A year ago, Europe agreed to make a 20 percent cut in greenhouse gas emissions by 2020 as compared to 1990 levels – a percentage it would increase to 30 if other countries followed suit. A legislative draft released on 23 January spells out the implementation of the strategy, including through burden-sharing among EU members states, the expansion and tightening of the European emissions trading scheme and a mandatory expansion of renewable energy production. It includes a controversial target for increasing the use of biofuels to ten percent of transport fuels, coupled with a new set of conditions to ensure their sustainability.
Border measures an option
The 20 percent greenhouse gas reduction target has now been broken down among EU member states, with some taking on more stringent targets, and those less developed facing less steep targets. The European emissions trading scheme will be a key tool in achieving the goal, and will be expanded to cover additional greenhouse gases beyond carbon dioxide, and additional sectors, such as oil refineries and airlines, chemical and aluminium production. Energy-intensive industries such as steel, cement and aluminium will likely get their emissions permits under the European emission trading scheme for free after 2013, when the new, tighter regime comes into place, in order to allay competitiveness concerns. Power utilities, which are to a great extent shielded from international competition due to their physical proximity to the consumers, will have to pay for all their permits starting in 2013.
Representatives of energy-intensive industries voiced major concern over potential competitiveness losses with regard to emerging giants like China and India, where industry faces less stringent climate requirements. Philippe Varin, president of the European Confederation of Iron and Steel Industries, used the so call ‘leakage’ argument, warning that “if we were to relocate our industries outside Europe [because of steel production becoming unviable due to climate costs] we would then have to transport steel to Europe, adding emissions.”
In addition to possibly giving emission permits for free to energy-intensive industries, the draft climate legislation leaves the door open to border measures to address competitiveness concerns. José Manuel Barroso, President of the European Commission, said “if our expectations about an international agreement are not met, we will look at other options such as requiring importers to obtain allowances alongside European competitors, as long as such a system is compatible with WTO requirements.”
Other players cautioned against a system setting up carbon barriers. European Trade Commissioner Peter Mandelson said “I don’t believe that trade restrictions are the way forward for combating climate change.” A Chinese trade official voiced a common developing country concern when commenting that “I doubt whether the measures taken in the name of the environment will always be applied to protect the environment and not to protect domestic industries.”
Checks on biofuel production
EU member states will be obliged to derive 20 percent of their energy from renewable sources. This target has been divided among individual member states, with some countries set to take on significantly higher proportions of renewables in the energy mix. States will also be able to purchase renewables certificates from other countries.
The Commission also proposed increasing the use of biofuels in vehicle fuel, subject to compatibility with environmental sustainability requirements.
Under the new directive, member states are to ensure that ten percent of vehicle fuel comes from biofuels by 2020. Reacting to earlier drafts of the directive, various groups criticised the requirement for its potential knock-on effects, such as increasing food and feed prices, aggravating water scarcity, as well as threatening various ecosystems and human rights in certain contexts.
In response to such criticisms and a general backlash against biofuels, the Commission set new environmental sustainability requirements. The biofuels must achieve greenhouse gas emissions savings of at least 35 percent and they cannot be produced from raw materials obtained from lands with high biodiversity value or high carbon stock. Domestic agricultural raw materials would also have to comply with environmental requirements for agriculture.
Exporters take
An expanding biofuels market would provide an opportunity for a number of countries, particularly developing countries that are well placed for the production of biofuel feedstocks, to develop and expand their export markets.
Brazil sugarcane producers for example, are “very positive because it will allow the development and consolidation of the European biofuel market, which was in doubt,” said Geraldine Kutas, advisor to the Brazilian Sugarcane Industry Association. However, Kutas also said growth of exports to the EU could be limited by high tariffs on Brazilian ethanol. It could also be limited by Brazilian demand for biofuels, said Plinio Nastari, head of analysis firm Datagro.
The environmental sustainability requirements might also prevent imports of some biofuels, particularly those made from soy and palm oil. Zainuddin Hassan of the Malaysian Palm Oil Council said “the Malaysian government is very concerned about the EU scheme for sustainability.” He noted it might pose a non-tariff barriers to trade.