Why Europe Should Go For A Minus 50 Per Cent Climate Target
by Gareth Brydon Phillips
The European Commission has set the ball rolling for Ban Ki Moon’s September climate summit with a 2030 target of 40 per cent below 1990, dropping member state specific renewable energy targets (in favour of a union –wide target) and a big gamble on the future of the flexibility mechanisms.
This is bad news for the September Climate Change Summit, the UN climate talks in Lima in November 2014 and the UN climate talks scheduled for Paris in 2015, further compounded by the fact that the EC has proposed to make the adoption of tougher targets and the use international markets conditional on the adoption of ambitious targets from other countries.
The first problem is that -40 per cent is barely a stretch for the EU economy, which will achieve -32 per cent by 2020 and still has significant renewable capacity, renewed UK-French interest in nuclear power and lots of demand side efficiency measures to implement. With the growth of the EU economy coming from less energy intensive sectors, there is no reason why it cannot easily achieve -40 per cent and go significantly further, for example to -50 per cent as the UK called for.
Second, the EC2030 paper is gambling our future stability on another country taking the lead. Minus 40 per cent is like leading with a ten of clubs, hoping someone else will take over. On past performance, I don’t see any government willing to take that responsibility. The US and China are leading from the back; India has barely featured in the negotiations; Japan, Australia and Canada have already folded. Is it up to Brazil, Mexico, Korea or South Africa to save the day? Would an ambitious target from one of them be enough to coax a better offer from the EU? The -40 per cent will get a lukewarm reception and it will not encourage other Governments to step forward with ambitious targets in time for the September 2014 climate summit and probably not for Lima in November 2014 either. The EC2030 white paper is therefore putting the success of the 2015 Paris negotiations on the table.
Third, the EC’s paper has made the future of international markets conditional upon the EU’s adoption of a higher target. Hidden in the Q&A section, the EC2030 paper indicates that the EU will not use any international emission reduction units after 2020 and will rely on linkages (see below) the stability fund it is working on as a source of flexibility. Only if other countries take ambitious targets will the EU move, for example to -45 per cent with the use of unspecified international emission reductions.
The Commission’s proposal suggests that EU industries will find adequate flexibility via linkage with other Emission Trading Schemes (ETS). Aside from the facts that a) there are at present very few (if any) emissions trading schemes that the EU ETS could link with, and b) that by linking with another scheme, the EU ETS buys into an allocation process over which they have no control (and who would buy into the EU’s allocation process today?), there is a fundamental reason why linkage is not in the interests of European industry.
The fundamental problem which arises with relying on linkage between two Emission Trading Schemes as the main source of flexibility is that this approach makes the connection between European industry and competing producers much more direct. If a European company buys allowances from a linked scheme, there is a very high likelihood that the money will go directly to an industry which competes with European industries. So for example, if the two schemes were linked, a European steel mill could end up buying allowances from a Korean car factory, while a European car factory buys from a Korean steel mill. A sectoral New Market Mechanism will present exactly the same dilemma.
Whilst the Clean Development Mechanism (CDM) has had its critics, the more recent qualitative restrictions granting access only to new (post 2012) CDM projects in least developed countries will act to ensure that a greater proportion of CERs come from exclusively non-competing sources and non-competing economies. Furthermore, CERs are individually provenanced so that buyers can implement their own restrictions if they wish. And by 2020, many existing CDM projects will either have come to the end of a one-off 10-year crediting period, the end of their first renewable 7-year crediting period (offering additional qualitative screening opportunities), or they will have been subsumed into a domestic ETS and cease to issue emission reductions.
Given the choice, I would propose that European industry would, in times of need, prefer to purchase CERs from non-competing sources issued via the CDM Executive Board than Allowances from direct competitors issued via some form of allocation process. But without a lifeline in the form of guaranteed access to capped markets, there will be no CDM projects to choose from because long before 2021 the industry will have collapsed through lack of demand.
In conclusion, the EC2030 -40 per cent target is not enough to bring other Governments to the table and relying on linkages between the EU ETS while ignoring the use of international emission reductions is short-sighted. The EC should propose a -50 per cent target with up to 10 per cent of units to be sourced through international emission reductions. This is what’s needed to help ensure the success of the UN climate talks.
