Verheugen treads on toes to target climate change

Last week Enterprise and Industry Commissioner Günter Verheugen set out a ten-point plan to reconcile the seemingly contradictory priorities of tackling climate change while preserving EU competitiveness. His timing is interesting, pre-empting the results of the high-level group on competitiveness, energy and the environment which is expected to present its finding in December next year.

Verheugen’s letter to Commission President José Manuel Barroso and the other commissioners is an attempt to find a way to respect the political impetus for tackling climate change, especially in the wake of the Stern report on the economic costs of failing to take action, while maintaining the EU’s leadership in the field. It also tries to ensure that the cost of this leadership and willingness to sign up to tough action does not simply lead to companies shifting production outside the EU to countries which do not have such high environmental standards. As the seven-page paper explains, this would have the perverse effect of "worsening global environmental performance".

While Verheugen backs plans for the EU to set a unilateral emissions reduction target for the post-2012 period, he argues for a twin-track approach where the Union could agree to even more ambitious targets for the longer-term provided other major emitters make similar pledges. But he seems opposed to suggestions of a 15% cut by 2020, saying that it could increase energy prices by 10% and add €30 to the cost of a tonne of carbon dioxide (CO2). His approach is an attempt to avoid the problem of free riders: large industralised countries including the US and developing countries such as China and India which are major emitters of CO2 but have not signed up to cut their emissions so their companies have a competitive advantage over their EU rivals.

While cutting energy use and CO2 emissions and improving energy efficiency are worthwhile economic goals for the EU in their own right, Verheugen wants to ensure that EU companies are not "unduly penalised" in the short-term while the Union’s rivals enjoy a commercial advantage. One idea that he says should be considered is a border tax imposed on imports of goods from countries that have not signed up to the Kyoto protocol or made other binding commitments to cut their emissions. The proposal, also known as a border adjustment tax, was endorsed by French premier Dominique de Villepin and Belgian Prime Minister Guy Verhofstadt and is mentioned in the latest report on the high-level group on competitiveness, energy and the environment.

But Commission trade experts fear such a tax would breach World Trade Organization rules which forbid measures which discriminate against foreign imports or seek to protect domestic industries. These would be the precise aims of such a tax. Some industry experts believe that if the EU were to push for such a measure in future negotiations on trade and environmental issues it would be as a bargaining chip to win greater concessions.

Another provocative proposal is a call for a "dedicated state aid framework" for EU companies. This will be met with some suspicion and seen as a veiled attempt to maintain public subsidies for energy intensive companies such as steel and cement makers.

Whichever approach is taken, the measures would apply for a "transition period" until other big emitting countries signed up to cut their emissions, according to the commissioner.

Verheugen also calls for the Emissions Trading Scheme to be extended to cover the car sector. Some observers see this as an attempt to head off the bid by Environment Commission Stavros Dimas to impose legally binding targets for cutting emissions on carmakers.

Many see Verheugen’s initiative as an attempt to re-position himself now that Barroso has fully embraced the call to take action to tackle climate change and take back some ground from Dimas. Parts of Verheugen’s letter echo Barroso’s own language about showing citizens the added value the European Union can bring. Verheugen also endorses the thrust of the energy sector package due in January even though this could cause problems with the German presidency. He calls for effective unbundling (of the generating and distribution parts of energy companies), stronger regulators (though not a pan-European regulator) and "higher levels of interconnectivity".

While Verheugen’s colleagues may feel he is treading on their toes, he has made a valuable contribution to the debate about how exactly to maintain European political leadership in tackling climate change while preventing a stampede of industries shifting production outside the EU to avoid the costs of strict environmental standards.

Last week Enterprise and Industry Commissioner Günter Verheugen set out a ten-point plan to reconcile the seemingly contradictory priorities of tackling climate change while preserving EU competitiveness. His timing is interesting, pre-empting the results of the high-level group on competitiveness, energy and the environment which is expected to present its finding in December next year.

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