Can smarter policies save the planet?

Two MEPs discuss climate change.

Rebecca Harms

The fourth assessment report from the International Panel on Climate Change confirmed once again what the vast majority of experts and policymakers already agree upon. Climate change is really happening and human activities are responsible for the changes that can be observed all over the world. Floods and droughts, melting glaciers and ice caps as well as more frequent storms and other weather extremes are the most noticeable consequences of climate change that human kind has to deal with now and even more so in the decades to come.

To prevent the worst climate catastrophes from happening it is necessary to limit climate change to 2°C above pre-industrial levels. The EU has agreed on this goal and decided to decrease its carbon dioxide (CO2) emissions by 30% by 2020 compared to 1990 levels if other industrialised countries commit themselves to reduction targets and 20% unilaterally.

The EU emissions trading scheme (ETS) is an important tool to reach this goal. A strong ETS can help to achieve the reduction targets in a cost-effective way. After gathering some experience with the scheme since it was launched in 2005, the EU now has the opportunity to rectify the flaws that have become apparent during this time. The emissions cap is the key determinant for the effectiveness of the ETS. A tight cap has to be set to allow the EU to reach its 30% reduction goal until 2020 (in the framework of an international agreement). To provide the industry with the necessary investment security it is also essential to provide a long-term signal to the sectors covered by the ETS that it is here to stay. As investment cycles especially in the energy industry are long, longer term trading certainty and a strong price for carbon are needed to give incentives for the modernisation of existing plants and investments in sustainable energy technologies.

The system of handing out emission permits to the industry for free has proven to be problematic. It has led to huge windfall profits for the energy providers as they raised the electricity prices on account of the ETS even though they were given all the needed certificates for free. This problem can easily be solved if all of the emissions certificates were to be auctioned. This would ensure that every emitted tonne would come with a certain price and that the big emitters would pay more. It would provide an incentive to close down the most polluting plants and to invest in more efficient plants and renewables. Another added value would be that it would make the allocation process easier and more transparent as additional rules and exceptions would no longer be necessary.

Another problem is that there has been a massive over-allocation of emissions certificates in several member states, for example in Germany, during the first trading period. This has led to very low prices for the certificates and prevented the ETS from actually giving incentives for CO2 reductions.

Including aviation in the EU’s ETS is a step in the right direction to reducing emissions from this sector. A rigorous cap is essential though and the amount of trading with other sectors has to be limited to ensure that airlines cannot simply buy their way out of having to cut emissions. But the ETS is not a silver bullet. There are some sectors that should not be included. In road transport as well as the building sector - both responsible for a large amount of greenhouse gas emissions - other measures to reduce those emissions are more effective. Ambitious mandatory upper limits for CO2 emissions from cars, as they currently are being prepared on the European level, can help to reduce CO2 emissions from transport considerably if they are introduced in a timely fashion. In the building sector incentives for better insulation of existing buildings as well as aiming for the passive house standard for new buildings is essential. In addition the long-awaited directive for heating and cooling from renewable sources should be brought in as soon as possible.

• German Green MEP Rebecca Harms is a member of the Parliament’s committee on industry, research and energy and vice-chair of the Parliament’s temporary committee on climate change.

Giles Chichester

Up to now most attention has been focused on the causes of climate change and establishing the case that it is taking place and needs to be addressed. The debate about whether it is all attributable to human activity or the result of natural forces beyond our control has run side-by-side with one about how much change and what the effects will be and where they will be most felt.

As the consensus has grown that something is happening and that a major contribution comes from carbon dioxide emissions as a by-product of the exploitation of fossil fuels for energy in particular and the economic and social activity of industrialised nations in general, so the main concern has been how to stop the increase of these greenhouse gases and progressively reduce them to a level where, we believe, they are no longer motors for the change. That leaves the question open as to whether the emissions are the damage or the cause of the damage. This is germane to the question of whether market mechanisms can provide the answers to climate change. We need to decide which damage, what solutions, how much cost and whether market mechanisms can supply all the answers. The free market economist in me would like to believe that the answer is ‘Yes’ but my pragmatic side says ‘No’ because of the time factor and the difficulty for markets in providing solutions to problems that the markets have yet to recognise as problems. It is also relevant to distinguish between causes and outcomes when figuring out solutions.

Take the easier part of the equation first. In my view that is how we change to a low-carbon economy and society within 40 years. If we are correct in pointing to our use of coal, oil and gas then we can say that we have a wide range of possibilities to reduce consumption or use substitutes or even improve our efficiency. A combination of increases in electricity supplied from renewable energy sources and nuclear energy with a drive to encourage conservation and efficiency could dramatically change the picture within 20-25 years. A similar exercise in the road transport sector combining vehicle and fuel efficiency with alternative fuels and new technologies such as hybrid or electric vehicles could, at a cost, cut emissions over a similar time-span. And the scope for conservation through efficiency in the building sector is also considerable though, in my view, over a longer period. Can market mechanisms bring all this about? In part, once we establish a value on carbon saved so that the emissions trading system or cap-and-trade can become a real market. But in order to get to that point it is necessary to regulate. If the price of fossil fuels goes up and stays up above the equivalent in real terms of, for example, the $40 barrel of oil we experienced in the 1970s then market forces will force change. Either way this is the aspect which seems easier to me to fix. But I cannot see how market mechanisms can be applied to mitigating the effects of climate change let alone solving them. I recently saw a most graphic illustration of parts of the world which would be flooded permanently by a sea-level increase of one metre. The greatest concentration of low-lying land was in South East Asia where population density is also high. We regularly see on our televisions the effects of monsoons, typhoons and, occasionally, tsunamis on these regions. There is no solution now and I cannot envisage one that does not involve government action and co-operation on an unprecedented scale. The only hope is for the change to be gradual to allow time for people to migrate.

On the other hand I can see the market supplying solutions to another effect of climate change that has yet to manifest itself. As the temperature rises the availability and distribution of fresh water will become an issue. Water is rather like energy, a commodity that we in the industrialised world tend to take for granted. Until, that is, we are flooded or suffer drought unexpectedly. I predict that water will become more precious and there will be a commodity market in water. But that will not be much comfort to the less well-off and those who have been used to plentiful supplies.

• UK Conservative (EPP-ED) MEP Giles Chichester is a member of the Parliament’s committee on industry research and technology and the temporary committee on climate change.

Two MEPs discuss climate change.