3E Intelligence

One year after it presented its first climate/energy package, the European Commission published [press release] on Wednesday 23 January five further proposals dealing with

  • the strengthening and extension of its greenhouse gas emissions trading scheme (ETS);
  • the individual commitments of member states to reduce non-ETS-sector emissions by 2020;
  • the support mechanisms to produce electricity from renewable sources;
  • the actions to stimulate carbon capture and storage;
  • new state aid rules allowing for environmental actions.

This new package comes at a time of economic uncertainty (some would say “recession”) and one month after the international climate top at Bali nearly failed to reach an agreement on how to move forward on international climate change efforts. Since the beginning of 2006, the EU’s “green” paint has clearly come off as industry lobbying groups (especially Business Europe) have started endless attacks on the climate-energy proposals in the name of Europe’s competitiveness and member states have hesitated to take the necessary measures to deal with the climate-energy chaos. It is clear that neither business nor member states are willing to walk the Commission’s talk.

Not that the Commission or the Parliament cares in any way. The rhetoric was as jubilant as ever (a “historical day”, a “far-reaching package”, good for “the planet”, the economy, European citizens and even the European Union construction itself) and no less than four commissioners found it necessary to put themselves in the media spotlight (next time a press conference with all commissioners?)

But let’s analyse the proposals themselves.

First, the reform of the ETS. Yes, there is an extension to new gases and new sectors and putting the allocation plans in the hands of the Commission instead of the member states makes perfect sense if you look at what a mess national governments made of it in the past (with over-allocations and a price collapse of carbon as a result). But the Commission seems not to have read the full book of lessons from its past mistakes and continues to hand out free allowances for some sectors (including possibly the energy-intensive sectors). I wonder what the economists in the Commission will say when the carbon price nose-dives again as a result of lack of certainty for the market.

Then the burden-sharing for member states for the reductions not covered under ETS (such as buildings, transport, agriculture etc). Here the Commission set individual targets which add up to an overall 10% reduction from 2005 levels. It is clear that there will still serious fighting with the national governments to get these figures approved.

The “piece de resistance” of the second package is a draft law to promote renewable energies. The Commission wants to increase the share of renewables by no less than 11.5% (now it is 8.5%), to be divided “fairly” between the member states. No question if this is even technically possible and whether these renewables might have negative environmental effects (and when they are known as with the 10% target for biofuels, the Commission has prepared “sustainability standards” – wonder how they are going to be monitored).  Of course, here too, the battles with national governments will be of epic character.

Whether the ambitious target for renewables can be reached, will therefore depend upon the member states and if the Commission’s past plans on energy efficiency are anything to take inspiration from, than it might be clear that we should not put our hopes too high. The memo on the first assessment of the national energy efficiency plans says it all (although in very diplomatic language): “Although the action plans provide some encouragement [meaning “a few countries have made some small efforts” – WDB], there appears to be a gap between the political commitment to energy efficiency and the proposals aimed at facing up to these challenges” [the “talk and the walk”, you see :(].

Next, the Commission wants to support carbon capture and storage, but here also the reality looks pretty bleak. Companies are not willing to invest in the 12 demonstration plants the Commission wants to build. With Germany and France planning new coal power plants in the next years, the 2020 target to get CCS ready on a commercial scale does seem to make little sense. If the industry is unwilling to shoulder the burden, the Commission could find inspiration in Jim Hansen’s proposal for a moratorium on new coal plants until the CCS is ready.

Last but not least, the issue of costs. The bill for all these goodies would be no more than 3€ a week per EU citizen, whereas the costs of “inaction” are at least ten times that (the Commission apparently has not made its own calculations and just repeats the very political cost statements of the famous Stern report). If the costs were really that small, why all the fuzz about the EU’s competitiveness?

So, overall conclusion: “historical”? Yes, as in the EU missed a historical chance to make a difference. And with the economic recession becoming every day more visible, we might have closed the window of opportunity to really tackle the biggest threat of the 21st century.

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