What’s the future of Europe’s climate policy?

The European Union had a busy February with respect to climate policy and diplomacy, with a host of substantial developments on mitigation pledges, further retreat from support for biofuels, and root-and-branch reform of its faltering emissions trading scheme.

Commentators were worried that with the appointment of former oil-industry investor Miguel Arias Cañete as climate chief in the new European Commission, the EU was signaling a pull-back from its climate change ambition over the last decade, and indeed developments were a mixed bag.

First the good news. To the surprise of many climate watchers, the centre-right dominated European Parliament backed a substantial overhaul of the Emissions Trading Scheme, or ETS—Europe’s flagship climate policy and the first greenhouse gas trading mechanism in the world. As a result of industry lobbying, from its launch in 2005, the ETS has suffered from a massive over-allocation of emissions that delivered windfall profits to energy companies but did little to reduce the continent’s contribution to global warming. The price of carbon has languished around €6 a tonne down from a 2008 high of €30—around the minimum price analysts suggest is necessary to spur substantial low-carbon innovation. A Clean Development Mechanism credit (the developing world carbon offsets accepted within the ETS system) goes for around €0.13. The low price of carbon is doubly problematic: the revenues raised from the sale of emissions allowances are intended to fund clean tech projects. With the carbon market lifeless, the funds raised for this purpose are also meager. As a result, Europe’s steady greenhouse gas emissions reduction over the past decade has largely come as a result of the eurozone’s extended economic crisis and technological shifts that were already in the works.

But under the package of changes agreed in the European Parliament, from 2018, a certain volume of carbon allowances will be automatically withheld from sale—under a mechanism they are calling a ‘Market Stability Reserve’—to prevent similar glut situations from arising. The scale of this of allowance restriction is not as ambitious as some green campaign groups would like or starting as early as they had wanted, but for once, when parliamentarians cheer a “substantial” change, they’re not wrong.

Damien Morris, the head of climate policy for Sandbag, the British environmental policy analysis group whose primary focus has been the over-allocation of emissions allowances—and one of the sharpest critics of the ETS, reckons that the changes would amount to a supply in the trading scheme of roughly 2 billion tonnes of CO2 fewer than would be the case otherwise. By comparison, the EU’s emissions mitigation target of 40 percent on 1990 levels by 2030 would only result in half a billion tonnes fewer.

Of course, Morris would still prefer that the EU go one step beyond, and not merely hold on to the allowances temporarily: “As negotiations build towards Paris, Europe should go further and cancel some of this stockpile of allowances to ramp up its climate offer rather than storing them for potential use later.”

The changes remain to be endorsed by the Council of Ministers, the European institution representing EU member state governments. The Council is typically a more conservative creature than the parliament, so there is still scope for a watering down of the parliament’s position.

But in many respects, this is one of the last gasps of cap-and-trade as a viable climate policy. Europe launched its scheme on the presumption that other major players, notably the US, would come on stream with their own versions of emissions trading in short order and a global carbon market would soon emerge.  This has not happened.

A handful of other national and subnational jurisdictions have launched similar schemes, notably California, Quebec, Kazakhstan and New Zealand, and, crucially, China is looking to introduce a nationwide scheme in 2016, having already launched seven regional pilot schemes. But there can be no global carbon market worth the name without the US, and the Obama administration saw its cap-and-trade scheme go down to defeat in Congress in 2009.

The White House has since moved instead toward a more direct regulatory approach via the executive branch, a strategy that was devised by key Hillary Clinton advisor John Podesta with the intent of climate change not being a Congressional swamp for her presumptive future administration. Australia has also abandoned its emissions trading plans, and the Clean Development Mechanism framework for the developing world is on the verge of collapse due to the low price of carbon and the indifference of governments to intervene to save it. And even China’s emissions trading pilot schemes sit atop a hybrid market and planned economy, with the state directing the roll-out of vast solar, wind, hydro and nuclear clean-energy infrastructure.

So if the Brussels can’t push the carbon price back above €30 a tonne with these reforms, and America and China show that a more traditional ‘command and control’ regulatory approach and public subsidy of low-carbon infrastructure achieves greater and faster emissions reductions, there will be little appetite to continue with the ETS beyond the end of the decade.

The European Parliament last month also backed a modest scaling down of biofuels targets.

In 2009, the EU introduced a target of 10 percent renewable energy in transport by 2020, a goal that has largely been read as a biofuels target in the absence of clean electric vehicle infrastructure, backed by subsidies worth around €6 billion. But researchers carrying out full life cycle assessments of a host of first generation biofuels began to show that they produce greater carbon emissions than fossil fuels as a result of conversions of forest or grassland into new cropland. As a result, support for biofuels from crops such as maize, rapeseed and palm oil has plummeted. The argument that biofuels put pressure on food prices has also seen most development NGOs launch major campaigns against the sector.

But even in the face of research critical of first-generation and more recently even second-generation biofuels produced from crop residues, in Europe, farmers and the biofuels industry have lobbied hard to retain such targets and the topic has been the site of a bitter battle in Brussels for much of the last half-decade.

The parliament’s environment committee on 24 February backed a fresh cap on so-called first-generation biofuels made from food crops of 6 percentage points of the overall 10% target. This beats a 7% target agreed by EU member states last year.  The lawmakers hope to promote third-generation biofuels, produced from algae or waste, instead.

The cap is nonetheless a compromise and weaker than the European Commission’s proposed cap of 5%. The dominant centre-right European People’s Party, which enjoys strong rural support in many regions on the continent, in general opposes further limits on biofuels. The parliament and the Council of Ministers, representing the EU member states—a body that is also dominated by the centre-right—must now negotiate a compromise between their two positions.

Rounding out the mix of good and bad from Brussels in February, the European Commission also sent a memo to the parliament and the Council setting out its stall for tackling climate change post-2020. The commission takes the EU lead in international climate talks and so the memo puts further flesh on the bones of Europe’s previously announced commitment to a 40 percent reduction in emissions on 1990 levels by 2030. The memo can be read as Europe issuing an outline of the actions it intends to take under a new global climate treaty expected to be agreed in Paris at the end of this year. In the jargon of climate diplomacy, this outline is Europe’s “Intended Nationally Determined Contribution” or INDC that the wealthier countries are expected to put on the table by the end of this month.

Europe is the first major power to do so, and has upped the ante somewhat on what had been announced at the end of last year. The memo also calls on all other powers except the very poorest of nations to announce their INDCs by the end of March—a position in keeping with Europe’s long held negotiating stance that poor as well as rich countries must start to make emissions reduction pledges. Brussels in particular wants the main emerging economies, including India and Brazil, to embrace ambitious reduction targets by the middle of the next decade. Nevertheless, while Europe wants stronger participation in emissions mitigation by poorer countries, the memo says it is still too early to talk of increased climate finance or funds for loss and damage as resulting from climate change in the developing world—the quid pro quo demanded by the Global South.

The memo argues that world governments should agree to total global annual emissions reductions of 60 percent on 2010 levels by 2050. This the first time that Brussels has floated such a long-term goal, and is in keeping with one of the long-term options under discussion by climate diplomats ahead of the Paris summit. This option would see global greenhouse gas emissions between 40 and 70 percent lower than in 2010 by 2050 and completely decarbonise by 2100.

The various other options play around with the baseline dates, the endpoints, the rate of mitigation and who does the mitigating. It’s easy to get lost in the numbers, but it’s worthwhile taking the time to understand the different alternatives. One option would see global emissions reductions of 50 percent on 1990 levels by 2050 and ‘near-zero’ emissions by the end of the century. Another would see zero net emissions by 2050, but only from developed countries. Yet another would see global reductions of at least a 70–95 per cent below 2010 levels by 2050 and zero emissions by 2060–2080.

The Brussels memo thus places the EU in smack in the middle of one of the more moderate options, and some distance away from the 95 percent reduction stance.

The memo also calls for a legally binding treaty outcome in Paris. Brussels is one of the few powers to take an approach, and a number of campaign groups are also wary of making a Paris Protocol binding on its signatories. To achieve a legally binding treaty, the goals will have to be much more modest. Furthermore, even a Democrat-controlled US Congress would have difficulty approving a document that had the force of international law. Europe, or at least the European Commission, is much more comfortable with such a position, as the European Union’s very structure is a mechanism of transcending national sovereignty. Brussels also wants the UN to issue reviews of action on climate mitigation every five years

Meanwhile, in a retreat from earlier ambition, the memo notes that the 40 percent target will include mitigation resulting from land-use change such as the growth in new forest that has occurred in Europe in recent decades. By doing so, analysts say, the commission is reducing the pressure on industry, transport and the energy sector to shift to low-carbon pathways, making the 40 percent pledge look more like 35 percent. The UK government have already criticised this shift in language, arguing that far from encouraging other powers to put forward ambitious climate commitments, it will offer them a precedent for their own paucity of mitigation intentions, but Germany and Poland are keen to see such a change.

The memo was formally adopted on 6 March by environment ministers from the EU’s 28 member states and sent to the UN secretariat

Overall, Europe has told the world it is simultaneously ready to up its climate ambition and to scale it back. It is just the sort of muddle that the 28-headed beast that is the European Union is known for.

But of course the UNFCCC is more than familiar with this sort of hotchpotch itself.

This article is published in collaboration with Road To Paris. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Leigh Phillips is a science writer and European affairs journalist.

Image: The Euro sculpture is partially reflected in a puddle on a cobblestone pavement in front of the headquarters of the European Central Bank. REUTERS/Kai Pfaffenbach.