Time is running out for agreement on how to combat climate change

Date: 07/10/1999

By Simon Coss

TWO years ago, the European Union promised the world that it would get tough on global warming.

In November 1997, as she emerged from a week of nightmarish United Nations-sponsored negotiations on climate change in Kyoto, Japan, former Environment Commissioner Ritt Bjerregaard announced that the EU had agreed to make major cuts in the quantity of harmful greenhouse gases it produces.

Since then, however, the Union's member states have found it incredibly difficult to agree on just how they will go about honouring their collective pledge. The basic problem they all face is how to please citizens who are demanding cleaner air and an end to global warming, while not threatening economic growth by punishing the industries responsible for producing many of the world's greenhouse gases too severely.

In Kyoto the EU agreed to cut its production of carbon dioxide (CO2) and five other greenhouse gases to 8% below 1990 levels by the year 2012 at the latest. The world's other developed nations made similar pledges.

The first post-Kyoto obstacle the Union had to overcome was deciding how the overall cut should be shared out between the EU's 15 member states.

Before Kyoto, the Union put together a complicated deal which, theoretically, would have allowed it to cut production of a slightly smaller number of harmful gases by 15%. The formula would have seen some countries - such as the UK, Germany and the Netherlands - making cuts of up to 20%, while others - including Greece, Spain, Portugal and the Netherlands - would actually be allowed to increase their emissions.

After Kyoto, however, the countries which would have been hardest hit by the original 'burden-sharing' deal, led by the Netherlands, argued that the old agreement based on a 15% reduction should be re-negotiated in line with the new 8% target.

The second round of burden-sharing talks proved to be extremely bitter and was concluded at a very bad-tempered all night meeting of EU environment ministers in June 1998.

But resolving this dispute was by no means the end of the Union's problems with its strategy for combating climate change.

Next came the much more complicated issue of precisely how the EU intended to meet its Kyoto targets.

The first major disagreement concerned a series of policy options known as 'flexible mechanisms' - dubbed flex-mex by environmental experts. These purely theoretical strategies agreed on at Kyoto are based on the premise that as global warming is an international problem, it does not really matter where in the world greenhouse gas cuts are made, so long as the overall goal is achieved.

The most controversial flex-mex is 'emissions trading'. Under this scheme, developed countries would be granted a certain number of emissions' 'credits' which would correspond to the level of greenhouse gas cuts they had pledged to make.

If a country were able to meet its reduction target without using up all of its credits, as could be the case for a nation in industrial decline such as Russia, it could sell the rest on the world market. The country buying the credits could then offset them against its national target, reducing the need for unpopular policies at home.

Opponents of the system have described emissions trading as 'buying the right to pollute'.

Before Kyoto, the EU's position on flexible mechanisms was relatively straightforward. It did not like them and argued that they would encourage the developed world to shirk its responsibilities.

After the talks, however, things became more complicated. Given that flex-mex was now a reality, several member states began to realise the potential advantage of meeting a large percentage of their reductions without introducing domestic policies which would place tough new legislative burdens on industry.

A split very quickly emerged between those countries which felt that such mechanisms should only be employed as a complement to domestic action - and should not account for more than 50% of the targeted cuts - and those who wanted no limits.

The latter camp was spearheaded by the Dutch government, which argued that as other countries (notably the US) had no intention of restricting their use of flexible mechanisms, EU businesses could find themselves at a disadvantage if they had to face tougher emission-control regulations than global competitors.

The issue came to a head earlier this year when the German presidency tried, and failed, to resolve the question at the March meeting of EU environment ministers.

Following that meeting, the Germans threatened to call an emergency session of environment chiefs to force the issue. But, at the last minute, a somewhat murky compromise was agreed based on the principle of limiting the use of flex-mex, while still leaving the question of precise percentages somewhat unclear.

Other problems still remain, with the need for EU governments to decide what policies they will adopt at home in order to meet their Kyoto pledges topping the list.

The Santer Commission argued that there was one option which would have to be pursued if the Union was to have any hope of keeping its promises - energy taxes.

Former Internal Market Commissioner Mario Monti, who now heads the institution's competition department, came forward with a plan to extend minimum rates of duty to certain basic energy products fairly early on in the life of Jacques Santer's Commission.

But little progress has been made on the plan in deliberations between EU finance ministers because of Spain's refusal to consider the proposal. Under EU rules, taxation rules have to be agreed unanimously.

Hopes of an eventual agreement have not been boosted by the decision to appoint a Spaniard - Loyola de Palacio - to take charge of energy policy within the Commission. She has already made it clear that she is sceptical about the Monti plan, voicing concerns that that her colleague's proposal could damage industrial competitiveness and would do little to help secure the Union's energy supplies.

The EU's industry lobby has also expressed concern that energy taxes could put European firms at competitive disadvantage vis-a-vis global competitors. European employers' organisation UNICE has long argued that the best way forward would be for individual companies and national or regional governments to tackle the issue of emissions through voluntary agreements drawn up on a 'factory-by-factory' basis.

But two of De Palacio's new colleagues, Environment Commissioner Margot Wallström and Frits Bolkestein, who has taken over the internal market brief from Monti, have come out in favour of the plan, raising the prospect of fireworks at future Commission meetings when the issue is discussed.

The latest move to break the energy tax deadlock has come from the European Parlia-ment's environment committee, which suggested last month that the Amsterdam Treaty's clauses on flexibility could be used to allow those countries which want to push ahead with the Monti plan to do so while letting Spain opt out of the deal.

Whatever solution is finally agreed, it is clear that time is running out both for EU members and the other signatories to the Kyoto deal. They have given themselves until the end of next year to decide how to meet their reductions pledges. If they fail to reach agreement by then, it will be too late for any measures which are introduced to have the desired impact by 2012.

Part of a survey 'Challenges for industry', p13-20.