Friday, 12 December 2008

Tougher EU action on climate change?

So EU leaders finally reached a deal on climate change. I did wonder if the EU leaders would manage it with Italy and Poland having earlier in the negotiations threatened to veto the package but the stakes were too high if the EU had failed - what signal would this have sent out to the US, China, India and the developing countries if the EU hadn't been able to reach a deal. For one thing it would have certainly weakened the EU's hand and its position in leading the world in the run-up to the negotiations for a new international climate change agreement in Copenhagen next December.

While the 20/20/20 targets by 2020 remain intact and while there are significant improvements, the compromise deal has been seriously weakened with the winners heavy industry (supported by Germany, Poland and others) in that some industrial sectors will be exempt from the full auctioning of emissions permits and able to receive up to 100% of allowances free from 2013 until a new international agreement on climate change is concluded. A review is scheduled in 2018. This applies to those industries most at risk from "carbon leakage" concerns - i.e. that manufacturing industry could pull out of the EU and relocate to countries where their polluting laws are less stringent. Sectors exposed to carbon leakage are to be identified by the Commission by the end of December 2009.

Free allowances will be allocated on the basis of best-in-class technology benchmarks. The Commission has estimated that more than 90% of manufacturing emissions would qualify.

The number of emission allowances will be capped in order to deliver a 21% cut in industrial emissions during the whole period 2013 to 2020 compared with 2005. During the trading period EU allowances will increasingly have to be auctioned rather than being distributed free-of-charge.

The power sector will have to buy 100% of allowances from 2013. But Poland and some other eastern states managed to win concessions enabling some of their power stations to receive up to 70% of allowances free in 2013, declining to zero in 2020. Eligible plants will be those poorly integrated into the European electricity grid or those that individually provide more than 30% of national electricity in countries with relatively low GDP.

For those industries not at risk of carbon leakage, the auctioning rate to be reached in 2020 is set at 70% with a view to reaching 100% in 2027, bearing in mind that the initial level in 2013 is set at 20%. Germany and Italy were calling for 80% of free quotas right the way through. A deadline for the introduction of 100% of paid quotas has been set as 2025, five years later than what the Commission had originally proposed.

There is to be a financial solidarity mechanism. 88% of the total allowances to be auctioned each year will be distributed among the 27 EU Member States with the revenue from the remaining 10% of carbon allowances auctioned by EU Member States being allocated to many of the central and east European countries to help them modernise their energy infrastructure. An additional 2% would be distributed among those that had reduced their greenhouse gas emissions by 20% in 2005 relative to 1990 levels.

Between 2013 and 2016, Member States will be authorised to use money raised at auction to provide up to 15% of the investment costs of building high performance electric power stations.

Pre-allocation of part of auctioning revenues: The European Council notes the will of Member States to devote at least half of all auctioning revenues to finance climate mitigation and adaptation efforts in Europe and the developing world, but without a binding commitment. So there is only a voluntary earmarking of 50% auction revenues for climate purpose with it left very much up to the Member States to decide.

A greater number of smaller industrial installations will be excluded from the EU ETS under the compromise text where the threshold for exclusion has been raised from 10,000 tonnes CO2 emissions per year to 25,000.

The Commission must propose including shipping in the scheme from 2013 if there is no international climate agreement by the end of 2011.

Allowances will be allocated centrally by the European Commission, rather than by Member States through national allocation plans.

When it comes to funding for carbon capture and storage EU leaders agreed that up to 300 million allowances in a new entrants reserve (the European Parliament was calling for 350 million) can be used to fund CCS measures until the end of 2015. Plants fitted with CCS will be regarded as not emitting any greenhouse gases.

We are all now looking to the European Parliament to keep the pressure on for ensuring there is tough EU climate change action and that the 20/20/20 deal stays on course during next week's crucial vote. Scotland of course is already leading Europe and the rest of the world with the publication last week of the Scottish Government's ambitious climate change bill.

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