News and Analysis • Volume 12 • Number 1 • February 2008
EU Spells Out New Climate and Energy Regime
The European Union is preparing to take the next step in tackling climate change after its executive arm presented a draft legislative package on 23 January. The draft legislation proposes an EU-wide greenhouse gas emission trading scheme and energy-related measures.
Less than 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 said it would increase to 30 if other countries followed suit. Under the Commission’s January draft proposal, the wealthier EU member states would take on more stringent targets than those less developed to reach the overall 20-percent reduction.
The European emissions trading scheme will be a key tool in achieving the goal. It will be expanded to cover greenhouse gases beyond carbon dioxide, as well as additional sectors, such as oil refineries and airlines, chemical and aluminium production. In order to allay competitiveness concerns, energy-intensive industries such as the steel, cement and aluminium sectors are likely to be awarded special consideration when the new, tighter regime comes into place. However, power utilities, which are to a great extent shielded from international competition due to their physical proximity to consumers, will have to pay for all their permits starting in 2013.
EU member states will be obliged to derive 20 percent of their energy from renewable sources. This target has also 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 renewable certificates from other countries.
The package also contains provisions to support carbon capture and storage technologies, and new rules for state aid towards climate projects.
Checks on Biofuel Production
The draft directive on renewable energy spells requires ten percent of transport fuel to be derived from biofuels. This target has proved controversial, as the sustainability of such fuels has been seriously questioned over the last year on both environmental and food security grounds.
Under the Commission’s proposal, biofuels would have to achieve a real saving in carbon dioxide emissions of 35 percent compared to oil. Feedstock crops could not be grown on land with high biodiversity values, nor on land containing high carbon stocks. In addition, growing biofuels feedstock would have to fulfil best agricultural practices criteria. The restrictions would apply both to home-grown and imported biofuels.
A Malaysian commentator from the palm oil industry called the restrictions non-tariff barriers. Biodiesel derived from palm oil has been particularly controversial, as tropical forests have been cleared to make way for palm oil plantations.
The package will still go through a lengthy process before entering into force. The European Parliament and member states will have to approve it, and may amend it before doing to.
Border Measures Still Possible
European Commission President José Manuel Barroso warned that the EU might take trade measures to safeguard its energy-intensive industry if international negotiations on a global post-Kyoto Protocol climate agreement did not succeed. “There is no point in Europe being tough if it just means production shifting to countries allowing a free-for-all on emissions [...] 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,” he told the European Parliament.
The draft European climate/energy package does not now include provisions requiring exporters of energy-intensive goods, such as steel or cement, to buy EU emissions permits. However, it does leave the door open for a decision on the issue in 2010, when there is more clarity regarding the global climate change regime.
While President Barroso stressed that EU would protect European companies, he also denied that Europe was seeking to introduce protectionist measures. Other players, however, cautioned against setting up a system of carbon barriers. Following a 21 January meeting with US Trade Representative Susan Schwab, EU Trade Commissioner Peter Mandelson reiterated his belief that trade restrictions were not 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.”
Draft climate change bills under consideration in the US also include provisions that would require trading partners that do not undertake strict climate change policies to buy ‘emissions offsets’ at the border. However, climate legislation is still at an early stage of the legislative process and years are likely to pass before new climate change laws come into force (see page 17).
Civil Society Response
European environmental groups’ reactions to the proposed energy and climate change package were lukewarm. Many felt that the 20-percent target for greenhouse gas reduction lacked ambition. At the UN conference on climate change in Bali last year, the EU had called for a cut in emissions of 25 to 40 percent under 1990 levels.
Friends of the Earth Europe also regretted that the package did not give more emphasis to improving energy efficiency in line with the 20-percent enhancement target (to be achieved by 2020) adopted by the EU last year. Increasing energy efficiency is widely considered as the most effective and lowest-cost means of reducing greenhouse gas emissions.