The Wrong Green Revolution: Europe is Rapidly Ceding Leadership on Climate

We are only three weeks into 2013 and there is already a feeling of a revolution in the world of climate policy.

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Is the leader of the free world about to become the leader of global climate policy?

Led by a courageous and unexpected inauguration speech by Obama, the world’s second biggest polluter is finally awakening from its long apathetic slumber over emissions reductions.

Years of hard ground-work have led to the successful launch of the California Carbon Trading Scheme and moves by the Environmental Protection Agency to curb CO2 from power plants.

US emissions are dropping anyway as a result of a switch from coal to cheap shale gas for energy supply.   As I stated in my blog earlier this month, the stars (and stripes) are falling into line for a progressive climate policy for the US.

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A New Logo for EU Climate Action Department is Launched

Meanwhile the European Union Emissions Trading Scheme continues to be undermined by political wrangling over the control of supply, sending prices to a record low.  The energy committe of the EU Parliament today rejected the Commission’s proposal on back-loading allowances in a step that is likely to depress the market further.  The Climate Action Commissioner Connie Hedegaard has made the seriousness of the situation clear with comments this week:

“If you get a very low carbon price, or maybe no carbon price, then the alternative is a patchwork of 27 different systems. We risk having a nationalising of energy and climate policies,”

“They (EU national governments) are toying with something very, very dangerous,” she told a conference.

Hedegaard’s comments come amid worrying developments for EU policy makers.

The political weather in Europe is suddenly being made by the UK Prime Minister, who yesterday set out a very clear path to the world’s seventh largest economy exiting the Union altogether.

The policy issues that Cameron would like to renegotiate have not been laid out, but the launch of a petition this week to abandon the EU’s climate and energy package by the right wing UK Independence Party is no coincidence.

Business is also becoming more strident in its criticism of EU ETS.  EON’s CEO has this week been publicly considering the merits of a switch to a carbon tax.

These developments illustrate that the problems facing  the European climate and energy package are not simply caused by market failures.  The Commission is facing vociferous challenges at a macro and micro level.  Even the most robust policies would struggle to survive such existential threats, and even advocates of the system would admit that the EU ETS is not the most robust policy.

So there now exists a real danger that the EU ETS may not make it through to the end of its third phase in 2020, and may even struggle to survive until the deadline for a new global agreement in 2015.

Clearly the US picking up the gauntlet of climate policy is better than the EU policies failing without a replacement.   Also China (the world’s biggest polluter) has a strong case for a share of leadership on climate with its seven mandated emissions trading schemes and its top-of-the-pops position on renewable investments in 2011.

However any capitulation by Europe on climate policy should be a cause for concern for the following reasons:

1.  The failure of the EU ETS would send a message across the world that markets are not an appropriate tool to deal with emission reductions and climate change.   Markets in Australia and New Zealand would come under renewed pressure and the case for the California scheme to link with other markets would be diminished.

2.  The chance/likelihood of a global climate change deal in 2015 would become more remote with the EU neutered and the US leading.  The US has never been a strong advocate of a global deal (without China) whereas the EU has been the driving force behind the negotiations;

3. The EU ETS is the world’s largest (and pretty much only) market for UN offset credits (CERs).  These offsets are generated through investments in clean energy in the developing world.  Without a market for CERs, the investments in the developing world through carbon finance will dry up leading to the risk of prolonged energy poverty and pollution in the developing world.

4.  A failed EU ETS will lead to the evaporation of the ‘carbon price’.  This price is used in decision-making on long-term renewable energy investments within the EU.  Some of those investments may become uneconomic without a carbon price resulting in mothballing or cancellation of renewable energy projects across Europe.

5.   Failure of combined action at an EU level could lead to competitive disadvantage for industries in member states.  The result could be a race-to-the-bottom within the EU with disastrous consequences for the atmosphere and long-term investments in the EU energy system.

While we celebrate progress in the US and elsewhere,  Europe should be proud of its record of progressive environmental policies and we should still hope and campaign for the reform and eventual success of the EU ETS.

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