Earth Savers

The European Union, it seems, is bent on saving the world. On Jan. 23, the European Commission (EC) announced an ambitious, detailed plan to fight climate change and promote renewable energy to achieve the goals its leaders formulated at the March 2007 European Council.

Those goals include a 20 percent reduction in greenhouse gas emissions, a doubling to 20 percent of energy produced from renewable sources like wind and solar power, a 20 percent increase in energy efficiency and a 10 percent biofuel component in transportation fuel--all by 2020.

To reach the goals, the plan establishes national targets that will become law if passed by national governments and the European Parliament.

In general, the targets ask more of the wealthy nations than the poor. For example, the plan contemplates that Sweden will meet 49 percent of its energy needs from renewables, while Malta only needs to reach 10 percent. Denmark must cut emissions by 20 percent, but Bulgaria and Romania can let them rise by the same amount.

"The proposal still has to get by the European Council and the European Parliament before it becomes law," says David Haverbeke, associate at Lydian in Brussels. "What will remain after these processes is unclear."
It's not just the member states that will be horse-trading over their obligations. Already business has criticized the plan, which EC President Jos?(C) Manuel Barroso has estimated as costing $86.6 billion and has said is too expensive or too damaging to certain sectors.

"There's a whole lobby machine working intensively to lower the plan's goals," says Wim Vandenberghe, head of DLA Piper's litigation and regulatory practice in Brussels.


Tough Targets
The business community's objection is simple: It does not believe the plan's targets can be achieved.
"It's important to appreciate that industry is already making heavy investment in technology that consumes less, so perhaps the reduction side of the plan might work," Haverbeke says. "But doubling green generation by 2020 is just not feasible."

Because the targets vary from member state to member state, some countries will have to more than double the energy produced from renewable sources. Belgium, for example, now generates 2 percent of its energy needs via green energy, but the plan requires it to triple the green component to 6 percent by 2010.

"I'm involved in quite a few projects that have no hope of reaching that target," Haverbeke says.
Vandenberghe also believes that there will be changes.

"But the changes won't be in the broad overall targets, because the states agreed on these in March 2007," he says. "Where the changes will come is in the apportionment between nations and in the pace and manner of implementation."

A fundamental criticism of the plan is that it doesn't consider a country's ability to produce renewable energy as a factor in allocating its goal. Instead, gross income appears to be the primary factor.

"This may not make sense in cases where southern states have more access to solar energy regardless of their wealth," Vandenberghe says. "The same is true of coastal nations and wind power."

Finally, large companies fear the heavy burden imposed on the richer countries will limit their ability to grow in these nations.

"Larger companies are starting to think they should get out of Europe to countries where such limitations do not exist," says Dominique Grisay, a partner at Exelia in Brussels.

It's a phenomenon known as "carbon leakage," and finding a solution for it is at the heart of the plan's potential for success.


Hard Sell
When Barroso announced the EC's plan, he conceded some energy-intensive industries in the EU might seek to relocate. An international agreement, he added, would be the best solution to the problem.
But it might not be the easiest, as the failure to arrive at a consensus at the recent climate change summit in Bali demonstrated. This puts the focus on the next round of global negotiations following up on the Kyoto Protocol.

"I doubt Europe will go ahead with its scheme if there is not a general willingness to share efforts," Haverbeke says.

That means other countries will have to buy into an emissions trading system (ETS) as the cornerstone for fighting climate change (see "Trading Targets"). The difficulty is that the EU is way ahead
of the pack. Its existing ETS is the first such system in the world and applies to all 27 EU member states and also to Norway, Iceland and Liechtenstein--the other members of the European Economic Area.

The system covers more than 10,000 installations in the energy and industrial sectors responsible for almost half the EU's carbon emissions and 40 percent of its overall greenhouse gas emissions.

Recently, the EC unveiled a plan to include the aviation sector into the system in 2011. The climate change plan proposes to bring in still more industries, including aluminum and ammonia producers. It also adds nitrous oxides and perfluorocarbons to the list of restricted gases.


Paying the Price
It's clear, however, that the EC is not convinced the international community will cooperate, or at least not in a timely fashion. Indeed, the climate change plan envisions a process by which the EC will determine which sectors can pass on the costs of the ETS program without significant loss of market share to less carbon-efficient installations outside the EU. Even if an international agreement evolves, the plan envisions adjusting the process for industries particularly exposed to global competition or putting in place a carbon equalization system to neutralize the distorting effects from imports.

As it turns out, the difficulties in getting international agreements are not that different from the difficulties expected in getting internal approval of the EC plan.

"It's not that anyone is opposed to a climate change program, it's just that no one wants to pay the price," Grisay says.

The EC proposal falls under the co-decision procedure, meaning both the Council of the EU and the European Parliament must approve it before it becomes law. These bodies are expected to start discussions soon, and the EC has expressed optimism that a final decision can be reached by 2009.
But that may be a little hopeful. It could well take the EU a little longer to save the world.

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Julius Melnitzer

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