Europe backpedals on climate policy: carbon abatement too expensive

The European Union’s climate change policy, much loved by Canadian environmentalists, has become the subject of increasingly bitter bickering in Europe. At issue is the EU’s official commitment to cut greenhouse gas (GHG) emissions by 20 percent by 2020, and to ensure that renewable energy sources provide a fifth of all energy. The countries most affected, including the biggest pro-Kyoto champion, are now saying they cannot afford to meet these commitments.

To help countries make the technological transition necessary to meet these commitments, the EU Emission Trading Scheme (ETS) aims to make business-as-usual very expensive, by slapping hefty costs onto carbon emissions. The ETS applied mainly to power generation, but will be widened to include all emitting industries.

France, which holds the rotating EU presidency, has no problem with the ambitious climate commitment. Eighty-five percent of its electricity already comes from nuclear power plants, which emit no carbon. Poland, on the other hand, depends heavily on coal—the most emission-intensive power generation fuel. To cuts its power-sector emissions within to the official timetable, Poland would have to either shift a huge proportion of its coal-fired capacity to natural gas (thereby making itself even more dependent on Russia, the biggest gas supplier to the EU) or import nuclear-generated electricity from… Russia.

Germany is in the most embarrassing position during the current wrangle. Having led the EU into the climate change commitment in the first place—convincing many gullible Canadian observers, and one contributor to the New York Review of Books, that its pro-Kyoto rhetoric was the same as hard action—Germany is now the chief backpedaler on climate commitments.

Germany’s climate reversal is a perfect example of why Poland is right to protest at the EU’s ambition. In the heady early days of Kyoto ambition, few countries in Europe were more vigorous than Germany in promoting wind power as the way forward. No serious policymaker in that country now believes this. The once rock-solid consensus that wind and solar would help Germany lead the way in saving the planet has been replaced by a now-growing consensus that Germany’s 17 nuclear reactors must continue generating power even after their official phaseout in 2020. Moreover, Nucleonics Week reports that German utilities now say the EU can only meet power generation and emission reduction targets if the bloc adds one 1,600 megawatt nuclear generator every year for the next 12 years.

Why the stunning reversal? As soon as the European Commission indicated last January it would require emitters to buy all carbon permits under the EU Emission Trading Scheme (ETS)—thereby putting real costs on emitting carbon—groups representing the big emitting industries in Germany went on the warpath. As I mentioned last January, the head of the steel-makers association warned that carbon costs would kill investment in German steel manufacturing.

I predicted last January that political reticence would ensure the ETS would remain a mild-mannered carbon costing scheme. Apparently the bureaucrats who administer the ETS got a little too aggressive, at exactly the wrong time.

Will there now be a compromise, perhaps in the form of a windfall profit tax like the one being discussed in the UK? A windfall tax could be a clever way to tax carbon while appearing to fight corporate greed (see article).

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