Examination of Witnesses (Questions 242-269)
MR ANNE
THEO SEINEN
12 MAY 2009
Q242 Chairman: Good morning. I am
sorry we are running a little behind time. You will understand
why we wanted to conclude the previous session. Welcome to the
Committee and thank you for coming in. I think it is the first
time you have been a witness in front of us. I wonder if you could
begin therefore by explaining what you actually do inside the
European Commission.
Mr Seinen: Thank you for the invitation.
I am happy to be here as a witness. I am working in the European
Commission DG for Environment, the unit dealing with the administration
of the Emissions Trading System, so last year we went through
the whole codecision process for revising the Directive and now
we are continuing with a lot of follow-up issues following the
revision. Another unit has responsibilities with respect to the
international negotiations on climate change.
Q243 Chairman: When we looked at
this a couple of years ago, our judgment was that Phase I showed
that you could have a system that worked but it could not really
claim much success in terms of cutting emissions. We have got
Phase II which looks more promising with tougher caps and so on
but unfortunately we have now got this background of a sharp economic
downturn. Do you think we are going to make better progress now
and how would you rate the progress we have made so far?
Mr Seinen: The first phase was
a learning phase so, as was mentioned, all the infrastructure
was set up, all the institutions, there were national allocation
plans, monitoring, reporting and verification, and all that has
been set up and there has been a significant carbon price, in
particular in the first half, which also generated some real abatement.
Indeed in the second phase we have more scarcity than in the first
phase and already scarcity conditions are considered over the
whole period until 2020 and there is a positive price at this
moment so that in a way is proof that something is working. At
the same time there is uncertainty in the light of the revision
of the targets after the international negotiations. If they conclude
then there will be a review and also the ETS cap is likely to
be tightened. So there is some uncertainty but the market works
and there is a carbon price.
Q244 Chairman: Do you think you can
point to evidence that it is now actually having the effect of
cutting emissions?
Mr Seinen: I think the evidence
is in the cap itself and the fact that we managed to set a cap
cut in stone in the legislation and also the fixed limit on the
use of credits coming from the Clean Development Mechanism and
Joint Implementation Project. It means that in the legislation
the objective to reduce emissions is enshrined, so that is the
basic answer to your question. I think in earlier discussions
there was a lot of emphasis on technology and I do appreciate
that because technology is indeed the key for the long term. The
ETS is not the only instrument for achieving long-term technology
abatement. ETS is not only about technology; it is also about
fuel switching and it is also about replacement of old installations
by current technology (hopefully the best of course). All that
is being used to make sure that we respect the cap as it is now
set in legislation so thereby the immediate environmental objective
is secured. That does not mean that we do not need a technology
policy and also a policy for renewable energy. Indeed, there is
also a Directive with targets for renewable energy, so they are
complementary, and we will need them and they reinforce each other.
The ETS makes sure because of the carbon price that you need fewer
subsidies for getting renewables and new technological development
and at the same time the technological development and more renewables
will make it easier to set even stricter targets in the ETS.
Q245 Joan Walley: I think you will
be aware that our Committee has been following Phase I and Phase
II and that we asked the National Audit Office to report on how
the proposed cuts would actually be achieved in respect of Phase
III. I want to have a look at the changes that were made, I think
in December, by the European Union heads of state to what was
originally proposed in respect of Phase III and the consideration
of what was previously in Phase II. Our concern from the National
Audit Office Report is that if the full quota of project credits
is used the reduction of emissions within the EU could shrink
to just 7% whereas effectively we were looking towards a cut of
21%. If that is the case, would that not be wholly inadequate
in respect of the objectives that we seek to get out of this?
Mr Seinen: There was a whole debate
about the use of credits coming from the Clean Development Mechanism
and Joint Implementation and the fact was that, already for the
second trading period in the national allocation plans, it was
foreseen that installations could use up to 1.4 billion of allowances.
If you spread that out over the whole period 2008-20 that would
already make up 40 to 45% of the reduction effort. Therefore,
the Commission proposed not to allow any additional use. In the
negotiations, that has proven to be a hard point, in particular
for Member States that had not allowed their companies so much
use of CDM. The compromise in the end is an increase of about
10% higher use of JI/CDM which is permitted, so it is a limited
increase and it is half of the effort, so that is the political
balance achieved. I do not think that puts at risk the effectiveness
of the ETS. I also think when you look internationally Europe
shows leadership by a unilateral, unconditional promise that we
will have a reduction of 20% compared to 1990 with half of it
now being done through CDM. Indeed, the rest of the world, in
particular the developing countries, expect Europe to make domestic
efforts.
Q246 Joan Walley: But would you not
agree with me that if the purpose of the cap in respect of 2020
was to achieve 21% average reductions and if the reality as a
result of the exchanges is that we only end up with 7%, then we
have got something to be concerned about?
Mr Seinen: The reductions still
take place but not in Europe. There is also a discussion about
the Clean Development Mechanism and the solidity of the Clean
Development Mechanism and Europe has a strong position for a very
fundamental reform of the Clean Development Mechanism to improve
its quality to go beyond just individual projects, to make it
broader so that it covers the sectors, to make sure that it does
not credit for anything beyond the current status but that it
credits beyond a certain level of ambition that developing countries
should do themselves. So there is a great scope for reform and
it is an important discussion. The use of CDM still represents
largely a real reduction but elsewhere.
Q247 Joan Walley: Okay. We have recently
seen that in Australia Kevin Rudd has deferred their emissions
trading scheme. Do you see evidence that in Europe because of
the recession that there is a lot more pressure to water down
the terms of the current European Emissions Trading Scheme?
Mr Seinen: No, I do not see that
because at the moment the legislation is agreed. There is not
a new proposal for revision. The international negotiations are
on-going. After the conclusion of negotiations in Copenhagen we
will have to see what the outcome is and what needs to be done,
but for the rest in the implementation of the package the rules
are firmly set in the December agreement.
Q248 Joan Walley: Okay. Just on a
very practical level, what do you see as the main actions that
industry in Europe will be taking to get their emissions levels
down under Phase III of the EU Emissions Trading Scheme?
Mr Seinen: It is a difficult question
for me to answer because the ETS is precisely a trading instrument
where we leave it to the market to find the most cost-effective
solutions. We do not prescribe precisely the ETS as a trading
instrument by which we avoid setting and prescribing what the
companies should do. That is why I am really a bit careful.
Q249 Joan Walley: If I said to you
that the Chief Executive of the Committee on Climate Change suggested
to us that it could just end up, with for example, countries like
Germany switching from coal to gas, would you agree with his version?
Mr Seinen: I would need to have
a look at the numbers whether that would theoretically suffice
to respect the cap with only these measures. I do not think it
is likely. It will be very costly and it is most likely to be
one of the elements among many measures that will be taken, so
what weight it will have I do not know. I think one of the surprises
in the first years is that there was more switching from lignite
to hardcoal, which was not something that many people predicted
as such. Still it had a significant impact, so we are open to
be surprised and see what measures turn out to be most cost-effective.
Q250 Mr Caton: What will happen to
the Phase III cap if the EU moves to a 30% target at 2020?
Mr Seinen: There will be a new
codecision process, so the Commission will make a proposal on
how to implement the new target, hopefully as agreed in Copenhagen.
There will be a need for a new split as to how much needs to be
done in the emissions trading system and how much needs to be
done outside, and then it needs to be decided how. It must be
agreed of course in Council and in Parliament.
Q251 Mr Caton: What means does the
Commission have for making the ETS tougher, say, in the middle
of Phase III if new scientific evidence reveals that we need to
make steeper cuts in emissions?
Mr Seinen: Of course the Commission
has the right of initiative and it can always make a proposal
for a change. At the same time, throughout the review process
there has been great emphasis from all parties on predictability
and giving long-term certainty, so a change in the middle of a
trading period would not be the first thing I would think of,
but I do not think it is legally excluded. At the same time if
you make a change after the trading period, one option could be
to set the linear reduction factor for 2021 much higher than it
is now, if that were to be agreed in Council and Parliament. By
creating a scarcity later on, you would also expect an increased
banking of surplus allowances. If the operators of the installations
expect greater scarcity later on they will try to save some of
the allowances now to use later on, so you can achieve the same
objectives probably by just respecting the trading periods.
Q252 Mr Caton: I heard what you said
about the ETS not being prescriptive but do you expect the ETS
to actually help deliver the EU's targets on renewables and energy
efficiency?
Mr Seinen: Definitely, and the
impact assessment shows that the ETS will help greatly to achieve
the renewables targets. It is not sufficient, and that is why
we also have a new Directive with targets for renewable energy,
but it definitely helps.
Q253 Mr Caton: Are the EU's overarching
emissions reduction targets based on robust science?
Mr Seinen: You mean in terms of
what needs to be done to avoid dangerous climate change? Yes,
definitely, it is based on robust science but I think it is important
to realise that Europe cannot save the climate on its own. For
that we need a good international agreement, a very ambitious
outcome. 30% reduction by 2020 is indeed within the margins of
what science tells us would be necessary for developed countries
as a target. 20% to be realised by the EU on its own would not.
I think the science tells us that for avoiding climate change
in developed countries should reduce emissions by 25 to 40% by
2020, so the 20% is indeed not enough but it is still the most
ambitious target around unilaterally.
Q254 Mr Caton: Do you think it will
help the objectivity of decision-making if the Commission set
up something equivalent to the Committee on Climate Change here
in the UK?
Mr Seinen: I cannot positively
answer that question because I do not know what would be needed
in addition to what the UN already does in this respect. Of course
there is a lot of scientific knowledge and studies in the UN context
on what needs to be done and the recent evidence suggests that
we should have more abatement rather than less. I do appreciate
your question and concerns. Of course, we are at the beginning
of a process, well, not at the beginning, we have had the ETS
already so it is a second step, but much more needs to be done.
Mr Caton: Thank you.
Q255 Colin Challen: Is it not quite
wrong for the Commission to claim that it is making net reductions
in carbon emission from the ETS if that includes project credits
from countries that do not themselves have caps? All you are really
saying is that there is no net increase, it is carbon neutral;
it is certainly not a reduction.
Mr Seinen: In Bali, the roadmap
for the negotiations was set out and one of the elements is that
it was agreed that the developed countries should have binding
targets, but for developing countries there should be policies
to ensure abatement, compared to the business as usual scenario,
so there should be real policies to abate emissions but not necessarily
binding targets on total volumes.
Q256 Colin Challen: This is the problem,
is it not, because I was just reading the press reports of our
Secretary of State, Ed Miliband, coming back from China last week
and was very impressed with their plans for targets. It sounds
great to have a target but if the target is only to reduce the
carbon intensity of the unit GDP growth that is not the kind of
target we actually want. That kind of target is what I would describe
as a George Bush target.
Mr Seinen: But of course we must
also ensure that we get an agreement in Copenhagen, so it is an
element in the negotiations.
Q257 Colin Challen: Not if it is
a bad agreement.
Mr Seinen: At the same time I
think this is a very important element in our views on the reform
of the Clean Development Mechanism. Currently it is a system based
on projects and we have about 1,500 projects. These are dots in
the landscape and what we would want is to make that a system
that covers the whole landscape by having sectoral approaches
to make sure that there are policies so that all the low-hanging
fruit, all the normal abatement is done by domestic policies and
that credits are generated only for policies that go beyond that
which really achieve higher reductions. From that perspective
you will need monitoring and reporting and you will need much
more knowledge on the sector and we see this really as a stepping
stone towards cap-and-trade because once you have these sectoral
policies there then you make it easier also to integrate these
economies into a global carbon market and you make it easier to
accept real caps on emissions.
Q258 Colin Challen: But the proposal
from the Commission, as I understand it, which may go to Copenhagen
is that it talks of an OECD-wide carbon market by 2015, to be
further extended to economically more advanced developing countries
by 2020. Is that proposal cap-and-trade for all participants or
does it include the possibility of an agreement which allows others
to have targets based on carbon intensity rather than a cap?
Mr Seinen: Indeed the Commission
foresees a carbon market for OECD countries by 2015 with linked
cap-and-trade systems. That does not necessarily cover the entire
economies. Like in Europe, it now covers 45% of emissions and
with aviation it will increase to about 55% of emissions.
Q259 Colin Challen: What I mean is
if China were coming into this agreement—
Mr Seinen: You could have a cap-and-trade
system for certain sectors. China is not part of the OECD but
they could also join with a cap and trade system, and we would
hope they would join, but there still remains the question should
there be a binding target for all emissions in China. In a way
these are two separate issues.
Q260 Colin Challen: That binding
target being a capped target?
Mr Seinen: Binding targets like
we have under Kyoto for Annex I countries.
Q261 Colin Challen: Is it very likely
that they will come into this, do you think, the Chinese particularly?
Mr Seinen: In our communication
we focus in the very first place on the OECD. I think everybody
realises the need to fight climate change and to do it in the
most cost-effective manner, so I certainly do not exclude that.
Q262 Colin Challen: What about the
United States, they talk now about introducing cap-and-trade,
but what do you think the prospects are for that and what are
the key issues we would have to address if we want to see some
linkage?
Mr Seinen: I think the key issues
are fairly sensible. There should be an absolute cap on the system
so there should not be a leakage. There should be sound monitoring
and reporting and verification. I think these two are the most
important and then you can still see which design features would
need to be adapted to make it fully compatible. You would have
to decide whether you have full linking where you accept unconditionally
each other's credits for compliance or whether you do it through
a gateway which puts a quantitative limit on to the use of each
other's credits.
Q263 Colin Challen: If for any reason
they do not have a federal cap-and-trade system could the EU ETS
link up with the existing regional US cap-and-trade markets?
Mr Seinen: The provisions in the
revised Emissions Trading Directive also allow linking to sub-federal
systems.
Colin Challen: Thank you.
Q264 Joan Walley: Could I turn to
the inclusion of aviation in Phase III of the ETS and ask you
how have you projected the impact that this will have and what
do you think the effect is likely to be on airfares and on carbon
emissions from flights?
Mr Seinen: The impact assessment
that accompanied the proposals for the inclusion of aviation predicted
that the increase of emissions from aviation would no longer be
142% but fall down to 135%, so still a significant increase and
not a very big reduction. We would expect aircraft operators
to pass on the cost of emissions in prices which would mean for
flights within Europe a limited amount, around perhaps €5
to €15; for inter-continental flights it would be higher.
I do not recall exactly the amount but in the impact assessment
all these figures were there.
Q265 Joan Walley: Okay. Just looking
at the windfall that the energy companies made from Phase I, what
kind of windfall do you expect the operators of aviation will
be making from Phase III? Have you specified at all, and if so
how have you specified the environmental action that you would
expect to be made in return? Has this been spelt out by the Commission?
Mr Seinen: Yes, in the impact
assessment it was clearly explained that one can expect aircraft
operators to pass on the cost of emissions, whether or not they
receive them for free, like they do with fuel costs. If the kerosene
price increases you also get a surcharge on your ticket, so there
was no reason to expect it to be different for carbon costs. That
is why the Commission proposed less free allocation. Also in the
Parliament there were voices but this was not adopted.
Q266 Joan Walley: Mr Challen has
briefly touched on the US but I just wondered how the Commission
is dealing with objections to the plans in respect of aviation
from the US Government and also from the aviation industry? It
would be useful just to have a sense of how you are addressing
that.
Mr Seinen: With the new Obama
administration we have not heard objections against the system
that Europe now has adopted and is putting in place.
Q267 Joan Walley: Do you mean formal
objections?
Mr Seinen: There are no formal
objections and no legal cases. Rather to the contrary, contacts
with the AFA rather suggest a willingness to co-operate and I
think it is also interesting to note that in all the draft bills
about cap-and-trade systems in the US, aviation and also maritime
transport were always included, not necessarily directly, but
via the fuel sales. Of course if a US cap and trade system comes
into being and covers aviation the Commission of course is open
to discuss what needs to be done to avoid double counting.
Q268 Joan Walley: I am right in believing
that there have been vociferous objections from the US Government
towards these proposals, am I not?
Mr Seinen: Under the former administration
the language was tougher, yes.
Q269 Joan Walley: But you say that
there has been a change in approach with respect to aviation?
Mr Seinen: I think so. We have
not heard the same objections.
Chairman: Unfortunately I think we are
out of time now. We are very grateful to you for coming in. I
hope we will keep in touch with you and your colleagues in the
Commission.
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