3E Intelligence

The so-called “leaders” of the eight biggest economies have done it again: glorious declarations with little substance in a diplomatic language which allows all of them to spin their “global” commitment and responsibility.

Not only were there no concrete mid-term targets set but the 50% reduction promise has no binding character, lacks any base reference year against which the reduction should be measured and is all focused on finding solutions through technological innovations. Of course, political leaders with lack of vision see no need to change the unsustainable lifestyles which hundreds of millions of new middle class Chinese and Indian citizens are now starting to imitate. The declaration also still clings to the fallacious premise that the necessary climate/energy revolution can take place without questioning the current “economic growth addiction”.

Don’t take my word for it, just read the excellent “annotated climate declaration” by Andrew Rivkin in the New York Times’ Dot Earth blog.

According to the Wall Street Journal’s Environmental Capital blog, “clean” coal is the big winner of the G8 Hokkaido summit.

As G-8 leaders start their 3-day talking circus on the Japanese island of Hokkaido, four new reports confirm that our race towards economic and ecological collapse continues at an increasing speed:

• The Australian government published its long-awaited Garnaut report (over 500 pages), sort of a Stern report for the country down under. Economist Garnaut’s (not very original) proposal: use the market to solve the climate crisis. Was it not Stern who called climate change “the biggest market failure ever”? What did Einstein say about trying to solve a problem with the instrument that created the problem in the first place? For a good analysis of the Garnaut report, read Geoff Well’s excellent comments.
• Lester Brown’s Earth Policy Institute issued a new Plan B study calling for an 80% reduction of greenhouse gas emissions by 2020 (yes, 2020, not 2050) and indicating how it can be done. This reduction target is what “is needed” not “what is politically feasible”, says the report. See the problem?
• WWF and Allianz presented G-8 climate scorecards measuring the performances (or better lack of it) of the participant countries at Hokkaido. No real surprises here, but good to demonstrate the gap between climate rhetoric and real action.
• Last but not least, an interesting report published today by the UK’s DEFRA (department for environment, food and rural affairs) looks at the embedded carbon emissions in products and services imported into the country. The study shows that we are just exporting our carbon emissions to China and India (where we buy our cheap products) and that the Kyoto-based national reduction strategies are bound to fail. It demonstrates that real climate solutions will have to start structurally from regulating our individual consumer behaviour. Which politicians will have the courage to address this?

It does not happen often that I agree with the American Enterprise Institute but Steven Hayward’s analysis of the “real cost of tackling climate change” in the Wall Street Journal of 28 April is spot on: an 80% reduction of greenhouse gas emissions by 2050 will have dramatic implications for our way of life.

Hayward has at least the courage (which cannot be said for our politicians) to tell the public what this 80% cut will mean for citizens’ daily lives. In not one political document have I ever seen a serious impact assessment of the 80% target. The fear of being the bearer of bad news is one which characterises all policymakers (even the ones who know that the climate crisis will hit hard).

Here are a few extracts from Hayward’s article:

“Begin with the current inventory of carbon dioxide emissions – CO2 being the principal greenhouse gas generated almost entirely by energy use. According to the Department of Energy’s most recent data on greenhouse gas emissions, in 2006 the U.S. emitted 5.8 billion metric tons of carbon dioxide, or just under 20 tons per capita. An 80% reduction in these emissions from 1990 levels means that the U.S. cannot emit more than about one billion metric tons of CO2 in 2050.

Were man-made carbon dioxide emissions in this country ever that low? The answer is probably yes – from historical energy data it is possible to estimate that the U.S. last emitted one billion metric tons around 1910. But in 1910, the U.S. had 92 million people, and per capita income, in current dollars, was about $6,000.

By the year 2050, the Census Bureau projects that our population will be around 420 million. This means per capita emissions will have to fall to about 2.5 tons in order to meet the goal of 80% reduction.

It is likely that U.S. per capita emissions were never that low – even back in colonial days when the only fuel we burned was wood. The only nations in the world today that emit at this low level are all poor developing nations, such as Belize, Mauritius, Jordan, Haiti and Somalia.”

…

“Consider the residential sector. At the present time, American households emit 1.2 billion tons of CO2 – 20% higher than the entire nation’s emissions must be in 2050. If households are to emit no more than their present share of CO2, emissions will have to be reduced to 204 million tons by 2050. But in 2050, there will be another 40 million residential households in the U.S.

Today, the average residence in the U.S. uses about 10,500 kilowatt hours of electricity and emits 11.4 tons of CO2 per year (much more if you are Al Gore or John Edwards and live in a mansion). To stay within the magic number, average household emissions will have to fall to no more than 1.5 tons per year. In our current electricity infrastructure, this would mean using no more than about 2,500 KwH per year. This is not enough juice to run the average hot water heater.

You can forget refrigerators, microwaves, clothes dryers and flat screen TVs. Even a house tricked out with all the latest high-efficiency EnergyStar appliances and compact fluorescent lights won’t come close. The same daunting energy math applies to the industrial, commercial and transportation sectors as well. The clear implication is that we shall have to replace virtually the entire fossil fuel electricity infrastructure over the next four decades with CO2-free sources – a multitrillion dollar proposition, if it can be done at all.”

I fear these figures are hard but pretty much correct. I would like to see someone do the same maths for Europe based on our own CO2 targets for 2050. Who of the policymakers dares to do the exercise?

The point Hayward misses, of course, is that we really have NO CHOICE. Either we decide on a global scale (with which governance structures?) to bring our economic activities back to a sustainable scale or several calamities will force us back to live within the planet’s ecological limits. The costs of that last possibility are surely going to be immense (also in terms of human lives). The choice is still ours, but for how long?

This blog was very silent last week because I was in Washington DC participating in a fascinating two-day climate and energy conference organised by the Transatlantic Platform for Action on the Global Environment (T-PAGE). This dialogue forum was created to facilitate debate among members of EU and US civil society on climate and energy policies on both sides of the Atlantic.

The conference focused in a first-day expert workshop on the question how to reduce emissions from the transport sector and on the controversial US and EU biofuels policies. On the second day, a public event highlighted the lessons drawn from the EU’s emissions trading scheme (ETS) and US Congress plans for a similar cap-and-trade system and looked at public perceptions in the US and the EU about the global warming challenge.

Overall, the European participants painted a less rosy picture than EU institutions want to make believe. Not only was there the growing disappointment with the global effects of biofuels policies (one of the EU’s own environmental institutions now pleads for suspending the 10% target), but the evaluation of Europe’s climate flagship, the emissions trading scheme or ETS, was also rather bleak. It is obvious that up to now the ETS has not lived up to its expectations. Very few real technological investments as a result of pricing CO2 have taken place and the only ones who seem to have won from ETS are the financial traders (who therefore write very positive reports about ETS). It is doubtful whether the Commission’s new proposals will turn things around. Not only has the energy-intensive industry hijacked the debate with its “carbon leakage” panic but even the better parts of the Commission’s ETS review drew heavy fire at the conference. “When Europe’s power producers (who have made big windfall profits in the first phase of ETS) applaud the auctioning proposals of the new Commission package, you have to smell a rat” was the justified and smart observation of an ex-Commission official.

The US participants (mainly from environmental groups, academics and one representative of the Californian lawmakers) were quite optimistic that the wind in the US is changing and that a future administration will endorse stricter global warming targets. One of the doubts raised was whether this will happen fast enough so as to influence the outcome of the Copenhagen climate top of 2009. I also have my own personal doubts in case of a surprise win of John McCain in November. Will the US senator, when President, be able to turn his climate-sceptical party around or will he water down his own positions?

US as well as EU particpants agreed that we need to move to more sustainable transport modes but there was a lot of confusion in the debate on what would be the right approach (some went for CNG, others underlined the need for a breakthrough in electrification technologies, others again highlighted the need for serious transport demand reduction).

On biofuels, the general feeling was that it is time to “take the foot of the accelerator” and “rethink” our biofuels policies in view of rising food prices as well as negative effects on land use and the direct and indirect repercussions for the environment and global warming.

That said, the conference confirmed to me once more that our exclusive focus on climate change makes us lose sight of the bigger sustainability challenge. Climate change is just one symptom of a bigger system crisis with lots of other dimensions (peak oil, gas and coal, high commodity prices, water shortages, biodiversity loss, population growth). Policymakers’ overemphasis on one dimension of this sustainability crisis might lead to effects which aggravate the other crises (see the link between biofuels, population and high oil prices on the one hand and the new hunger issue on the other). If policymakers do not connect the dots and see climate change as part of this huge overarching sustainability challenge, chances are that we will just sink deeper and deeper into the mud as exemplified by the flight into coal and tar sands as a result of the growing energy crunch. It is time to develop a transatlantic and global agenda on sustainability and create the governance structures needed for this system transformation.

“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

Eberhard Rhein’s proposals for an new international climate regime (see his guest blog post from yesterday) has the merit of being more concrete than what I have seen from the EU up to now in terms of efforts to put a global agreement on the rails. Nevertheless, I have two fundamental problems with it (like I have with the EU’s climate policy in general BTW).

First, Eberhard looks only at the climate change challenge. This might be appropriate if you focus on the current international talks but it is not enough when you take as a starting point the global crisis we are facing. Indeed, the climate crisis is just one symptom of a much broader “problematique” which is the unsustainability of our industrial development model. There are other symptoms which show that we are reaching the limits of this model: peak oil or even peak energy (also gas, coal, uranium), the new commodities price boom, our global water and biodiversity threats. All these symptoms demonstrate that the natural capital, which the Earth had built up over the course of millions of years, has been exhausted in less than 150 years to feed our (mostly Western) “growth and consumption hunger”.

Anyone who thinks (like the EU and the whole international community) that by tackling the climate crisis, we are out of the woods, is fundamentally mistaken. We will have to do much more than move to a low-carbon economy; we will have to build a one-planet economy and learn to produce and consume within the Earth’s resource constraints. The transition to such a new development model will not be easy and the ride will be even rougher if we keep postponing the structural reforms needed.

Secondly, while I agree with Eberhard’s analysis that we will not have binding CO2 targets and we should concentrate on the big sector solutions, I miss in his proposal a frank reflection on what these sector proposals will mean for prices of electricity, driving, food etc. Politicians will need to have the courage to tell their citizens that the era of cheap electricity, cheap car petrol, cheap flights and holidays is over and finished. Will our political systems be resilient and visionary enough to deliver such messages and the required political action? Or will we have to wait until economic and ecological collapse will force sustainability upon us? And what will be the cost of such a forced transition to sustainable development which respects the one-planet limits of our future lifestyles?

The following article is a long guest post by Eberhard Rhein, Senior Analyst at the European Policy Centre. Eberhard looks at the challenges for the EU in the area of international cooperation on climate change. I will publish my own reaction to Eberhard’s interesting contribution tomorrow.

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1. By 2020 the EU will account for only 10 percent of global greenhouse emissions. Whatever efforts it may undertake internally to reduce emissions, their impact on the global climate will be next to negligible.

2. It is naïve to believe that the EU may have an exemplary function for the rest of the world when it comes to concrete policy actions. The EU approach is too complex for the vast majority of countries, few of which have the political, legal and above all administrative means to adopt the EU toolbox.

3. Of course, it is politically essential for the EU to play a leading role in international climate policy. Without its drive the Kyoto Protocol would never have seen the day. But the Kyoto Protocol also shows the limits of EU action: its reductions of C02 emissions have been more than compensated by the ultra-rapid rise of emissions from emerging countries, in particular China, which did not have to take any commitments under Kyoto.

4. It is therefore vital for the EU to pursue a dual-track strategy:

· Approve its domestic framework for climate action, for which the corner stones have been laid out in March 2007 and January 2008.

· Prepare the outline of an effective global climate strategy.

The Commission should urgently form a task force for the second mission. It is strategically by far the more important one, on which the EU clearly needs much further thought. Of course, it is not up to the EU to play the saviour of humanity, but without a crystal-clear concept of where humanity should go in the coming 10-20 years, the EU runs the risk of ending in the maelstrom of UN bureaucracy and powerful forces trying to thwart necessary global action.

It is with a strategic global concept in mind that the EU should intensify its consultations with the major players during 2008 and 2009, even before the details of its own policy will be formally agreed in early 2009.

5. Time is terribly short for concluding the Bali talks. We are only 19 months away from early December 2009, when the international community is supposed to approve the main elements of the global climate policy for 2013-2020 and beyond.

Past experience in the EU and UN underscores the extreme difficulty of arriving at effective solutions without careful preparation among the main players. There is no hope for an effective outcome on global policy without the EU, US, China, Russia and Japan having reached a prior consensus on the main elements of a comprehensive solution.

6. So far, the substantive issues of the future global climate deal have hardly been discussed. The Bali Road map and action plan are nothing but a procedural note, in typical UN style.

There is no serious comprehensive issue paper on the table; everybody seems afraid of openly addressing the issues and their optimal solutions. The world can hardly wait until a few weeks before Copenhagen to address them.

7. The annex (hereunder) sets out a few unconventional ideas of how to arrive at a successful conclusion in Copenhagen. They have no other purpose but to stimulate thinking on alternative paths.

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A five –point global climate strategy 2013-30

It will be next to impossible to agree on binding C02 emissions targets for the major emitter countries.

There is no point either losing much time on global climate targets for 2050, however useful they may be as political objectives.

In order to make practical advances the international community has to focus on concrete measures that can produce rapid and verifiable results.

To that end the international community should concentrate its efforts on the main sources of emissions and agree on five-point programme concerning:

• Power generation
• Automobile transport
• Deforestation
• Fossil subsidies
• Gasoline/fuel taxes

1. Phase out C02 emissions from electricity generation by 2030

The main emitter countries should commit themselves to phasing out C02 emissions from power generation by 2030.

They should negotiate an appropriate protocol, which would become an integral part of the Legal Acts of the Copenhagen Climate Conference.

Participating countries would have to require new power plants to respect zero C02 emissions, say as of 2012, and set deadlines for retrofitting existing ones, latest by 2030.

It is possible to achieve C02-emission free power generation with presently available technologies, though at higher electricity rates than a present. Assuming electricity rates to rise by another 100 percent during the next 20 years, because of rising oil, gas and coal prices, the investments should still pay off.

Participants should be free to choose the most appropriate technologies and policy tools for phasing out their C02 emissions: hydro, geothermal, wind, solar, nuclear, carbon sequestration, waves or tides.

Emerging countries like China and India with huge capacities of coal-fired power plants might obtain an extension until 2035 for phasing out.

The impact of such a deal would be huge, essentially through anticipation.

• Power producers will have to revise their long-term planning;
• Research activity will get a big boost, everybody groping for the most efficient ways to generate C02-free power;
• Rising power prices will induce an investment wave into more energy-efficient appliances, machinery, cooling and heating equipment;
• The automobile industry will accelerate the development of electric engines that are bound to replace the combustion engine. This will pave the way to a “green” global automobile park.

Compliance will be easy to monitor.

Financing should not be a problem. There is plenty of international capital around to invest in cross-border power ventures.

The approach does not raise the issue of international competitiveness.

Electricity is not traded internationally, and all major power companies, being subject to identical constraints, will easily be able to pass their rising power costs on to manufacturing industries, services and households.

Higher power prices are not an argument for emerging countries to refuse participation in such an agreement. Power accounts only for a small percentage of manufacturing costs and everybody will gain from the higher energy- efficiency resulting from of higher power rates.

2. Set Stricter global fuel – efficiency standards for 2025

For the automobile industry a similar approach is conceivable.

The major countries with a sizeable automobile industry should undertake a concerted effort to adopt increasingly stricter C02 emission/fuel-efficiency standards.

All major producer countries are involved in such an effort. Some like the USA and China have passed appropriate legislation. What is required is to make these standards progressively more stringent. Thus the recent US legislation provides for mild standards compared to current EU proposals, and which would only be applicable as of 2018 (EU 2012).

The participating countries should negotiate a binding protocol that sets ambitious standards at the horizon of 2025, say of 80 g C02 emission/km, in view of providing the industry with energy - efficiency objective that would guide its R&D efforts.

The impact of fuel efficiency standards is bound to be slow, as it only affects new cars. It will take at least 10 years before new standards will become universally applicable.

That is why long term guidance to the industry is necessary. Companies need a long adjustment time.

Such a Protocol should also become an integral part of the Legal Acts of the Copenhagen Climate Conference.

3. Stop Deforestation by 2012

Deforestation of tropical forests accounts for about 25 percent of C02 emissions. It is therefore essential to stop deforestation at the earliest date possible.

In the past, national efforts to contain illegal logging and clearing of forest areas have failed for a series of reasons: lack of monitoring and effective policing, corruption, and criminal forest fires etc.

It is therefore essential to tackle the causes for deforestation and provide strong incentives to abstain from additional clearing of tropical forest areas.

To that end the international community should envisage the following measures, which should form part of a binding protocol to be negotiated between the interested parties:

• The main tropical forest countries – Brazil, Indonesia, Congo etc. – should commit themselves to put a ban on clearing of forest areas;
• The international community should fight illegal trade with tropical timber, as it has successfully done with ivory;
• The international community should compensate tropical forest countries for their preservation efforts. Compensation should be calculated in terms of “saved C02 emissions”. Depending on the future market prices of C02 emissions, the compensation is likely to run into several billion USD per year;
• The main importing countries – China, USA and EU - should suspend the import of all tropical timber, until the protocol will be fully effective.

This will be a hard nut to crack! The UN has tried to tackle it, but got lost in details and failed to establish the financial link with the “saved C02 emissions”.

It is essential to come up with courageous and effective measures.

4. Phase out consumer subsidies on fossil fuels by 2015

Subsidies on fossil fuels are still very common, especially in oil/gas producing countries. By keeping the domestic prices below world market prices governments encourage energy waste and boost C02 emissions. Russia, Iran, Saudi Arabia have unduly high levels of per capita emissions, due to heavy consumer subsidies.

It is therefore urgent to put an end to this practice, which might account for up to 3 percent of global C02 emissions.

To that end, the UN should undertake the following actions:

• Establish a comprehensive list of all direct and indirect consumer subsidies of fossil energy;
• Estimate their impact on global C02 emissions;
• Propose a rapid time frame for phasing them out as part of the future climate policy framework;
• Negotiate an appropriate legal instrument with the countries concerned;Establish an effective monitoring mechanism.

5. Impose minimum excise taxes on fossil fuels

Per capita C02 emissions in the EU are less than half of those in the USA, essentially because the EU imposes high taxes on fossil fuels, in particular gasoline and diesel.

Excise taxes constitute an effective tool for fighting energy waste and high green house gas emissions. They should therefore be part of the Copenhagen agenda.

All countries should tax gasoline, diesel and kerosene by at least 25-30% of retail prices. In the EU the share of taxes is around 65%!

The EU should propose an international protocol –as part of the Copenhagen package – under which governments commit themselves to introduce appropriate legislation before 2015. The UN should monitor the implementation, publish an annual survey of these taxes and convene an annual meeting of “peer review”.

The inclusion of kerosene in this package would constitute a major contribution to reduction of C02 emissions by air traffic, without requiring the negotiation of a separate international protocol.

Conclusions

This 5-point climate action plan offers an optimal guarantee for a substantial reduction of global C02 emissions by 2030, say 40 percent compared to 2010, through its inclusion of the main emitter countries and its focus on the main sources of global C02 emissions.

It has the advantage of being easily to monitor.

Of course, this draft action plan will have to be fine-tuned to take into account objections from different corners.

A few interesting stories caught my eye over the Easter weekend (which was pretty Xmas-like here in Brussels with snow and winter-like temperatures):

• At the end of last week, the International Herald Tribune reported about a few older “young boys” on some exotic island “plotting to save the planet”, but only if they could make some big bucks out of the operation. Made me think of “Lord of the Flies”. Maybe these guys should be called “Lords of the Lies”?
• The Wall Street Journal is one of my favourite newspaper, not so much because I agree with their ideology, but because of the quality of their writing and reporting. To my great amazement its 24 March edition has two excellent pieces on limits to growth, Malthus and our natural resources and population explosion predicament. The first article is called “New Limits to Growth”Revive Malthusian Fears“; the second is a discussion between two eminent scientist under the title “Could Resources Become A Limit to Global Growth?“. Must-read stuff for anyone interested in the climate-energy debate.
• The last item for today is another thought-provoking scientific piece written by US climate expert James Hansen. In the article, Hansen questions the wisdom of the 450 ppm (2° celcius) target set by the scientific community and the European Union as the maximum acceptible level of global warming. “If humanity wishes to preserve a planet similar to that on which civilization developed, paleoclimate evidence and ongoing climate change suggest that CO2 will need to be reduced from its current 385 ppm [where we are now - WDB] to at most 350 ppm”, says Hansen.

Europe’s energy-intensive industries surely have done a great job in the last six months convincing European policymakers that stringent CO2 measures for their sector would lead to relocations and thus “carbon leakage”. As a result of this successful lobbying, EU leaders last week felt obliged to make promises to protect these industries by possibly giving them free carbon allowances in the future emission trading scheme.

Here is the paragraph of the Council Presidency conclusions related to this carbon leakage issue:

“The European Council recognizes that in a global context of competitive markets, the risk of carbon leakage is a concern in certain sectors such as energy intensive industries particularly exposed to international competition that needs to be analysed and addressed urgently in the new ETS Directive so that if international negotiations fail, appropriate measures can be taken. An international agreement remains the best way of addressing this issue.”

On which scientific evidence is this decision based? Is carbon leakage really happening as a result of the EU’s climate or environment policy?

It is surprising how little research has been done on this subject. The only really good study I found has been undertaken by four Dutch research institutes in the framework of the Netherlands Research Programme on Climate Change. The study “Spillovers of Climate Policy. An assessment of the incidence of carbon leakage and induced technological change due to CO2 abatement measures” dates from December 2004.

Here are a few extracts of the conclusions of this 251-pages report (my highlighting):

“Based on analysing the trends in regional production structures of energy-intensive bulk materials (steel, paper, aluminium, cement and fertilizers), it can be concluded that industrialised countries have been losing global market shares in the production of these materials over the past three decades. This loss in global market shares has been predominantly demand-driven, i.e. caused by the development of new markets and increasing demand in developing countries, rather than by an overall shift of competitive advantage from the industrialised countries towards the developing countries (and a consequent relocation of production structures in the actual, strict sense of the word).”

…

“1. In the past, environmental policy has generally not been a significant decision criterion for the location of investments in the energy-intensive industry and, hence, it does not represent a key explanatory factor for such investments in the developing world.

2. In general, compliance costs as a result of environmental policy are limited in pollution intensive industries, and other cost factors seem to be more decisive investment criteria, with the most important ones being market size and growth (regional demand) and the wage level. Hence, industries with increasing returns to scale will not relocate easily if the pollution abatement costs do not rise more than a high threshold level.

3. The limited effect of environmental policy seems plausible also in view of the companies’ pursuit of higher value added products and their concomitant relatively low interest in conventional energy intensive products. It is also supported by statements of industry representatives
who point out that all countries that are attractive for investment have rather stringent environmental legislation and that, secondly, multinational enterprises would risk their reputation by investing in pollution havens. Moreover, if income levels of developing countries increase, they will demand stricter environmental legislation and, hence, these countries should normally not be a long-term pole of relocating energy-intensive or other, highly polluting industries. Finally, some global players tend to use the most recent technology worldwide since this minimises planning and maintenance costs, particularly in energy-intensive industries producing typical products such as basic chemicals, cement, or pulp and paper.”

The study draws three policy implications from these empirical conclusions:

“The first-best policy to reduce carbon leakage is to increase the size of the group of abating countries. To reduce global carbon leakage, it is not important that additional countries to any international agreement are forced to substantial reductions; it is enough if they agree to any binding target (which might be a zero reduction target with respect to their baseline emissions, i.e. an allowed increase of emissions from, say, 1990 levels).

Without such broader participation, it might be worth considering whether domestic or regional (EU) reduction policies could be designed in a manner to reduce carbon leakage. The second-best policy would be to implement import and export taxes for the international trade of CO2-intensive products with non-abating countries. It is commonly believed that such a form of trade discrimination would not be allowed under the rules and disciplines of the WTO, but there are precedents by the way of multilateral environmental agreements with (discriminating) trade provisions that have not (yet) been challenged before the WTO. Nevertheless, it appears that the participating countries to the Kyoto protocol do not actively investigate this second-best policy.

A third-best policy would be to differentiate the stringency of domestic CO2 reduction policies among sectors. On the basis of their CO2-intensity and sensitivity to international trade, economic sectors can be classified into ‘exposed’ and ´sheltered’. In general, sheltered sectors may be less vulnerable to leakage than exposed sectors, although differences among sectors and even among firms within these broad classes may be significant. Any policy that would simply shift a part of the CO2 reduction burden from the exposed to the sheltered sectors could reduce leakage, but would probably increase aggregate national abatement costs. This increase in costs could be justified from a global cost-effectiveness perspective if the relative increase in costs would be less (in absolute terms) than the resulting reduction in leakage rate.

As most researchers argue, however, that leakage in the short to medium term is primarily caused by changes in relative prices of energy goods (the energy trade channel) and not by industrial relocation, an alternative option would be accept an ‘unavoidable’ rate of leakage in the short to medium term and concentrate on action to avoid leakage by industrial relocation in the longer term. The most obvious course of action would be to stimulate innovation to improve the CO2–efficiency of exposed sectors in order to remain or even enhance their competitiveness on the world market.”

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 Spring 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