European climate policy in disarray as carbon crashes

An ineffective record low price for carbon, the dilution of energy efficiency targets, and failure to agree on which nations should have seats at a UN meeting are contributing to an impression that Europe can no longer lead the world on climate change policy.

1. Carbon price collapse

On Monday, the price of carbon fell to an all-time low following the release of new figures showing lower than expected greenhouse gas emissions last year from the 12,000-plus facilities registered under the EU Emissions Trading Scheme.

1.7 billion tonnes were emitted in 2011, down 2.45% on the previous year, compared with a total allocation of 1.63 billion tons. Combined with a surplus the previous year due to over-allocation, there is now an accrued total surplus above the current ETS carbon budget of 355 million allowances, including auctions.

The highest emitting manufacturing sectors, steel and cement, have amassed the largest of these surpluses, amounting to 279 million and 195 million credits each.

In the UK, the largest single emitter is still the Drax coal-fired power station, at over 21.47 million tonnes, well over its allocation of 9.5 million tonnes.

As a result of the market glut, allowances are currently trading at €6.39, which represents a 61% fall in the price over the last year. Most analysts now agree that the European carbon market will be oversupplied up to at least 2020, without intervention.

Observers renewed their calls for urgent action by European lawmakers to set aside a number of permits to bolster the market, but this was still seen as unlikely.

“Unless EU governments come up with a surprise decision to strongly support the set-aside or ambitious mid-term emission- reduction targets, I don’t see prices moving up much over the coming months,” Tuomas Rautanen, head of regulatory affairs and consulting at carbon asset management company First Climate.

Damien Morris, Senior Policy Adviser from the climate campaign group Sandbag said: "The window is rapidly closing to fix the ETS before the next trading period commences in 2013". He said it was therefore "imperative that the European Council move swiftly ... to withdraw ETS allowances.”

But Per Lekander, UBS’ global head of utilities research, said that prices would probably have to fall about €3 before European legislators would act.

2. Compromised energy efficiency targets

The latest proposed draft from Denmark on the Energy Efficiency Directive contains further weaknesses following previous drafts which failed to attract universal approval.

As a result, the Coalition for Energy Savings estimates that it would close as little as one third of the gap to Europe's 20% energy saving target for 2020.

The new draft rejects MEP's requests for binding national targets and weakens nearly all the binding measures in previous drafts, including:

• requirements to renovate public buildings
• long-term targets for cutting energy use of the European building stock
• national end-use saving targets, which would result in no genuine improvement or even standards lower than those in the Energy Services Directive which the EED will replace
• targets for the public procurement of more efficient combined heat and power generation.

Ambassadors are meeting today to try and agree on a negotiating position in preparation for discussions in the European Parliament on 11th of April.

Stefan Scheuer, Secretary General of the Coalition, accused the Council of "a lack of responsibility in light of the energy challenges Europe is facing".

"Exploding energy costs, high unemployment and a slow economic recovery call for urgent investment in energy efficiency within Europe rather than spending money on energy imports", he said.

"Member States need to focus less on finding ways to wriggle out of taking action and more on how to agree on effective legislation."

3. Squabbling over Climate Fund

Finally, at the end of last week, European ambassadors failed to agree on who should have a seat on a committee which will negotiate directly with developed countries about the allocation of funds to help them fight climate change, which meant that now none of them will take part.

They had until 31 March to reach agreement on the allocation of seats between member states on the UN Framework Convention on Climate Change’s Green Climate Fund (GCF), but couldn't do so.

Thirteen of the 27 member states wanted a seat to ensure they had a say in the funding decisions of the $100 billion Green Climate Fund, that was agreed at Cancun in 2010.

Britain, France, and Germany were lobbying for a permanent seat in addition to an alternating seat that each would share with another country. But this idea was apparently stonewalled by Germany and Poland, who both demanded exclusively non-rotational seats, according to an anonymous source.

“(The Commission) has tried to rob us so many times before,” a Polish government source told Reuters. “This time around we want to wear a second jacket - just in case - and let nothing we are eligible for miss us.”

Members of the European bloc will now have to negotiate directly with other developed countries to determine the makeup of the governing board.

“Despite willingness to compromise and adequately share board seats, it has, unfortunately, not been possible to come to an agreement within the EU,” said Danish presidency spokesman Jakob Alvi.

“It shows that the EU unity we had in Durban has been eroded and that could damage Europe’s image in global climate change talks.”

Coal-addicted Poland is particularly to blame for Europe's collective failure to agree both on the energy efficiency standards and this issue. It also recently succeeded in vetoing Brussels’ carbon reduction roadmap.

All these developments give an impression elsewhere of a waning of Europe's confidence in leading the world on fighting climate change.

This corresponds to an increased assertiveness in climate change discussions amongst the richer developing countries, especially Brazil, India and China, and to a lesser extent other South American and African nations. But that is far from a guarantee of effective action.