EU climate target analysis bears scars of industry lobbying

by Bryony Worthington

Analysis from the European commission today that sets out options to move beyond a 20% cut by 2020 bears the scars of an uncomfortable fight between different factions. Industries that stand to benefit from the European emissions trading scheme must counter arguments that higher targets mean greater cost

Those who have yet to accept the fact that weaning ourselves off imported fossil fuels and investing in a new clean energy system will boost the European economy have had their knives out.

Although they haven’t been able to challenge the fundamental analysis that it is now much cheaper and easier to reach more challenging targets, they have been able to substantially water down the document and add some special pleading on behalf of the old industries of Europe.

We are told the recession means there is less money available to invest in the measures that will be needed to meet reduction targets.

But the reality is that thanks to the existence of the European emissions trading scheme (ETS), a new source of windfall profits has grown up in Europe that benefits precisely the same heavy industries that are vociferously opposing progress. Emissions in Europe are now capped and the permits issued to enable compliance with these caps are now assets with a tradeable value.

These assets have been unequally distributed, giving heavy industry generous surpluses while the power sector has been given substantially fewer than it needs.

Falling emissions due to the recession means that companies across Europe have been quietly amassing large volumes of surplus permits that by 2012 could be worth around €18bn at today’s prices. Of course this fact is quietly ignored by industry lobbies.

The other complaint seems to be that in these times of financial difficulty we should not be contemplating further burdens on the economy. Superficially, this sounds like a persuasive argument - except that it is woefully simplistic.

The “cost” imposed by taking action to climate change is recycled back into the economy. The sale of permits to industry raises revenue for investment in new infrastructure, technologies and jobs.

Energy prices will rise to fund this investment, but this also encourages investment in increased resource productivity that will have both short and long-term benefits for the economy.

If there is one issue that the industry lobby should be agitated about it is the massive flow of finance that currently leaves Europe to be received by chemical companies in India and China for cheap emissions offset projects. For this to continue as the primary means by which we meet our targets is clearly not sensible.

The commission’s paper raises the idea of changing these rules and this is a welcome acknowledgement that the short-term benefit of access to cheap overseas reductions is not in our long-term interests since it diverts cash away from much-needed investment here.

Within the paper there are other very sensible suggestions for how a move to 30% can be achieved - such as removing 1.4bn permits from the currently oversupplied ETS. This decision needs to be decoupled from the highly political debate about the equivalence of action in other countries and made unilaterally to rescue the scheme from irrelevancy.

Over 70% of all installations now have more permits than they need - continued high allocations will all but kill the need for investment in the EU until 2017 at the earliest.

It would be a great shame if knee-jerk reactions against anything that ushers in change prevents the recommendations in today’s paper from being adopted. All those industries that stand to benefit from the proposals must help to counter the arguments that defend the status quo.

Bryony Worthington is the founder of sandbag.org.uk, a not-for-profit organisation seeking to engage civil society in improving emissions trading policy.

- Guardian.co.uk