Jan 06, 2009


Against a backdrop of intransigence from Poland and Hungary, and to a slightly lesser extent from Germany and Italy, the European Parliament has voted in favor of a climate change package. However, the compromise is more generous to corporate interests than was originally anticipated and it allows member states to undertake most of their emissions reductions outside of Europe.

In March 2007, EU leaders endorsed the aptly-named "20/20/20" climate change plan. Since then, however, the differing costs of implementing the proposed emissions reductions across Europe have created many divisions between Eastern and Western member states. The ambitious proposals to reduce Europe's greenhouse gas emissions were met with controversy as they shifted a large burden onto coal-dependent countries while casting a shadow over the future of Europe's heavy industry as the true scale of the global economic and financial turmoil unfolded. However, on December 17, 2008, heads of state reached a compromise deal which will ultimately see EU nations cut greenhouse gas emissions by 20% by 2020 from 1990 levels, deliver a 20% improvement in energy efficiency and generate 20% of energy from renewable sources, while committing billions of euros in funding to develop carbon capture and storage technology.

Detractors will rightly argue that revisions to the EU Emissions Trading Scheme (EU ETS) have created loopholes that will allow nations to buy offset 'credits' from abroad and large energy-users to carry on polluting. Under the revised EU ETS it is also true that more industries than originally expected will receive free allocation permits, thereby weakening the carbon market and delivering large windfall profits to perhaps undeserving industries. Under the agreed package, Europe will essentially be able to accomplish two thirds of its abatement effort outside EU borders and have consumers pay for emissions permits that polluting companies will have received at no cost.

While the agreed package is not quite the third industrial revolution heralded at the beginning of the year, it has kept the specter of "carbon leakage" - whereby jobs would shift out of a highly regulated region with no benefit to the European economy or the global environment - at bay for those sectors most at risk. Indeed, Eurofer (the European Confederation of Iron and Steel Industries) claimed that auctioning could cost European steelmakers between E50 billion and E100 billion between 2013 and 2020, turning slim margin into losses and prompting a shift in industrial output away from Europe towards less regulated countries. In the long run, the package does, however, help accelerate the transfer of low carbon technology to the developing world, particularly as the European emission caps imposed under the scheme are reduced in the next phase of the EU ETS.

Crucial, but often overlooked, is the fact that the EU climate change package will serve as a model for the US, China, India and other major polluters at the United Nations Climate Change Conference to be held in Copenhagen in December 2009, where Europe is expected to play a leading role in brokering a deal. Having gained the approval of the European Parliament, the world's most stringent climate change package will set the scene in 2009 for the most significant negotiations ever undertaken on climate change. Indeed, the stringent measures agreed by Europe - and its offer to increase greenhouse gas abatement targets to 30% compared with 1990 levels by 2020 if there is an international climate change agreement - will put pressure on other developed countries to seal a deal. It was important for Europe not to stumble prior to the 2009 Climate Change Conference, particularly as the US - after eight years of overlooking the global warming issue - appears poised to join the fight under Barack Obama's administration.

Politics is about nothing if not compromise; therefore, in the current context of global sustained economic downturn, the package should be perceived favorably, if only because it provides the foundations on which the low carbon global economy can be built.

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