Global Economics

East-West EU Split on Carbon Auction Plan


Most member states back the emission-cutting and efficiency measures, but Eastern countries are worried about having to buy permits

European environment ministers gave broad backing to a far-reaching package of climate change proposals from the European Commission, although most new member states from eastern Europe are worried about their industries having to buy emissions permits.

Ministers from each of the European Union's 27 member states backed the 'big issues' of cutting emissions and greater energy efficiency, but a split roughly between western European member states and those from eastern Europe seems to be developing over the details of the CO2 emissions trading scheme (ETS), a cap and trade system designed to curb pollution from industry.

The ETS is the heart of the commission's new climate and energy package, which aims to cut greenhouse gas emissions by 20% on 1990 levels by 2020.

Under the commission proposal, tabled in January, EU member states would no longer come up with so-called national allocation plans, meaning they could no longer grant permits to pollute to their companies. Instead, the industry will be forced to buy the right to emit carbon dioxide by auction.

But several EU states, especially those who joined the bloc in 2004, voiced their opposition to the reform, saying the auction route would harm their economies.

The ETS currently covers some 11,500 energy-intensive installations throughout the EU such as power plants, oil refineries, steel mills and cement factories.

According to Slovak environment deputy minister Jaroslav Jadus, the scheme should take into account the differences within EU states' economies, as central European economies have a higher concentration of energy-intensive industries.

"It is absolutely unacceptable to force parts of industry to leave the EU," Mr Jadus said, adding: "it would harm not only the Slovak economy, but also affect the environment, as it would be out of the internal market."

New member states are pushing for an amendment that would allow less rigid separation between the ETS and non-ETS sectors such as transport, buildings and agriculture.

This means, for example, that if a steel company invests in energy-efficiency of housing, this would earn them credit, meaning they could alleviate their obligations to cut CO2 emissions.

Something similar already works in relation with countries from beyond the EU in the Clean Development Mechanism (CDM) established by the Kyoto Protocol. It enables industrialized countries to invest in emission reduction projects in developing countries and to receive credits for reductions achieved.

France and Luxembourg were cautiously supportive of such ideas, as they are also home to some energy intensive industries. On the other hand, the Czech Republic remained "neutral" to the proposal, saying that there would first have to be a thorough impact assessment of the ETS reform by the commission.

Car emissions, biofuels also sticking points

Other issues also caused contention. EU plans to reduce car emissions pitted Germany on the one side, which produces many larger, heavier vehicles, and Italy and France on the other, whose carmakers tend to favour lighter, more energy efficient automobiles. The two sides disagree over the allocation of emissions cut targets amongst the various types of car manufacturer.

Last year, the commission proposed that from 2012, the average carbon dioxide emissions of new cars must be reduced to 130 grammes per kilometre from 2012. If the binding target is missed, manufacturers will be fined €95 per gram over the limit by 2015.

Germany, France and Italy were united, however, and joined by Poland and Spain, in demanding clarity over which energy-intensive industrial sectors are to be given free emissions permits. A decision on the matter will not be taken until 2010.

German deputy environment minister Matthias Machnig said: "We need clarity now. Our industries must be able to prepare for such an eventuality."

Biofuels were also the source of some discussion. Growing concerns about the sustainability of the controversial fuel sources have moved from environmental NGOs to the heart of the European executive, with French environment minister Jean-Louis Borloo in particular highlighting worries about food prices.

The commission has proposed a target of ten percent use of biofuels in transport by 2020.

"We need a strict EU framework on biofuels in which we need to stress the sustainability of biofuels compared to the price of land, food and water," said Mr Borloo.

Other western European nations backed France's concerns, emphasising the possibilities of so-called second-generation biofuels, which they consider to be more environmentally-friendly than biofuels such as those derived from corn, palm oil or sugar cane.

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