TalkClimateChange

Late last year, the European Union sensibly decided to impose strict targets on its car manufacturers to improve fuel efficiency standards. Fuel efficiency, which has barely improved in previous years, is seen as a key opportunity to bridge the growing energy gap in the near term future.

Under the scheme, manufacturers were, sensibly, given a target of an average of 120 grams of Co2 per kilometre. Should manufactures fail to meet these targets strict fines will be levied for each gram of Co2 in excess of the target figure.

So far, so good. Now let’s look at the implementation.

Proving that industry still comes first, despite the fact that Europe prides itself on its leadership in environmental issues, European governments have sought to botch the implementation of the scheme in favour of national industries.

Germany is insisting on pegging emissions reductions closely to vehicle weight. This reduces the need for efficiency improvements for the heavy cars produced by its prestige manufacturers BMW, Mercedes, Porsche and Audi. Conscious that this in turn will place a greater improvement burden on smaller cars, France and Italy – home of Peugeot, Citroen, Renault and Fiat – are arguing in the opposite direction, claiming that since their cars are relatively lightweight and fuel efficient already, they should be able to relax and let the overweight German’s take up the slack.

Britain, whose car industry was effectively destroyed by labour unions during the 1970’s, and whose remaining auto manufacturers are now largely in foreign hands has taken a less self interested approach. Environment secretary Hilary Benn told journalists “The current proposal does not pass the competitive neutral test,” and proposes a more simple 25% across the board improvement.

A bargain at 1% of world GDP

The recent 2008 OECD environmental outlook suggests that growth in greenhouse gas emissions can be contained at 12% instead of the projected 37% at a cost of just 1% of world GDP – a relatively trivial amount. Great news. The difficulty, however, as demonstrated by Europe’s regional governments is that whilst the cost may be estimated at 1% in financial terms, in terms of political capital it is massively higher. Making matters more complicated, this 1% is far from evenly distributed across all players.

Having gotten itself in such a stew already over the implementation of a relatively simple climate change initiative, we wonder how world governments will fare when challenged with some of the tougher reforms that may be required in coming years. It’s possible that the distribution of wealth as a political topic will become secondary - the new focus will be on managing the distribution of pain as self interest meets reform head on.