The 30% Solution

9 June 2010

Last week ECO talked about the paper published last month by the European Commission, which analyses what a move to a 30% emissions reduction target on 1990 levels by 2020 would mean for the EU. The paper makes a good read and leads to a quite unequivocal conclusion.

The recession has made emission reductions much cheaper than originally estimated. At €81 billion per year by 2020, the total costs of a 30% reduction would be only €11 billion more per year than originally estimated for a 20% decrease. A move to 30% would also reduce spending on pollution control by €3 billion annually. In addition, health co-benefits would be as much as €8 billion in 2020.

Furthermore, the current 20%-by-2020 emissions trajectory would require major and expensive catch-up later on to attain the legislated emission reductions of 80-95% by 2050 at optimal cost.

Shorter-term economic impacts would also result from staying with the 20% target. Cash-strapped EU governments may rightly be scared by the estimate that revenues from the auctioning of emissions allowances may fall by up to €70 billion. Conversely, achieving a 30% emissions reduction target would reduce imports of oil and gas by €40 billion in 2020 at a reference price of $88 per barrel.

Keeping the 20% target would further perpetuate the low carbon price that has resulted from reduced production and over-allocation of emission permits to industrial sectors. The lower the carbon price, the lower the incentive for change and innovation.  While Europe traditionally considers itself a leader in green technologies, this cannot be taken for granted. Other countries are catching up fast.

The conclusion is loud and clear: the EU should move to the 30% target level without further delay.  Unfortunately the same old voices are doing their best to stifle Europe’s lean, green future, using the same old threats about job cuts and production losses if Europe moves to a higher target and others don’t.  But this is empty rhetoric.

First, the economic models used in the communication cast doubt on these claims, estimating an impact on production under a 30% reduction target at around 1% for most sectors if other countries stay with their low end pledges under the Copenhagen Accord. That is the worst case scenario.

Second, how much can you really trust stakeholders who are clearly profiting from the current EU climate regime whilst being required to make minimal emissions reductions?

Analyses by the European Commission and the IEA indicate that emissions of the EU ETS regulated sectors will be about the same level in 2020 as in 2008 if the EU sticks with the 20% target. Industry would make virtually no emissions reduction effort but still reap huge profits.

A recent study cited evidence of windfalls for energy-intensive industries from effectively charging customers for allowances they received for free, to the tune of €14 bn for the refining, iron and steel sectors during 2005-2008.

Another trick has been to accumulate piles of unused emission allowances that can be banked and resold. It is estimated that 10 of the EU’s most polluting firms alone are sitting on stashes worth over €3 billion.

With profits like these, it’s small wonder that these are the voices fighting so hard to maintain the 20% regime. At the same time complaining about the lack of a level playing field, some companies are actively trying to undermine climate action outside of the EU. Members of the industry group Business Europe, for example, have been exposed for lobbying against the regulation of greenhouse gas emissions by the US Environment Protection Agency (EPA), and in favour of offshore drilling in the draft US climate legislation. One European company is responsible for the worst oil spill disaster ever in the US.

The actions of these companies are a cynical ploy to undermine all climate action on an international scale. The EU must heed the message of the recent Commission document, and not fall foul of the same lobby tactics which led to the weak outcome of Copenhagen.

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