3E Intelligence

“EU can’t cut emissions. Greenhouse gases are mounting despite antipollution policy” is the triumphant title and subtitle in today’s (3 April) Wall Street Journal (print version). Things might not be as bad as the US neo-liberal journalist of the WSJ pretends, but the last report on the emissions from EU installations which are subject to the famous EU cap-and-trade system (ETS), are surely something to look at more carefully.

Of course, even the ETS lovers now admit that there were teething problems with over-allocation of allowances in the first phase, but the stricter draft rules for the second phase should put the ETS back on the rails to Low-Carbon Land.

But where is the guarantee that the revised scheme will not know the same flaws and when are the “polluting” installations  starting to make hard investments in new technologies instead of just buying the extra allowances on the market? Is it possible that, contrary to the emissions system for SO2, this ETS will not reach its objectives and will have to be abandoned at some point?

What is certainly clear is that the only winners from the scheme up to now are the companies that have made big windfall profits as a result of the over-allocations and the carbon traders who have made millions from these new markets.

Further reading:

• EurActiv: European CO2 emissions up in 2007
• Commission: Emission Trading Scheme: Community Independent Transaction Log
• Fridtjof Nansen Institute: Understanding the Fascinating Development of the EU ETS

The Spring Summit of European political leaders has been another showcase of why this generation of policymakers will be unable to deal with the current climate-energy chaos. Although the 27 decided to support the Commission’s climate/energy package, short-term protection of European (or better German, French, and other national) economic interests and jobs is still much more a priority for politicians who are incapable of thinking beyond their potential next term in office.

The caving in of Chancellor Merkel to big old industry’s scaremongering about “carbon leakage” (read “delocalisation”) is particularly significant, as the same Mrs Merkel less than one year ago (at Heiligendamm) was hailed as the new “Valkyrie” in the war against climate change.

It is remarkable how fast certain interests have been able to hegemonise the “carbon leakage” rhetoric and how supposedly “smart” politicians have fallen back to their old reference frameworks(their competitiveness or Lisbon paradigm) to water down one of the key elements of Europe’s so-called leadership on climate change: the European emission trading scheme. Continuing to give free emission allowances to these industries will, in the long run, mean the collapse of the whole emission trading system itself. But why care? Après moi, le déluge. Have politicians not learned any lessons from their coal “débacles” in the 80s?

As far as I know, no serious scientific study has been undertaken or initiated to determine the real dangers of the climate delocalisation. Carbon leakage is indeed a problem but it would be helpful if the EU could do some serious impact assessment before believing the exaggerated horror stories which are now distorting the political discourse on these issues.

Moreover, by promising free carbon allowances to its heavy industries, the European leaders will probably undermine any future American plans for a similar cap-and trade system. All three candidates for the US Presidency have planned 100% auctioning of carbon allowances once they would be US President. Does anyone believe this will happen now that the European so-called climate change leaders have gone chicken?

Putting the building blocks in place for a smooth transition to the new sustainable and post-oil energy future will require no less than a monumental global coordination effort of ALL economic superpowers. When these superpowers will continue to put their own short-term interests higher than the long-term survival chances of our global civilisation, then James Lovelock’s Cassandra call will come true and Gaia will have its revenge.

Further reading:

• Council: Conclusions of the Sprint Summit
• Independent: EU leaders promise to act against China and US in carbon crusade
• International Herald Tribune: EU leaders commit to new year-end climate change deadline
• Guardian: Concessions to Merkel threaten climate change plan

Here is another proof that Europe’s climate “leadership” could quickly be eclipsed once the United States has fully woken up to the climate/energy challenge. A new report published yesterday by New Carbon Finance, one of the world’s leading carbon market analysts, shows that an American cap-and-trade system based on current proposals in the US Congress could be in place by 2012-2013 and could reach a market value of 1 trillion dollar by 2020, twice the size of the EU’s emissions trading system.

The interesting White Paper of New Carbon Finance also provides an excellent overview of the emerging US carbon politics. More than half of all US states (60% of GDP) have already committed to reducing greenhouse gas emissions and no less than 13 federal bills are circulating in the Congress to address global warming through domestic action. All three remaining candidates for the Presidency have expressed their support for a future cap-and-trade system.

Further reading:

• New Carbon Finance: Press release 14 February 2008
• Carbon Positive: US set for $1 trillion carbon market

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.

[As you will have seen, there has been very little activity on this blog for a week. That's because I was in Oakland, California working with the Global Footprint Network with whom I will be opening a new office in Brussels in the very near future. I am quite happy to be able to work with an organisation which I think has the potential to become one of the thought leaders on sustainability economics and the necessary transformation needed to end our ecological "overshoot". More on these activities later]

One of the most interesting reports to come out last week was published by the UK’s Carbon Trust. In an excellent analysis of the impact of the EU’s emissions trading scheme on the competitive position of our European manufacturing industry, the Carbon Trust has concluded that the effects of the EU’s climate policy flagship on our industry are quite small, except for some sectors (cement, steel, glass, chemicals) which might need to be helped with some further free carbon allowances. On Wednesday 23 January, the European Commission will propose its ideas to broaden and strengthen the ETS from 2013.

Further reading:

• Financial Times: Emission trade ‘will hit’ some sectors
• EurActiv: Commission eyes end to free pollution credits

• Heavy flak for the EU’s plans to include the aviation sector into its carbon emissions trading scheme by 2011. The proposed policies will do very little to tackle the climate change challenge of growing aviation, says a new report by the renowned Tyndall Centre for Climate Change Research. Friends of the Earth UK (which commissioned the Tyndall study) called for extra measures such as VAT on air tickets, a tax on aviation fuel and a moratorium on new runways at airports. EurActiv and BBC News bring the story.
• Reuters has a good article on China’s renewable energy efforts. The country wants to invest over 265 billion dollars in renewable energy (mostly hydro) to reach its 15% renewables target by 2020.
• The international diplomatic climate circus continues with APEC (Asian Pacific) leaders meeting in Sidney to discuss trade and climate change issues. Australia and the US, the two Kyoto dropouts, will try to convince China and others to commit to more action. See International Herald Tribune and the critical Sydney Morning Herald (”The only things concrete likely to be the barriers”). 

For all the political rhetoric about the urgency to fight climate change, political and economic elites still do not seem to understand the full ramifications of our global crisis. This is illustrated once more by the revolt of six “new” EU member states (Latvia, Poland, Hungary, the Czech Republic, Slovakia and Estonia) against the Commission’s decision to slash these countries’ carbon emission allowances for companies.

The pending court case(s?) before the European Court of Justice could jeopardise what is generally known as the “crown jewel” of EU climate change policy: the EU’s Emissions Trading Scheme.

At a time when a debate is raging in the US Congress about the best potential instruments to fight global warming, the challenge of the six could even have serious implications for long-term global climate change policies.

What these developments clearly prove though is that for political elites, economic competitiveness (as traditionally defined) is still more of a concern than the negative effects of changing weather patterns (such as the floods in the UK and the heat wave deaths in Eastern Europe). And this is not surprising: in the end the personal future of most politicians will depend more on growing GDP and rising employment figures than on the number of prevented climate disasters. And by the way, the clean-up operations after the floods or the forest fires are likely even to raise GDP for the countries involved.

This all leads us to one conclusion: as long as this “autistic” view of competitiveness will keep guiding our decision makers, we will stay on road for long-term economic collapse. What we urgently need is a new debate on eco-competitiveness and a new instrument to measure a society’s well-being if we are to solve the main challenges of our 21st century.

Giovanni Bisignani, director general of the International Air Transport Association (Iata) said on Monday 4 June that the air industry needs to develop zero-carbon airplanes within the next fifty years (see Financial Times or read Mr Bisignani’s full speech in Vancouver). His call for a technological revolution in the air industry comes as aviation is increasingly being seen as one of the main culprits of the growth in greenhouse gas emissions.

Although airplanes have become much more fuel-efficient and more environmentally-friendly over the last ten years, the enormous growth of air travel has made the sector one of the fastest growing sources of GHG emission. The European Commission has therefore started a process which is supposed to integrate the aviation sector into the EU’s emissions trading scheme (ETS).

Mr Bisignani also hit out at the “schizophrenic” and “irresponsible” policies of governments saying that Europe is “dragging its feet” over the “Single European Sky” (a more harmonised and efficient traffic management system) which could save up to 12 million tonnes of CO2.

More reading on this issue:

• Boeing: Alternate fuels for use in commercial aircraft
• George Monbiot: On the flight path to global meltdown (in the Guardian 21 September 2006)

This year’s EU Green Week will devote a special session to the debate on aviation and climate change, moderated by yours truly. See the programme for Thursday 14 June.