature rise, global emissions must peak and decline in the next 10 to 15 years. This is a tremendous challenge, particularly due to the new coal power plants being built around the world. Taking account of the development pathways of countries like China and India, it is crucial that a zero-emissions coal plant is developed and deployed as rapidly as possible.
Global negotiations and beyond
A number of key elements in the package are linked with the outcome of the international climate negotiations, which were launched at recent UN-led talks in Bali and will conclude in Copenhagen in 2009. These negotiations, the so-called “Bali Action Plan” or “Bali road map”, will cover all core elements of a post-2012 agreement, after the current phase of the Kyoto Protocol expires, including mitigation, adaptation, technology and finance. On the issue of mitigation, the Intergovernmental Panel on Climate Change (IPCC) outlines that developed countries must reduce emissions in the range of 25% to 40% below 1990 by 2020. While the EU strongly supported that range in Bali, its own package only plans for a 20% reduction. Instead of creating a 30% reduction plan upfront, the Commission has created a ratcheting mechanism to change the target according to what is agreed upon internationally. This is one of the weaknesses of the package; it would have been preferable to plan for success in Copenhagen and create implementation legislation of 30% across Europe.
The treatment of internationally competitive industries in the ETS is also linked to the international picture; their treatment will be revisited after the conclusion of negotiations in an assessment in 2011, which will take into account any binding sectoral agreements that may be concluded. This links directly to the section of the Bali Action Plan that addresses internationally competitive sectors as well as into the negotiations over “reportable, measurable and verifiable” new actions by developing countries. Many informal proposals now focus on how developing countries could take on sectoral commitments to reduce emissions. This is now formally linked with the evolution of the ETS.
The Commission’s ETS proposal allows for some continued use of Clean Development Mechanism (CDM) credits, but limits this until global negotiations are completed. It also excludes land-use, land-use change and forestry crediting, citing its preference to use auction revenue to fund deforestation reductions, rather than linking it directly with emissions trading. These are wise proposals, and indicate the central focus the Commission has placed on both achieving the transition to a low-carbon economy in Europe and post-2012 negotiations. How the emissions trading and CDM provisions of the Kyoto Protocol and UNFCCC evolve is a core element of the negotiations. Countries will also be expected to contribute new ideas for innovative financing on deforestation, adaptation and mitigation, where the role of auctioning revenue internationally and nationally will play a large role. The ETS provides an excellent forum to test out the international applicability of some of these ideas in the financing realm.
The EU has a unique opportunity to show the world how to move to a low-carbon economy while producing new jobs and modernising infrastructure and sectors. Many of these lessons will be essential for emerging economies, such as China, which are willing to act but have few models to follow. The success of the EU will also be key to bringing the United States back into the game in an ambitious fashion. As the next US president becomes known, let’s hope he or she can look to Europe for concrete examples on how to move tackle climate and energy security together, while growing the economy.
Jennifer Morgan is Climate and Energy Security Director for E3G (Third Generation Environmentalism)
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