Is The New EU Climate Plan a Heroic Attempt at Leadership? Or Economic Suicide?
Yesterday the European Union announced a new energy emissions plan in its latest bid to fight climate change. As usual, nobody is happy, with businesses warning of higher prices and environmental groups claiming that the measures fall short of the actions needed.
In typical EU style, the plan aims to please everybody and is a mish-mash of compromises. Rich nations have near draconian targets for emissions reduction - for example, Ireland must reduce emissions by 20% - whilst poorer nations will be allowed to increase their emissions – Poland has permission to increase emissions by 14% despite producing 96% of it’s electricity from coal fired power stations.
The European Emissions Trading System (ETS) will be the principle instrument used to drive down Co2 emissions. By reforming the system in a bid to increase the price of emissions credits it is hoped that a higher carbon emissions price will cause the market to deliver the necessary cuts. In the past, the ETS has not been successful in reducing Co2 emissions due to the low price of credits as a result of intensive industry lobbying.
Finding the right price
Crucial to the success of the scheme will be the EU’s ability to set the right price for carbon emissions credits. Too low and industry will simply pass on the cost to consumers. Too high and industry will relocate, causing emissions to be moved, not reduced.
However, at the correct price point, businesses should find it economically viable to invest in emissions reduction technology as the investment will be paid back through lower emissions credit costs. If the rest of the world follows Europe’s lead and implements equivalent emissions trading schemes, these investments will have been worthwhile having put European firms ahead of the world game in low emissions production. But if other nations fail to follow Europe’s lead, then the EU may be forced to reduce the price of carbon emissions permits to retain competitiveness, resulting in limited payback on clean technology investments.
Increases in consumer energy costs
But it’s the cost of personal energy bills that has received the most attention. The cost of the reforms have been estimated at €3 per week for every European. This takes account of the cost of building additional renewable energy supplies and tough new targets for the use of biofuels.
Arguing against criticism of the plan, President of the European Commission Manuel Barroso described the costs as “one tenth the cost of inaction if climate change was allowed to progress without check and Europe failed to act.” He further claimed that aiming to reduce EU emissions was “a real commitment, but not a bad deal.”
We believe that such measures are the only feasible option if we are serious about attempting to reduce emissions. Unfortunately we are doubtful that these measures will make any tangible difference unless the rest of the world participates with similar vigour. As such we would describe the plan as a heroic attempt at leadership, but a bit of a gamble at the same time. Observers of the current world economic crisis may also question the timing, asking if other nations will have the stomach for similar reforms in times of such economic uncertainty?
Sources: Reuters, The Economist
A little bit of both hero and fool I think.
The plan is bold, decisive and fair. Unfortunately it does nothing for real CO2 reductions to prevent a global catastrophe, if you believe in such.
Only 3 Euros per week per person is a deal? Just for the UK that equates to (60 Million x 52 x 3) = $9.3 Billion Euros a year, and climate change will cost 10 times that or 93 Billion Euros just for the UK, who knew?
BTW IPCC puts the cost of adaptation in the Business as Usual Scenario for the UK to be 6-7 Billion Euros per year (0.5% GDP).
Oddly enough that is nowhere near 93 Billion Euros. Perhaps someone was “inflating” the costs of inaction for justification.
I would like to take this opportunity to show my appreciation for the EU and all the member nations on their bold and decisive actions and look forward to resuming trade with them in 50 years.