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EU Confronts Climate Action and Business Cost     Print Email
Honor Mahony

Honor MahonyThe European Union has found a new raison d’être: it’s called the fight against climate change.

In March, it set itself ambitious targets on carbon-emissions cuts that make it the global leader on this increasingly high-profile issue. At a summit meeting in March, the EU’s 27 member-states made a binding collective commitment to cut greenhouse gas emissions by 20 percent by 2020 (compared to 1990 levels) and to ensure that renewable energy accounts for 20 percent of energy consumption (with bio-fuels providing 10 percent of transport consumption).

 

José Manuel Barroso, President of the European Commission, called it an historic decision in fighting climate change: “We can say to the rest of the world, Europe is taking the lead—you should join us.” The final package left open some details about how to share out and assign the burden of cuts among individual member-states. But Chancellor Angela Merkel of Germany (current incumbent of the rotating EU presidency, who helped broker the final compromises in difficult talks among EU member-states), hailed the deal, saying that the EU had produced a “credible” package. It opened the door to a qualitative change in action against global warming, she said, and could “help save the world from calamity.”

Both leaders called on other major polluting countries—the U.S., China and India, none of which accepted the Kyoto Protocol—to follow suit and make visible commitments to reduce environmental pollution ahead of the follow- on conference in 2009 to set a post- Kyoto successor regime.

This new commitment comes on top of other EU measures such as reducing the threshold requirement for CO2 emissions from new cars by 2012. Two years ago the EU led the way in becoming the world’s first region to set up a trans-national emissions-trading scheme. It enables industrial polluters and pollution savers to trade carbon credits, with those polluting more buying credits from those who pollute less. It is planned to extend the program from its current industrial coverage to apply to the aviation industry starting in 2011.

The EU’s emergence as a global leader in the eco-friendly drive to combat global warming has been quite sudden. It has consistently championed the 1997 Kyoto Treaty on climate change, but often lacked credibility because some member-states are far from being on target to comply with the ceilings. Similarly, embarrassing problems beset the introduction of the EU “cap-and-trade-system” when it was unveiled last year: the government-set ceilings were immediately seen as too lenient on polluting industries.

What is new this time is that the whole European Commission—even President Barroso who is considered to have a pro-business attitude—appears to have got a grip on the challenge and is pushing the anti-emissions drive consistently across several policy areas. “Two years ago it was all ‘jobs, jobs, jobs’—and now it’s ‘climate, climate, climate,’” according to Industry Commissioner Guenter Verheugen, reflecting what sounds like exasperation in some quarters at what is seen as volte face by the Commission and the overall leadership of the EU.

The change has come to be seen as an easy sell to a European public that has become well-versed about the dire risks of an attitude to the environment that seems to take it for granted that the planet can absorb waste endlessly without lasting harm. In addition, the new more pro-active initiative helps solve a dilemma for the EU about how to find new goals that can propel it forward without triggering a backlash among European citizens and voters.

Mr Barroso’s personal conversion to the cause of saving the climate seems to stem from the accumulating evidence of recent studies, capped by the report by British economist Nicholas Stern: it said that human activity was the culprit for global warming and concluded, pragmatically, that the economic cost of acting now was a sound investment when weighed against the risks (and possible costs) of doing nothing now. This pragmatism is a salient feature of the current management in the European Commission. But the EU member-states, perhaps naturally given their diversity, have not yet come to terms collectively with the struggle between being green and staying competitive in today’s globalized world. So in many respects concrete commitments have been postponed for further bargaining.

So there are cracks—or at least unanswered questions—beneath the surface of the new unanimity. The summit meeting was a case in point. It produced ambitious headline goals envisioning a complete change in lifestyle in Europe, but only after a fierce struggle. Poland, which has coal, said it did not have enough sun for solar energy. Luxembourg said it did not have space to grow crops for bio fuel. Malta said it was too small (and poor) to do much of anything. France insisted that nuclear energy be recognized as a renewable energy— against objections from the orthodox green attitudes that prevail in Austria.

In reaching a consensus, the EU summit meeting left open some questions about how it should reach the tar gets. The 20 percent-target for renewables is an average for the whole of the EU, and the Commission will now work on a proposal outlining what individual countries will have to do to contribute to the overall target. This is where the divisions will be played out. During the summit itself, both Poland and the Czech Republic put up a tough fight not to have the target made binding, arguing that the EU should not be setting itself goals it may not be able to meet.

In the end, a crucial compromise stipulated that member-states’ different national “energy mixes” would be taken into account in working out the burden sharing and that the “renewables target” would be adjusted nationally in the light of how technologically-advanced each country already is in this regard.

Although Germany, along with Britain and Italy, was at the forefront in pushing for these targets, it does not mean its own politicians are entirely on board. Reacting to the summit, Peter Struck, head of the Social Democrats in the German parliament, said “Suddenly only climate change is at the top of the agenda and work places in Germany don’t matter.” Many in Germany fear that the new EU green push is going to harm Germany’s economy because its industry will be handicapped in competing against manufacturers in other areas of the world where green standards are either lower or do not exist at all.

As the biggest economy in the EU, with a strong environmentalist tradition, Germany encapsulates the debate about being green versus staying competitive debate. As the biggest single national pollutant in the EU, Germany was crucial to the EU’s credibility in making a serious commitment on combating global warming.

Already, Berlin has had two major clashes recently with the Commission. The country reacted with fury when Brussels late last year rejected Germany’s targets for the CO2 - reduction targets for German industry as too lenient and demanded a further six percent cut in the emission ceilings for 2008–2012. Senior government ministers in Berlin dismissed Brussels’ methods of calculation as being dangerously “adventurous” and threatened legal action.

And just as that particular fight was brewing, another one flared up over a separate environment policy proposal— this time to do with car emissions. The German car manufacturing industry— the largest in Europe, home to Volkswagen, BMW, Porsche and the German- American company Daimler Chrysler - pulled out all the stops to try and derail a proposal by the EU environment Commissioner Stavros Dimas to limit CO2 emissions from new cars to 120 grams/ km (the current average is around 160 g/km).The German lobby said jobs would be lost and too much of a burden placed on car makers by the Commission’s target.

Chancellor Merkel rallied to the side of the car industry saying the German government would “fight with all its strength” the Commission’s moves to put a cap on transport carbon emissions. In Brussels, it caused some of the bitterest infighting ever within the Commission as the environment unit battled it out with the industry unit. Dimas took the unusual step of publicly criticizing Germany, underlining that the rest of the world was watching to see which way Berlin goes. “If Germany bucks the trend, then the rest of Europe won’t go along with it,” Mr. Dimas said. “And if Europe isn’t going along with it, neither will the rest of the world.”

Germany, apparently shocked by the bad press, including accusations that it was using its EU presidency to promote its car industry, backtracked by promising not to push its own agenda during future discussions. And Ms. Merkel’s moves at the summit were, from an environmentalist’s point of view, the best that could be realistically expected.

Resistance to the Commission’s more ambitious environment agenda has by no means been confined to Germany. Generally speaking, national capitals made a mockery of the first phase of the European Commission’s emissions-trading scheme, running until 2008, by giving their industries very lenient polluting- allowances—so lenient that the bottom fell out of the carbon market almost immediately. “Carbon prices” in the trading system have now slumped to less than one euro per ton, down from over 30 euros per ton last year. As a result, almost all the planned carbon-ceilings that the Commission has assessed— 15 of the 27 member states so far—have been tweaked to lower ceilings by the Commission because the planned targets were too industry-friendly. Other countries have not yet bothered to hand in any pollution-reducing targets yet. In a follow-up step, Brussels is now trying to pin down governments for the second phase of the program (running from 2008 to 2012) incorporating much stricter criteria.

This ramping-up of carbon curbs provoked the clash with Germany and this same fault-line—the trade-off being between being “green” and being competitive— is likely to crop up more and more. As a result, many observers predict that the EU is liable to remain vulnerable to charges that it is better at preaching environmental concern than at putting it into practice.

Even so, it would be a mistake to put current EU concerns about industry being hampered by green standards on par with the more profoundly market-based approach pursued in the U.S. The EU’s philosophy towards the environment, consumer and social rights—generally a tendency to regulate to correct what it sees as wrong practices—is deeply ingrained, particularly in two of the biggest member states, France and Germany.

Britain says it is leading by example. The Blair government is laying the ground work to become the first government to set legally-binding carbon-reduction targets. Environment Secretary David Miliband announced in March that a bill will be introduced creating an independent panel that establishes a national “carbon budget” every five years. He said the plan could enable Brittain to cut emissions by 60 percent by 2050 on the basis of an average reduction of three percent per year. If a target is missed, the British government could face court action. Miliband said that Britain was “leading by example” in the fight against climate change.

Crucially, European public opinion is firmly supportive of action to combat global warming, and opinion polls consistently show that the public likes to see Brussels acting on environmental issues. This contrasts with the prevailing attitudes in American opinion, even though there are signs in the United States toward greater concern about the threat—and indeed action in some states in the Northeast and in California that seems to be heading in the same direction as Europe.

The “action-now” agenda on climate change seems likely to prevail in the European Commission at least until 2013 because Barroso is angling for a second term in office. Already on his watch, a new European Research Council has just been set up with a budget of €7.5 billion until 2013, expressly to fund Europe based scientists to look into new technologies, including those for coping with global warming.

Europe’s biggest challenge—the one likely to make or break the green political will of member-states—is getting other regions of the world on board so that the collective pain of cleaning up the environment is more evenly spread. For example, it wants to see greenhouse gas emissions reduced by 30 percent below 1990 levels by 2020—but only if other big economies (the U.S., Russia, China, India) in the rest of the world are on board. Failing that, the EU will stick to its lower 20 percent target.

For now, however, it remains unclear to what extent the green approach in the U.S. will change under the next President after Bush and how determinedly the top emerging economies such as China and India will push their pledges to action on the environment. China is planning to build over 500 new coal power plants in the next 25 years, which could make a mockery even of the emissions targets set by the Kyoto Treaty, which China did not sign but which are now viewed as too low by European governments.

The EU does have one ace up its sleeve: the size and scope of its internal market, which is big enough to influence standards and practices of countries that want to export into it. It is seeking to persuade European businesses that they will have the global cutting edge now if they adapt to environment standards which it sees as inevitable. A recent Commission paper suggests that promoting European standards, such as those on the environment, “works to the advantage of those [businesses] already geared up to meet these standards.” The EU’s plans for more environment friendly cars will also affect all cars imported into the single market. Reflecting the commission’s agenda, the emissionstrading scheme is to be extended to the aviation sector in 2012. It is generally accepted that airliners are responsible for two per cent of greenhouse gas emissions—a figure that becomes even more ominous in the light of forecasts that international air travel will double between now and 2020. In its counter-attack on this front, the commission is trying to extend the rules and the emissions-trading plan to cover all commercial flights by 2012, including international flights coming into Europe—most controversially those from the U.S.

On an upbeat note, the commission insists that climate-friendly action can be good for business. There will be a firstmover advantage to European countries and the EU, it says, if the now muchneeded carbon-reducing technologies and skills are pioneered in the EU.

All that needs to happen now is for the EU actually to set putting the new plan into action.

 

This article was published in European Affairs: Volume number 8, Issue number 1 in the Spring of 2007.