Writing in these pages last year, I set out the EU’s proposals for a radical package to shake up the EU energy market and make climate change a political priority. One year on, 27 Member States with widely differing agendas have voted those measures into law, but an arguably greater challenge awaits. The focus has shifted to the global stage, to the climate conference in Copenhagen this December.
To recap, the Kyoto Protocol expires at the end of 2012. Its aim is simple – to help avert climate change by curbing greenhouse gas emissions, bringing them down to five percent below their 1990 levels. Nearly 200 nations have signed up, with 37 developed nations taking on emissions-reduction goals. But as its date of expiry approaches, the science is ever clearer, and the urgency of reaching a new agreement ever more pressing. The time has come to learn the lessons of the past decade, and find formulas that marry the desires of the developed world to those of developing nations, whose emissions will soon outstrip our own.
It’s a difficult task. The deal we need must set effective reductions targets for developed countries beyond 2012, encourage developing countries to slow the growth in their emissions, and deliver credible funding mechanisms for adaptation and emission reductions in developing countries.
Our leadership will be key. The EU has set out its agenda, with ambitious proposals for new emission reduction targets. We are asking for efforts that respond to the scientific message of urgency, and calling on other developed countries to offer comparable reduction targets.
In September we laid our funding proposals on the table, with a convincing offer of financial support for developing countries. That offer should be considered in conjunction with the overall ambition level of the Copenhagen agreement and in relation to specific contributions developing countries are offering themselves.
The scale of finance developing countries need to address climate change suggests that no single channel or fund will suffice. Part of the challenge before Copenhagen will be to show how different channels and institutions can provide the necessary resources, with checks and balances to ensure their effective, efficient and legitimate use.
Domestic achievements for the global stage
The EU is firmly committed to limiting the average global temperature increase to less than 2°C compared to pre-industrial levels. A more significant temperature increase would mean food and water scarcity, more severe weather events, and a significantly higher threat to unique ecosystems. The 4th IPCC Assessment report indicates that reaching this target will require emissions reductions for developed countries in the range of 25-40 percent by 2020 and 80-95 percent by 2050.
Our credibility as negotiators is greatly enhanced by the fact that we have in place measures that set us on the right track. EU Member States have agreed to reduce emissions by 20 percent from 1990 levels by 2020, and by 30 percent if a comprehensive international agreement emerges from Copenhagen, with other developed countries committing to similar reductions. All sectors of the economy are expected to contribute.
And our longer term path is clear, with targets and rules for the EU ETS beyond 2012. The EU-wide cap is set for 2020 and beyond, with a linear reduction factor ensuring that ETS emissions will be 71 percent below 1990 levels by 2050. Allocation of allowances is to be fully harmonised across the EU, with auctioning being the normal method of allocation. The list of carbon leakage sectors that will receive special treatment will be agreed before the end of this year, and will be revisited post Copenhagen. Work also continues on benchmarks and the auctioning regulation.
Some ETS implementation issues remain. EU transport emissions continue to rise, in both relative and absolute terms. Greenhouse gas emissions from international air transport are increasing faster than from any other sector in the EU, and this growth threatens to undermine our overall progress in cutting emissions. But last year’s decision to include aviation in the ETS should go some way to remedying this.
Starting in 2012, aircraft emissions will be capped at 97 percent of their average 2004-2006 level, decreasing to 95 percent from 2013. Airlines will receive up to 85 percent of their emission allowances for free. Exemptions for air operators with very low traffic levels or with low annual emissions will apply to some of the smallest companies, with no significant effect on the emissions covered by the EU ETS. The inclusion of aviation in the EU ETS could serve as a model for other countries considering similar national or regional schemes, and these could link to the EU scheme over time, enabling the EU ETS to form the basis for wider, global action.
Shipping must also contribute to reductions. According to the International Maritime Organisation, the potential for cutting CO2 emissions in the industry is significant, and this can even be done at negative cost. But more incentives are needed, so the International Maritime Organisation is considering proposals to expose shipping to the prevailing carbon price, ensuring that the costs imposed on the sector would be no more and no less than those faced by any other sector. Measures need to be agreed and applied to the major segments of the industry as soon as possible. If the IMO fails to deliver, the commission has a mandate to act in its place, and will propose including international maritime emissions in the community reduction commitment, with a view to having legislation in force by 2013.
Towards a global carbon market
At no time in the history of the world have economies been more intertwined. We need to take advantage of this inescapable fact if we are to tackle a problem like global warming. A truly global carbon market will do that, giving all nations an economic interest in battling climate change.
Kyoto mechanisms like international offsets and credits are the first steps on the road to a global carbon market, but major improvements are required. This is why the EU is going to Copenhagen with proposals to improve the functioning of the Clean Development Mechanism. In place of the current project-based approach, the EU is campaigning for a shift towards sectoral crediting for advanced developing countries, opening the way to a gradual transition to cap-and-trade.
Success will depend on ambitious technical benchmarks in any given sector, and a high level of environmental ambition. When a country demonstrates that performance in a given sector (power, or steel for example) exceeds the benchmark, credits are earned. The mechanism should initially concentrate on economic activities that are subject to global competition, and it will need to address concerns about carbon leakage and competitiveness. But the environmental advantages are clear, and the mechanism should be less cumbersome than the current CDM arrangements.
But the most ambitious step of all would be a clear linking of the EU ETS with other mandatory and compatible cap-and-trade systems. The EU ETS and the future US cap-and-trade system – integrated into a transatlantic carbon market – could form the twin engines we need to drive an OECD-wide carbon market by 2015, and a global one by 2020. The progress on domestic legislation in the US is an essential step in this regard, and I am encouraged by congressional timetables for getting draft legislation to a floor vote in the coming months.
Kyoto has always suffered from the US failure to ratify the agreement. A transatlantic carbon market, by contrast, could reap enormous rewards, bringing global credibility, sending powerful signals, and driving down emissions in some of the world’s most visible economies.
Copenhagen will be a challenge, on numerous fronts, but we are on the right path. We must use the coming months to consolidate proposals and lay the foundations for an agreement that is acceptable to all. Keeping the big picture in mind all the while: the future depends on holding global warming to the manageable level of 2°C.
