Select Committee on Environmental Audit Sixth Report


Annex 2


Environmental Audit Committee Visit to Brussels, 18 March 2008

Participating Members:

Mr Tim Yeo, in the Chair
Mr Martin Caton

Colin Challen

Mark Lazarowicz

Jo Swinson

Dr Desmond Turner

Joan Walley

09:30—Damien Meadows: The EU ETS and its role in building a global carbon market and incentivising an international agreement

Damien Meadows is Deputy Head of Unit, Market Based Instruments Including Greenhouse Gas Emissions Trading, DG Environment.

Mr Meadows explained that there was a lot of interest around the world in the EU ETS. The Commission would not be able to keep within the 2 degree temperature threshold without the ETS.

Mr Meadows said the Commission was working hard on linking the EU ETS internationally, with a particular focus on the US. The Commission was also looking at widening the EU ETS to cover more of the economy (as in the US proposals), and to cover policy measures (also proposed in the US). They were also considering an EU-wide target rather than NAPs, and developing a long-term trajectory in line with US proposals. Aviation was also covered by Lieberman/Warner Bill, and the Commission was looking into this area. The schemes were now recognisably similar.

Mr Meadows explained that the Commission was looking to increase auctioning (as in the US proposals). There would be three levels of auctioning in order to deal with carbon leakage. If a global agreement could not be reached there would be calls for protectionism.

In the US there had been proposals to hypothecate all auctioning revenues to tackle climate change. Mr Meadows explained that in the EU there had been resistance to this, with the UK and other countries arguing that it was up to them to decide what happened to the revenue.

The EU ETS now covered 30 countries—including countries outside of the EU such as Norway and Iceland. Mr Meadows said that although there could be ways of bringing in more countries, there would be challenges in deciding allocations and the Commission would need to ensure that there was similar stringency between schemes. The EU could link with Chile and many other countries. Japan was now shifting its position on carbon trading due to movement in the US.

Mr Meadows said that a federal ETS in the US would be preferable to the proposed regional system. The regional system was not bad in itself, but only covered energy and there was a risk of carbon leakage between states. Mr Meadows said that there was also a need for caution if other schemes accepted sectors that the EU did not, as the ETS would end up de facto accepting credits which it would not accept directly. Forestry credits, considered sub-prime in a company-based system, were one area where there could be difficulties.

Mr Meadows said that the EU would have to wait to see how the US system functioned before it would consider linking it to the EU ETS. It would be important to make sure the system was stringent enough.

Mr Meadows explained that the US was particularly concerned about international carbon leakage, and would therefore include international emissions from aviation and shipping in their ETS to try and deal with this. The Lieberman/Warner Bill had indicated that there would be 100% auctioning in the ETS. The Commission had suggested that less should be auctioned—60% in 2013, if the Commission proposal was agreed to in the Parliament.

Mr Meadows said there could be an agreement in the US on the Bill in 2008. The EPA was already dealing with reporting requirements. It could happen quickly. There could be a global carbon market by the middle of the next decade. It was important to ensure that all the ETS linked up to get the major benefits of a trading scheme.

Mr Meadows explained that through the use of CDM credits in the EU ETS, 150 countries had been involved in the carbon market. He though this was very positive. In order to give certainty about the future post 2013, the Commission had indicated what was likely to happen. But there remained challenges:

Mr Meadows said that CDM had to be an incentive for developing countries to join an international agreement—rather than a reason for them not to (i.e. that because they received help through the CDM they did not need to undertake any action themselves). Also, it was important to limit CDM credit use to ensure that action happened in the EU, and that the EU ETS ensured there was investment in European renewables capacity. Otherwise it would cost significantly more to reach European renewables targets.

Mr Meadows explained that although the EU had been restricting credit use somewhat, it remained the most generous in the world. There had been reputational damage to the CDM due to projects on dams and HFCs. These needed to be dealt with, but the CDM could be successful. The Commission had proposed harmonisation among Member States by accepting only those projects that all Member States also accepted, to ensure only the best projects were used.

Mr Meadows said that the US was highly unlikely to accept CDM credits from competing industries such as concrete manufacturing. The US did not want to help competing companies and would probably restrict credit use to biomass projects and similar projects. In the proposals, 700 million tonnes would still go though CDM in the absence of an international agreement. But this would be expanded if there was an agreement.

Mr Meadows said that the US was including road transport in their ETS. The Commission was not, as this would involve removing fuel duties and other similar taxes. ETS would happen in the US and would include road transport, meaning that the US system would have broader coverage. It might cover 87% of emissions.

Mr Meadows explained that the Commission did not have a target carbon price—but it had been calculated that a 40 Euro cost was required by 2020 if Europe was to reach renewables and GHG emission reduction targets. These high prices were also needed to stimulate CCS and other more expensive technologies.

The US system would not include agriculture and forestry, because they shared the same concerns as the EU. The US had suggested that these matters should be covered through offset projects and related measures.

Mr Meadows said that industry was generally more supportive of 100% auctioning if the revenues were used for R&D.

Mr Meadows said although there was pressure to increase the 3% CDM figure, this was a reasonable compromise. Some NGOs thought that with a 20% target all effort should be within the EU. Mr Meadows believed this would make matters more expensive. The Commission had tried to balance effort and cost.

Mr Meadows explained that Germany was pushing for far greater auctioning and reduction targets. However, Germany was also determined that there should not be carbon leakage.

The UK was working hard at pushing ETS in the US, and this had contributed to increasing business interest in this.

Mr Meadows said that sectoral agreements would be required if carbon leakage was to be avoided, otherwise there would be problems in the post Kyoto phase. This could mean that a border carbon tax would have to be introduced, which would not be desirable.

10:20—Lynn Sheppard: International climate change, from Bali to Copenhagen

Lynn Sheppard is Policy Officer for International Climate Change negotiations, DG Environment.

Ms Sheppard explained that the EU needed to intensify cooperation with third countries in a range of bilateral and multilateral fora. In particular, there was a need to flesh out what was expected of and by other countries. The EU had set out its headline expectations in the 2007 climate change and energy package, eg for LDCs. It was also important to identify the incentives required to bring people on board and to differentiate between the developing countries. Ms Sheppard said the Commission was working on this to try and establish how responsibilities should differ.

Ms Sheppard said that an impact assessment published in 2007 had linked the 2 degree target to policy options and costs, and had modelled the contributions of other possible parties.

Ms Sheppard believed that Poznan would be key in providing a milestone for the negotiations. In advance of the Poznan talks, it would be important to narrow down what needed to be done, especially with regard to developing countries and what assistance could be made available to them. Such assistance would need to encompass financing, technology and adaptation.

Ms Sheppard explained that the EU was aiming for a 'top-down bottom-up' approach. The 2 degrees target had been identified as the main objective at the top. Meanwhile, policies at the bottom aimed to deal with the same headline target, but in an equitable way.

The Commission had three main reasons for engaging with developing countries on climate change: to build capacity, to build political will and trust and to fulfil obligations under the millennium development goals. Furthermore, climate change was integrated development aid and foreign relations. The Commission always addressed climate change in discussions with third countries.

Ms Sheppard said there was a realisation among a number of developing countries that they needed to take real action to tackle climate change, and that there were links between climate change objectives and other objectives such as energy security and sustainable development.

Ms Sheppard said that the EU also had contacts with OECD countries.

Ms Sheppard stressed that it was crucial to get emerging economies on board due to their rising emissions. Ms Sheppard said that over the next year it would be important to explore the contribution that could be made by developing countries. Part of this would involve making clear to them the costs and benefits - such as using Stern-type reports. However, India had rejected the offer of a Stern review, saying that they preferred to do this internally.

In terms of developing country cooperation, the EU-China Climate Change Partnership was the most advanced. This project aimed to improve practical capacity and improve political will and trust. Project activity included work on CDM and CCS, adaptation and market based mechanisms. Ms Sheppard explained that the NZEC project was one of the key outcomes, and the UK was very involved in this. The project was currently at phase 1 (i.e. R&D on issues such as storage and the technology), and the joint steering committee would be ready to report in late 2008/early 2009. Phase 2 would be more specific feasibility studies and phase 3 would involve actual construction and operation. Ms Sheppard explained that originally Phase 3 to be completed by 2020. However, she said the Commission was clear that that was not soon enough and was trying to bring the date forward. The Chinese had not been sure about this, but they had recently appeared to be more willing to bring it forward. Ms Sheppard hoped that phase 3 would now be complete by 2014. She said that it would be hard to bring it further forward: although the technology was not particularly novel there were certain technological issues which would take time. The Commission was currently trying to work out funding mechanisms for Chinese and EU demonstration projects. Ms Sheppard believed this would depend on the carbon price.

Damien Meadows agreed that a good carbon price was essential. The revenues from auctioning could help. The ETS was stimulating development of this technology.

Ms Sheppard said that, in terms of improving the CDM, the Commission was looking at the CDM Executive Board to ensure that it had the resources it needed, and that it worked in a transparent and coherent way. It was also important to ensure that host countries took responsibility for ensuring the sustainability of projects.

Ms Sheppard said that climate change had a high profile in discussions between the EU and China. There would be a focus on climate change during the 'Jumbo' visit in April 2008. Behind the scenes the Chinese had definitely been constructive in Bali.

It was important to avoid duplication, so it was necessary to manage and coordinate different processes. For example, it had been decided that the talks at Hokkaido would focus on the long term stabilisation target. Ms Sheppard explained that in the Major Economies Meeting, the Commission would be ensuring that the MEM supported the UNFCCC process. Ms Sheppard believed that these meetings could have the potential to be quite helpful due to those involved. The challenge for the EU was to avoid getting mired in process, and to ensure that any declarations or conclusions led to a unified conclusion further on from the previous position. Ms Sheppard admitted that it was difficult to keep up with all the meetings. She believed that the UK was best placed staff-wise to work on this. However, it remained a challenge. Better coordination was needed on all bilateral contacts—7 or 8 Member States were working in China and achieving good cohesion. But in other countries this was not always the case.

11:30—Stavros Dimas, Environment Commissioner

Tim Yeo MP (Chairman) welcomed Commissioner Dimas. He asked whether, with the increasing consensus on the need to reduce emissions, the Commissioner thought that the EU should go further than 20% unilaterally to get the required action.

Commissioner Dimas said that the EU target was 30%. The EU had fought for this in Bali, but it would only make sense as part of an international agreement. The EU was aiming for a 2 degree reduction, and this would require a 50% reduction globally by 2050. Commissioner Dimas said that it was important to fight for this in the EU and globally—and to fight not only fight for the targets but also for their implementation. Some states had expressed concern about trade exposure and this could have an impact on their ambitions.

Mr Yeo asked whether auctioning revenues should be used to pay for technology.

Commissioner Dimas said that this had been the EU's original proposal—not only for technology but also for education, adaptation in LDCs, technology transfer and other related matter, even tackling fuel poverty. Commissioner Dimas explained that the EU had encountered resistance from a number of countries, in particular the UK. Even so, the UK had said that some of this money would be used to deal with these issues.

Commissioner Dimas said that a number of states wanted 100% auctioning for the power sector—including the UK. The Commission had concluded that this was right, but for energy intensive sectors it had also been decided that they should not be required to buy so many credits. They might be given 100% free allowances or importers might be required to pay for allowances to make up for this uneven playing field. It was possible that 10% of auctioning funds could be hypothecated for developing countries.

Commissioner Dimas said that carbon leakage was bad for the environment and for employment. However, he insisted that whatever was done to address this needed to be in line with WTO rules and in the spirit of common but differentiated responsibilities. The EU's international partners would have to accept that the EU was not going to allow the complete loss of its industries. This issue had to be addressed because if these industries were to move overseas there would actually be an increase in emissions.

Commissioner Dimas insisted that, whatever the degree of auctioning, the EU would meet its 20% target as the cap would be reduced in a trajectory.

Colin Challen MP asked whether the WTO should be made to address climate change more robustly. Mr Challen suggested that the need to tackle climate change should trump the competition rules of the WTO.

Commissioner Dimas agreed with Mr Challen. He said that there may be some difficulties if the EU required importers to buy into the US. However, the US was also looking at this matter (in the Lieberman/Warner Bill), so the EU was in line with the US on this particular topic.

Commissioner Dimas stressed that the EU could benefit from implementing climate change policies. For instance, meeting the EU's 20% target would mean that EU air quality requirements would be met as a co-benefit, at zero cost. This would be a saving of some 10 billion euros.

Commissioner Dimas explained that the EU had tried to get shipping and aviation on the agenda in Bali, but it had been unsuccessful. Nevertheless there were some hooks for addressing this at a later point. The EU had asked the ICAO and IMO to come up with proposals by the end of 2008. Otherwise some proposals would need to be moved. This was not ideal as the EU would prefer a global deal.

Martin Caton MP asked whether we had reached a stage where climate change trumped biodiversity. He gave the development of the Severn Estuary project as an example.

Commissioner Dimas said that in these cases it was important to use common sense to balance the benefit. For instance, wind farms should not be put in known bird flight paths. An environmental impact assessment would help to identify ways to balance the problem. Commissioner Dimas said that this was a difficult matter that required care.

Commissioner Dimas said that the Lieberman/Warner Bill, and other measures, indicated that the US was moving forward on climate change. However, their ETS would be slightly different from the EU ETS because it included surface transport. The EU was working with all these countries and states with a view to linking the European ETS with their schemes in the future. This had already been achieved with Norway. Commissioner Dimas said that this should be the EU's ultimate goal.

Mr Challen asked whether the EU should use contraction and convergence, and whether policy was already moving towards this anyway.

Commissioner Dimas said that it was important to have a shared goal for the long term, such as a temperature limit, a concentration limit or a targeted reduction. There would have to be common but differentiated responsibilities, like those negotiated in the EU. A similar solution could work. Another option would be to have international sectoral agreements, country sectoral agreements or other measures. The per capita emissions would be reflected in an ultimate agreement.

Commissioner Dimas said that although the US still wanted China and India to have binding targets, this was not feasible.

Commissioner Dimas said that it was important to ensure that the CDM went to the LDCs rather than fast developing countries such as South Korea or China who should be required to take on more commitments. The transfer of technology and funding would play a role in this. Commissioner Dimas insisted that these countries also needed to accept energy efficiency targets and similar measures, especially where there were large co-benefits. Commissioner Dimas thought that this was a reasonable thing to ask.

Mark Lazarowicz MP asked whether Commissioner Dimas had any concerns about biofuels.

Commissioner Dimas said that he did have concerns about biofuels, both environmental and social. He was particularly concerned by food prices. He also said there was a risk that a 10% target could end up causing the destruction of tropical forests. For this reason the EU was introducing sustainability criteria, the first targets of their kind in the world in relation to biofuels. These targets had to prevent damaging land use change and would require at least 35% greenhouse gas savings. The Commission had said that the target should not be reached if the fuel could not be sourced sustainably.

Commissioner Dimas said that the Commission was trying to promote second generation biofuels. However, the Commission still had concerns over these fuels, in particular where waste fuels were being used. It was important to assess whether biofuel was the best way of using this material. There were also a number of issues. Commissioner Dimas felt that the initial enthusiasm for biofuels had declined.

Commissioner Dimas said that it was also crucial to ensure that there was no displacement. This was a particularly difficult issue to deal with. Preventing deforestation was very important both for biodiversity and climate change. Deforestation was one of the most important aspects of the Bali negotiations, given the emissions and how cheap they were to deal with.

Mr Yeo asked the Commissioner whether there was anything he wanted to say to the Committee.

Commissioner Dimas asked the Committee to continue its good work. He said that the UK Parliament and UK Government had both played an important role in ensuring that climate change was on the agenda. The UK had been instrumental in persuading other countries in the EU, and as a consequence there was a better chance of reaching an international agreement. Commissioner Dimas said the UK had also played an important role in the US.

12:50—NGO lunch

Participants: Stephan Singer (WWF), John Hontelez (European Environment Bureau), Alexander Woolcombe (Oxfam), Matthias Duwe (CAN-Europe), Mahi Sideridou (Greenpeace).

The NGOs said that they would like agreement on a long-term goal of 2 degree Celsius, and a framework in line with the IPCC Scenario, such as reducing emissions within ten years.

It was important to ensure that the EU had a leadership role by keeping up domestic pressure on Governments. An agreement would also depend on arranging commitments to adaptation and technology transfer.

The NGOs said that more secure and long term funding sources needed to be agreed. Stern had said that $300-400 billion per year was needed to pay for adaptation and everything else that was required for the next few decades in order to keep within 550 ppm, even though this limit was already too big. There needed to be hypothecation of auctioning revenue from the ETS—this could generate some 30-60 billion euros per year. The NGOs were worried that this money could disappear if it went straight back to the states. They felt that possibly 50% should be held back to pay for adaptation. If the money was not going to come from this type of hypothecation then member states should say where it would come from and what would be required to deliver it. Funding should be built into international schemes, such as the adaptation fund.

The NGOs agreed that there was a need to shift current expenditure on energy, which was currently some trillion dollars per year, to low carbon forms and energy efficiency.

The NGOs said that action was failing to live up to rhetoric, for example on policies to reduce emissions from cars.

The NGOs insisted that EU and domestic policies needed to be decided this year due to changes in the EU Parliament and the arrival of new Commissioners coming in next year. The need to fit in with Bali was another factor.

The Committee and the NGOs discussed the balance of power in the EU. The Commission was now the main driving force for climate change policy in the EU rather than the Council of Ministers. The NGOs named some key UK MEPs in the climate change debate, including Linda McAven, John Bowis and Caroline Lucas.

A new NGO-run website would soon be launched for EU citizens, giving information about climate change action in the EU. The website could be found at www.ourclimate.eu

The NGOs said that climate change needed to be mainstreamed into aid funding. This was only just beginning to happen. Aid needed to be climate-proofed.

14:15—Walter Kennes: Developing countries and climate change

Walter Kennes is Head of Sector, Sustainable Management of Natural Resources, DG Development.

Mr Kennes presented the Global Climate Change Alliance (GCCA) and gave the Committee an information note. Mr Kennes explained that the Commission was aiming to make developing countries realise that they had to deal with climate change for development reasons. The Commission was also seeking to provide funding for adaptation.

Mr Kennes believed that dealing with deforestation could be advantageous for development, poverty and climate change reasons. Action in this area should be carefully prepared because the drivers of deforestation were complex—energy needs (charcoal and firewood), population increase, illegal logging etc. It was also important to prevent the degradation of forests. The Commission is undertaking studies on this, such as that on paying for avoided deforestation in developing countries. The Commission felt that this work should also be linked with the poverty/livelihood needs of the people living in the forest. There was also a link with biofuels, because it was important to ensure that this did not cause deforestation or an increase in food prices.

Mr Kennes said that getting forestry into the CDM was a complex matter. It is important to distinguish private sector activities in ETS from the Government activity to reduce emissions. Mr Kennes said he understood that for the non-ETS part member states could use reforestation projects under the CDM. However, private companies could not do this because these projects were not permitted in the ETS. Mr Kennes acknowledged that there were concerns about allowing these projects into the ETS. Such concerns are for example related to the possibility of destabilising the carbon market as well as to the issue of monitoring. Mr Kennes thought that, from a development perspective, it was a pity that developing countries, particularly Least Developed Countries, could not benefit from reforestation projects, which in addition to climate benefits also generate benefits in preserving biodiversity and improving livelihoods.

Mr Kennes said that the Adaptation Fund was still very small at present, but that it could build up gradually and become very large after 2012. He said that the Commission would prefer adaptation to be mainstreamed in development strategies. It should preferably be implemented by budget support rather than on a project by project basis in order to reduce transaction costs. Mr Kennes thought there could be more innovative forms of funding such as hypothecation of future auction revenue. Mr Kennes hoped that by the Poznan meeting there would be progress on adaptation funding and the GCCA.

Mr Kennes explained that commitment in developing countries to mainstream climate change adaptation and environment more in general into their strategies had been limited so far. Often the Minister for the Environment in these countries was quite weak in comparison to other Ministers, and commitment was fairly limited. But there are examples of countries that showed commitment like Mozambique and Tanzania. And there are many island states that are committed. Mr Kennes said it was important to differentiate between developing countries. It was also necessary to ensure that those countries that were poorest and that would not have any emission commitments, did make efforts to move towards a low carbon growth path and deal with their deforestation emissions. However, they would still be exempt from cuts.

15:30—Mark Major & Stefan Moser: Clean air and transport issues

Mark Major, DG Environment and Stefan Moser, Deputy Head of Unit, Clean Air and Transport, Directorate General.

Mark Major said that the IMO adopted in 2005 a decision on how to reduce emissions. The Secretariat of the IMO was pushing hard on this, but had little power. Norway and Denmark had called for a charge on bunker fuel to fund offsets and/or pay for adaptation or fund a technology programme. This could raise tens of billions of euros per year. The EU was pessimistic about obtaining a successful agreement in the IMO. Also, the UK had a 'principled' objection to this hypothecation.

ICAO was opposed to aviation being included in ETS without mutual consent (i.e. between both countries).

In 2005 the EU launched a strategy to reduce emissions from aviation. It was decided to use the ETS.

The Commission had said that if the IMO and ICAO did not deliver proposals, the Commission would issue proposals itself. The Commission may also call for the inclusion of shipping in the ETS, or mandatory standards, variations in harbour dues or other measures. The picture would be clearer in 2008. Proposals on aviation had already been established.

Colin Challen asked whether there should be a European capacity for aviation, to put an end to arguments that countries needed to expand their airports because otherwise they would lose business to expanding airports in other European countries.

Stefan Moser said that the Commission did not support this type of intervention. The Commission was focussing on the ETS to reduce the emissions. He hoped that the US would come on board. He did not think the Commission's ETS proposals would fail—but in the event that they did, another way of dealing with emissions would need to be established.

Mr Moser said that it was not clear whether IMO and ICAO would be able to move forward—but it was important to give them a chance to take action, rather than acting unilaterally from the start.

It would be unfair to other sectors if the post-Kyoto agreement failed to address aviation and shipping. If other countries were not willing to reach an agreement then the EU would go forward unilaterally. However, action would be less substantial in this case than if all countries were in agreement, because care would have to be taken to ensure European economies were not damaged.

Mr Moser said that if a carrier rejected the fees they would not be permitted to land. This could contravene WTO rules so it would be important to ensure that all parties were treated equally. Mr Moser believed that this action was legally viable, although he recognised that the US disagreed. He acknowledged there was a risk that the EU could be found against in ICAO.

The Commission was not really looking at changing transport modes, rather it was seeking to get their carbon price reflected. It might be that, in order to reach the 2050 target, aviation would end up using all the permitted emissions.

Rail was now covered by the ETS due to its use of electricity. Cars were not covered, but the EU was undertaking work to improve car efficiency.

Mr Moser said that the Commission had a number of work programmes trying to improve rail in the EU, especially international rail.

Mr Yeo said it was quite ironic that rail was the only mode of transport fully included in the ETS even though, environmentally, it was one of the best forms of transport. Mr Yeo asked whether EU's proposal of giving a large proportion of allocations for free would simply act as a permit to keep emitting. He was concerned that the credits would simply provide a windfall.

Mr Moser explained that total emissions would be capped, and that the sector would have to stay within that cap by purchasing credits, even though the sector was expanding.

Mr Yeo asked whether there were any proposals for ensuring that vehicles were driven in a better way.

Mr Moser explained that this was possible, technically, but it was considered difficult to do. Instead, the Commission was focusing on standards based on a typical driver. There was concern that focusing on eco-driving would take the onus away from manufacturers' to improve fuel efficiency. Mr Moser said there were plans to propose an eco-label for cars. It was hoped that better standards in the EU would improve standards in poorer parts of the world.

Mr Major said there was tremendous potential for getting transport projects into the CDM. This needed to be looked at in order to help avoid the damaging transport patterns seen in developed countries. There was currently only one transport CDM project, in Bogota. Mr Major said there needed to be more focus on programmes like these. This had been mentioned in the sixth environmental action plan. The CDM could be a way of getting action on this.


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2008
Prepared 8 July 2008