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The Warsaw Voice » Business » November 3, 2014
Central Europe Energy Partners
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EU Climate Policy and CO2 Targets: A Done Deal?
November 3, 2014   
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Part 1
by Bogdan Janicki

On Jan. 22, the European Commission proposed a set of restrictive energy and climate policy targets to be met by member states by 2030.* These targets, which include a 40-percent cut in greenhouse gas emissions compared with 1990 levels and an at least 27-percent share of renewable energy consumption, can be considered a done deal, according to Frank Watson of the well-informed European Power Daily (EPD).

Watson claims that “Germany and the UK have voiced clear support for the planned reforms, while Denmark and Sweden are also understood to be in favor. Some coal-dependent member states, led by Poland, are expected to oppose the measures, although the reforms could still be agreed in the EU Council under its qualified majority voting rules.”

In other words, the deal is already sealed. What about MEPs? They will also back the proposed solutions. The EPD suggests that “many EPP [European People’s Party] members who voted against backloading” will not want to “be ‘burnt’ over such a small issue again, so they will just not intervene.” The EPP, on its part, will not act against the will of its governments, which means that “the EPP will not take an opposing line as a whole.”

I could go on and quote statements reported by other news outlets which suggest that the cards have already been dealt, and those who try to take part in the ongoing discussion have no chance of convincing other participants that their arguments are valid.

Having said this, I suggest applying a more holistic approach and use this opportunity to direct your attention to a few key facts that will perhaps reach the minds of policy makers in the EU and MEPs.

Emissions of CO2 and other greenhouse gases
Putting aside all arguments on whether greenhouse gas emissions are detrimental to our climate or not, I believe efforts to ensure that the environment is kept clean on our planet deserve our full support. We have to take into consideration that the world’s population is growing fast—it is set to rise from its current level of over 7 billion to 9 billion over the next three decades. Our children and grandchildren will be the ones to live with the results of our present-day attempts to limit CO2.

How others deal with CO2
No country can afford to disregard environmental protection. All countries try to take action in this area according to their capacities and the popular awareness of their societies. The factors that impact the environment are strongly diversified, and so are the implemented measures. Under the influence of the EU’s philosophy, the effectiveness of the activities of individual states has been evaluated through a comparison of the percentage of decreased emissions of CO2 with previous periods. This method of evaluation is flawed because if a given country has a low level of emissions due to it being poor and undeveloped, then its economic development will trigger a percentage increase in its emissions.

What seems a considerably fairer approach is to use an easy and clear indicator (although one saddled with small imperfections as well) that shows a country’s emissions of CO2 throughout a year in tons per capita. This way it is easier to relate its level of CO2 emissions to the countries which have a similar level of economic development, and also to states that have a low level of emissions. A certain regularity can be identified here. Countries with a higher level of economic development emit more CO2 per capita than those less developed. This, in turn, allows for an easier and more reliable evaluation than the percentage-based method.

In 2012 average emissions per capita in the EU stood at 7.42 tons, while in the U.S. the figure was 16.36 tons. This means that to be able to start the race from the same starting line as the EU, the U.S. should cut its emissions by 55 percent “overnight” and only then negotiate the global climate package.

The U.S. was the first country to launch an attack against global warming, initiating a long series of programs with this aim, and its efforts have been cheered by EU officials and the Greens. Although I have joined the ranks of enthusiasts, I would like to direct their attention to the far-reaching pragmatism of the so-called Obama Program. First, the U.S. does not differentiate between CO2 emissions covered by the ETS in Europe and those that are not. I agree with the U.S.: emissions are emissions. They require action in every field as their source is irrelevant for the climate. Anyhow, the EU is exceeding the U.S. in many aspects in terms of CO2 emissions. Take for example car emissions: according to the Obama Program, a decrease in average fuel consumption by cars from more than 17 liters in 2010 to just over 7 liters per 100 km in 2017 to 2018 has already been achieved.

This means that the U.S. will not be able to catch up with the EU in this field, at least not until 2030.

Another spectacular feature of the Obama Program is the fact that it imposes CO2 emission limits on coal-fired power plants that currently cannot be complied with. This triggers a continuing shutdown of such plants (of which 80 percent should have already been phased out due to their obsolescence). However, if one is to look closer at this policy, what is noticeable is the far-reaching pragmatism of President Obama, who wants to further develop U.S. industry instead of destroying it. Shutting down U.S. coal-fired power plants enables U.S. coal exports to global markets that are happy to purchase U.S. coal because it is cheap.

Another example is the natural gas sector. It is estimated that natural gas is competitive in relation to coal-powered power plants, which are paying $100 for ton of coal, if gas is priced in the range of $250-260 per 1,000 cubic meters. In the U.S., the price of gas is currently about $160 per 1,000 cu m and is most likely to remain below $260 in the coming decade. What investor would, therefore, want to invest in coal-fired power plants in the U.S., bearing in mind the $250 break-even point, if gas allows investors to save close to $100 compared with coal?

If investors from the EU could enjoy a price level of, for instance, $250 for 1,000 cu m of natural gas, this would solve the problem of coal-fired power plants immediately in the same way. I have never met an analyst who would forecast that, by 2030, natural gas prices will be set at the level of $250. In other words, coal will remain the cheapest energy source in the EU (apart from nuclear energy) until 2030—and most likely afterwards. We should not be counting too much on shale gas from the U.S. because, from today’s perspective, it seems that the price of this gas in the EU will be in the range of $300 per 1,000 cu m, and European shale gas will not be much cheaper. Experts know that natural gas is not as clean as it appears to be because, in the process of its transmission, significant amounts of methane (which is 22 times more harmful to the atmosphere) are emitted. It is unfortunate that no one is calculating these emissions because we would learn that, contrary to general assumptions, in comparison with natural gas, coal is not as “dirty” as some believe it to be.

The Americans aim to cut CO2 emissions by 30 percent by 2030, which would translate into per capita emissions of 11.45 tons. Currently, the EU has an average emission rate of 7.42 tons per capita. This means that we already emit 35 percent less than the U.S.

In the meantime, the EU will continue to lower its emissions. Can the U.S. further decrease its emissions? Of course, it can, but why should it? Why should it kill its own industry? Unfortunately, EU officials do not want to see things this way.

Other countries
China is cited by many politicians as an exemplary case of a country that combats global warming. Its emissions were close to the EU average, at 7.09 tons per capita in 2012. China’s emissions are lower than those of the U.S., Canada (16.4 tons) or Australia (18.77 tons). However, the problem with China is that its emissions are concentrated in a very small area of the country, in the most industrialized regions, so the country is left with no choice. China can either reduce its emissions or endanger the lives of its citizens in these regions. This applies to not only CO2 but also all other greenhouse gases as well as NOx and particulate matter.

Australia, with emissions of 18.77 tons, launched a fight with emissions, introducing some of the ETS concepts, but quickly withdrew so as not to hamper the development of its economy.

Canada, with emissions of 16.4 tons, does what it considers useful and acceptable. It is hardly eager to decrease its emissions at the pace suggested by the EU.

South Korea (12.97 t), Russia (12.39 t) and Japan (10.40 t) are examples of non-EU countries with high emissions. All these countries are combating emissions insofar as this does not hamper their economic development, which means they, too, have pragmatic stances on the issue.

European Union
The EU’s approach is not pragmatic, but philosophical, and its overarching assumption is that the world needs to be saved in spite of the costs incurred by EU citizens. In the last five years, the EU can boast of such “accomplishments” as lowering CO2 emissions and becoming a world leader in this field, but, at the same time, its unemployment, in particular among young people, increased, while the competitiveness of its industry decreased in comparison with the main global players. Moreover, the bloc’s dependence on external sources of energy increased. A significant portion of foreign investment shifted to countries that have not adopted a climate change policy as restrictive as that of the EU’s. Numerous EU member states have financial woes, and the prices of energy have doubled. The EU should first prioritize its own development issues and only then proceed with climate change issues—and only if this does not hamper the economic development of member states.

To be continued in the next issue

The author is a legal adviser and senior adviser
at Central Europe Energy Partners (CEEP)

*European Commission document entitled 2030 Climate and Energy Goals for a Competitive, Secure and Low-Carbon EU Economy.

Central Europe Energy Partners (CEEP) is an association formed by energy and energy-intensive industries that aims to unite the energy sector in Central Europe and strengthen the position of this sector in the European Union. This is the first industry-specific organization from Central Europe of a regional character. The association represents the Central European energy sector (for example coal, oil, renewables, grids) as well as energy-intensive industries (steel, chemicals and others). Its main aim is to support the integration of this energy sector within the framework of a common EU energy and security policy. At present, CEEP has 25 members—companies and research institutions from countries including the Czech Republic, Lithuania, Poland, Romania and Slovakia. In June 2014 CEEP celebrated its fourth birthday.
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