House of Lords - European Union - Thirty-Third Report

Select Committee on European Union Thirty-Third Report

CHAPTER 2: The overall target, the EU-wide cap and the international context

25. In this chapter, we consider whether the EU's overall 20% emissions reduction target is appropriate, and whether it should be automatically increased to 30% in the event of a new international agreement on global emissions reductions. The issues at stake include the desirability of an EU-wide cap, the appropriate level of environmental ambition, the degree of predictability required by industry and the desired content of an international agreement.

Content of the proposal

26. The proposal forms part of the overall package of measures (see paras. 21-22 above) through which the EU aims to reduce greenhouse gas emissions by 20 per cent by 2020 compared to 1990. At the March 2007 European Council, EU leaders pledged to raise this target to 30 per cent by 2020 should an international agreement committing developed countries to mandatory reductions of GHG emissions "in the order of 30 per cent by 2020 compared to 1990"[24] and economically more advanced developing countries to an adequate contribution "according to their responsibilities and respective capabilities"[25] be reached.

27. In order to ensure that the EU can achieve the minimum 20 per cent emission reduction target, the Commission proposes that an EU-wide emissions cap should be introduced for the EU ETS trading sectors, replacing National Allocation Plans (see Box 2), which included national caps. Starting from 1,974 million tonnes of carbon dioxide in 2013, the EU ETS cap will decrease by 1.74 per cent per year, arriving in 2020 at a reduction of 21 per cent below reported 2005 emissions. This corresponds to a reduction of 11 per cent compared to the average Phase 2 cap of 2,082.68 million tonnes. These provisions will be amended if an international agreement is reached.

28. The proposal's reference to a future international agreement refers to the commitment made in December 2007 at the UNFCCC's 13th Conference of the Parties (COP) in Bali, in the so-called "Bali Road Map",[26] to reach agreement on a successor to the Kyoto Protocol at the 15th COP in Copenhagen in December 2009. In the Road Map, the Parties to the UNFCCC recognised that deep cuts in global emissions will be required to achieve the ultimate objective of the UN Convention, namely limiting human-induced climate change to a safe level[27], and considered that a future agreement should encompass climate change mitigation, adaptation to climate change, provisions on technology development and financial mechanisms.

29. Any future international agreement would be ratified by the Community and the Member States. Depending on whether or not the Lisbon Treaty comes into force, the European Parliament would either be consulted on ratification, or would be required to give its formal assent to the agreement.

EU-wide Cap

30. All witnesses supported the setting of an EU-wide cap that diminished over time. The Confederation of British Industry (CBI) considered that the robust cap with a clear trajectory over a fixed time period provided business with the necessary certainty (position paper, p.3). This view was echoed by Niall Mackenzie (Deputy Director, Climate and Energy, DEFRA[28]), who stated that the Commission proposal "is giving certainty to investors by sending a long term signal as to where the carbon price is going, by gradually reducing the cap" (Q 95). The Cambridge Centre for Climate Change Mitigation Research (4cmr) felt that the progressive tightening of the cap was required to demonstrate climate leadership (Memorandum, para.4).

31. Euracoal and the British Cement Association (BCA) expressed concern about the 21 per cent reduction in emissions to be delivered by the cap. They considered that, by choosing 2005 as the reference year and by imposing an identical reduction of 21 per cent for all Member States, "reductions achieved between 1990 and 2005 are penalised" (Euracoal Memorandum, p.162 and BCA Memorandum, para. 8.2).

Overall target

32. Witnesses' opinions were divided on the level of the overall target (20 per cent) and the automatic move from a 20 per cent target to a 30 per cent target should an international agreement be reached. DEFRA supported the certainty provided by an automatic move from 20 per cent to 30 per cent (Q 89). The CBI warned, however, that an automatic change on the basis of a weak international deal would leave EU business exposed (Q 131). Other witnesses such as the British Cement Association (BCA), British Lime Association (BLA) and Centrica, pointed out that doubts about the nature of an international deal created uncertainty for business (BCA Memorandum, para. 8.5; BLA Memorandum, p.117; Centrica Memorandum, para. 2).

33. In order to protect EU business against the possibility of a stringent emissions reduction target in the context of a weak international agreement, the CBI argued that any international agreement should be evaluated against criteria written into the ETS Directive and that the decision on how and when the EU's emission reduction targets are increased as part of an international agreement should be scrutinised through the co-decision[29] procedure (Q 131). The Spanish Government agreed that the co-decision procedure should be applied in this instance (Memorandum, para. 7). The European Commission explained that the switch to a 30 per cent reduction would happen automatically from the year after the EU as a whole had ratified the Copenhagen agreement, a process that would itself involve the European Parliament (QQ 395-6).

34. On the level of the overall target, the World Wide Fund for Nature (WWF) and the Church of England favoured the imposition of an immediate 30 per cent target, a reduction to be achieved entirely within the borders of the EU without the possibility of offsetting emissions in the EU with emission reduction projects outside the EU (WWF Memorandum, p.179 and Church of England Memorandum, para. 8). The Royal Society for the Protection of Birds (RSPB) and Client Earth took the view that the EU should be advocating emissions reductions of around 40 per cent (RSPB Memorandum, para. 1.3; Client Earth Memorandum, para. 2.4) by 2020. A 40 per cent target would still be in line with the levels (25-40 per cent) recommended by the IPCC in its Fourth Assessment Report[30] as those required to achieve the EU's target of limiting the global temperature increase to 2°C over pre-industrial levels. The latter target was most recently endorsed by the EU's Council of Environment Ministers on 20 October 2008[31].

35. Dr Terry Barker (Chairman of the Cambridge Centre for Climate Change Mitigation and Research—4cmr) went one step further by proposing an overall 50 per cent reduction target (Q 221). 4cmr argued in its written evidence that the low level of ambition of the overall 20-30 per cent target was reflected in the prevailing carbon price (€20-25 per tonne of CO₂ emitted), which is too low to induce substantial emissions reductions. In its view, a tighter target would lead to a higher carbon price and greater incentives to invest in expensive new technologies such as carbon capture and storage (Memorandum, para. 4). Client Earth emphasised, however, that carbon pricing on its own would not deliver new technologies and that specific strategies, such as the new proposed legal framework for carbon capture and storage[32] (see Box 4) setting out the conditions under which carbon may be captured and stored, were required (Memorandum, para. 2.7).

International Negotiations

36. The CBI expressed concern that international negotiations might result in "a fairly loose and weak agreement" that was then accepted as the best possible deal (Q 131). This element of uncertainty was also highlighted by the International Chamber of Commerce (ICC) UK, which emphasised the need to provide certainty and predictability for operators and investors through to 2020. The ICC UK also recognised that this need must be balanced against the importance of flexibility in the Directive in view of ongoing international negotiations (Memorandum, para. 18).

37. In view of those international negotiations, DEFRA emphasised that it was useful to take a 20 per cent target as the starting point, given that the EU's interlocutors were likely to press the EU to move further than it had already (Q 89). Speaking on behalf of the New Zealand Ministry of Foreign Affairs and Trade, Mr Dymond noted that it would be useful for the EU ETS "to retain some flexibility in its design to reflect what agreement comes out of the UN process" (Q 362).

38. Ms Coralie Laurencin (Associate, Climate Change Capital and Associate, Market Development, INCIS—International Carbon Investors and Services) deplored the uncertainty surrounding the move to a 30 per cent target but recognised that the Commission's conditional approach was intended to encourage other countries to sign up to a strong international deal (Q 308). She considered that the uncertainty was justified by the higher ambition of providing a global framework that would create business opportunities and provide emissions reductions on a wider scale (Q 310).

39. Phil Woolas MP, Minister of State, suggested that EU negotiators had two strong cards in their hands in international negotiations. First, they should demonstrate that the ETS was delivering emissions reductions. The Commission has indicated that the EU ETS will deliver emissions reductions of 6.5% in the second trading period compared to 2005 verified emissions[33]. Second, negotiators should demonstrate that the ETS was delivering a flow of finance to developing countries (through external credits and direct assistance for adaptation to climate change) and, in turn, successfully reducing emissions in those countries (Q 167).

40. Dr Barker (4cmr) proposed three key arguments that might be deployed to persuade the BRIC advanced developing countries (Brazil, Russia, India and China) to agree to emissions reductions. First, he highlighted the health care savings that could be secured by reducing air pollution. This argument was supported by a February 2008 OECD paper[34] which explained that the largest benefits from air pollution improvements would occur in some of the most rapidly urbanising areas of South Asia, as well as in China, Russia and North America. Second, he stressed the economic benefits to be derived from technological development. Third, he argued that there could be potential for developing countries to secure more funds from the "old economies" to help them to adapt to climate change (Q 294).

41. Speaking in April 2008, Mr Shyam Saran (Special Envoy of the Indian Prime Minister on Climate Change) emphasised that it was to India's advantage to build a low-carbon economy due to the constraints of existing energy sources on economic growth. He stressed, however, that such efforts would be a national decision dictated by India's own growth choices rather than by multilateral negotiations on climate change (Memorandum).

42. Mr Saran explained that India's negotiating stance for any post-2012 international agreement would be founded on the "polluter-pays principle"[35], on the basis of which it would not be reasonable to oblige India to make any emissions reductions. In support, he argued that over the period 1850-2000, the US represented 30 per cent of cumulative carbon dioxide emissions and the EU-25 represented 27.2 per cent of such emissions. Over the same period, China represented 7.3 per cent and India was responsible for only 2 per cent of cumulative emissions. It was therefore appropriate that developed countries should assume their "historical responsibility" for past emissions (Memorandum). Looking forward, however, the OECD (see para. 40) projects that emissions from the BRIC countries are likely to increase by 63 per cent by 2050 compared to 2005. This is contrasted with a projected increase of 26 per cent in emissions from OECD countries, most of which are developed countries.

43. EU Environment Ministers concluded on 20 October 2008[36] that, on the basis of IPCC information (see para. 34), developing countries would have to reduce their emissions by 15 to 30 per cent below business as usual[37], which could be achieved initially through slowing emissions growth and then reducing emissions. Ministers underlined that the least developed countries should not be subject to obligatory emission constraints, but that economically more advanced countries "should contribute adequately according to their responsibilities and capabilities". Finally, they called on developed countries to propose, by mid-2009, economy-wide medium-term targets that involved a comparable level of effort to that proposed by the European Union.

Conclusions and Recommendations

44. Like all of our witnesses, we welcome the application of an EU-wide cap supported by a clear trajectory for emissions reductions over time, as it should deliver a level playing field and provide industry with the certainty that has been lacking in the ETS thus far.

45. We agree with the UK Government that the proposed change from a 20 per cent emissions reduction target to a 30 per cent target by 2020, conditional on reaching an international agreement, is desirable. A unilateral 20 per cent target would be less helpful in achieving the desired global reductions than a 30 per cent target alongside an international agreement. A 20 per cent target would also fall below the 25-40 per cent target range recommended by IPCC scientific advice. However, we believe that the change should be conditional on a credible and robust international agreement so as to ensure that EU businesses are not placed at a competitive disadvantage in world markets.

46. As agreed by the European Council in March 2007, an international agreement should include a commitment by developed countries to mandatory reductions of greenhouse gas emissions in the order of 30 per cent by 2020 and a commitment by economically more advanced developing countries to an adequate contribution according to their responsibilities and respective capabilities. We urge the Commission and the Member States to adhere to these minimum conditions.

47. Some advanced developing countries' argument that developed countries ought to take "historical responsibility" for the cumulative impact of their historical emissions is compelling , but we consider that the threat posed by climate change—not least to the very countries taking that position—is sufficiently grave that advanced developing countries must commit to binding emissions reductions. Persuading these countries to take on such commitments will be particularly difficult and, as a quid pro quo, we accept the UK Government's contention that increased financial flows to developing countries, through external credits and direct assistance for adaptation to climate change, will be an essential bargaining tool in the negotiations.

48. We believe that a final decision on the emissions reduction target for 2020 should be reached as early as possible following the conclusion of negotiations on an international agreement, in order to provide the certainty that would enable industry to make the appropriate investment. We see no compelling reason for the decision to be adopted through the co-decision procedure as this would prolong the period of uncertainty, and risk re-opening negotiations on the climate change package as a whole, which will already have been agreed by the European Parliament and Council through the co-decision procedure. It is crucial, however, that the details of the agreement are scrutinised by the Member States and the European Parliament as provided by the Treaty.

24 European Council Conclusions, 8-9 March 2007, Paragraph 30 Back

25 Ibid, Paragraph 31 Back

26 http://unfccc.int/resource/docs/2007/cop13/eng/06a01.pdf Back

27 According to Article 2 of the Convention, its ultimate objective is "to achieve stabilisation of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system". Back

28 Department for Environment, Food and Rural Affairs Back

29 The co-decision procedure is the EU decision-making procedure under Article 251 of the EC Treaty, whereby the European Parliament and the EU Council of Ministers have equal powers in the adoption of a piece of EU legislation, following a proposal by the European Commission. Back