Bursting the Bubble

Ups and downs in the EU environmental debate: commitment to eco-investment and the EPP tricks

24 April 2013 | by

Among the many recent events significant for the environmental agenda, the vote on the backloading of the Emission Trading Scheme was particularly revealing. It not only made clear the demarcation line in the European Parliament, but it also became a stage for many deceitful arguments that led to the rejection of the reform.

The EU environmental debate turned somewhat polycentric in the last weeks, hopping from Strasbourg with the vote on backloading the EU Emission Trading Scheme; to Geneva with the 7th Conference on Sustainable Cities and Towns, which I commented on in my previous entry; to the Informal Environment Council in Dublin.

The two latter events were marked with promising conclusions, best summarized in the words of Wolfgang Teubner, the Regional Director of ICLEI in Europe. “The notion that social and environmental concerns need to be put on hold until the economic crisis has been solved fails to recognise the linkages between these. […] There is enormous potential for economic benefits through smart spending for example on improving the energy performance of buildings, better water resource management and adapting cities to the impacts of climate change”.

In Geneva, the issue of greening the economy was addressed by the participants of the Conference in discussions on their strategies for environmentally sound investment. They also had a chance to get first-hand experience during on-site visits in places important for the sustainable development agenda in the canton of Geneva. Among these sites was the municipality of Vernier, where school cafeterias serve food predominantly made from seasonal ingredients of local production. There is not only the issue of food traceability, especially in the spotlight since the recent food-related scandals, but also minimising the carbon footprint of the food – a contribution to the climate campaign that also helps local producers.

In Dublin, the central point of the EU environment ministers meeting became the initiative to create a European Single Market for Green Products. Currently, the producers are burdened in marketing their environment-friendly products across the EU, due to a fragmented certification process. It also makes the consumers confused, as 48 percent admit that environmental information they get is unclear to them. One of the ideas to change this is to simplify the measurement of environmental impact, by defining the Product Environmental Footprint (PEF) and the Organisation Environmental Footprint (OEF).

The project was endorsed, on the spot, by the EU Environment Commissioner Janez Potočnik, who also attended the conference in Geneva. At the time, when he was setting off for the small tournée, his colleague, Climate Action commissioner Connie Hedegaard suffered one of the heaviest defeats during her time in the office. By rejecting the so called backloading of the EU Emission Trading Scheme, the European Parliament undermined an essential mechanism stimulating the EU transition to green economy.

The ETS, covering almost half of the EU emissions, demands the producers to bid for emission allowances for every tonne of CO2 beyond a certain limit. Partly because of the prolonged economic stagnation, and partly due to the inaccurate estimations made before the ETS entered into force, at the end of 2012 the volume of allowances created a surplus of 2 billion tonnes. Back in 2007, the price of allowances was expected to reach €30 per tonne in 2013. On 16 April, the price barely exceeded €4, making the Climate Action Network publish a series of posters alarmingly asking, “Should a tonne of pollution cost the same as a hamburger?”. After the vote it dropped even more, to below €3 per tonne. With the price of permits ten times lower than expected, the incentive for producers to invest in green technologies is meager. The Commission’s proposal was to suspend the auctioning of 900 million permits were scheduled to be sold in 2013-2015, and postpone it until later years, which would temporarily increase the cost of CO2 emissions.

As the Commission argued, such a correction was vital to produce an impulse for investment in environment-friendly technologies, and in this way, indirectly create jobs with prospects for the future. Perhaps surprisingly, it was supported by some of the most prominent actors in the energy sector. Ivan Martin, head of Shell’s EU Liaison Office said, that “the low carbon price means that the EU ETS does not incentivise investments in low carbon technologies as it set out to do. Shell therefore supports an immediate strengthening of the EU ETS by backloading some one billion or more allowances”.

Despite that, the matter is not as black and white as it seems. The voting revealed a perhaps preposterous split between the left-wing supporters of the proposal and the conservative European Parliament members. When asked why they decided to thwart the initiative, the EPP members shared strikingly self-satisfied comments. Jerzy Buzek, the former President of the EP, wrote on Twitter: “Backloading rejected. No need for artificial intervention in ETS. Good news for predictable EU climate policy, even better for consumers”. In brief, the EPP’s approach is that we should allow the citizens to consume more energy and simultaneously care less about the environmental impact, because that’s good for the economy, and after all, that’s what matters. Evidently aware of the backwardness of this logic, the conservative MEPs tried to conceal it by defending the scheme as it is now, collectively bringing up the malarkey about merits of the free market mechanisms.

In their mercantilist approach, the EPP members are missing an important detail. Although the ETS was indeed designed as a mechanism reliant on the rule of demand and supply, its actual goal was in fact everything but letting the free market prevail. The ETS’s very purpose was to do, what the markets are unable to do – to ensure that the economic growth is not followed by corresponding increase in emissions and that the development of Europe is not only based on sound market mechanisms, but also sustainable in the environmental way. The entire idea was for this instrument to do what industrial producers are inadequate for.

It is true, that the drop in CO2 permits prices is a result of economic downturn. In a statement released before the vote, the EPP shows it as a proof, that the carbon market is responsive to the general economic situation and therefore works correctly. However, just a few lines later, they defend the ETS, claiming that it also helped decrease emissions, which fell by 1.4 percent last year. But this time, they forgot to mention, that the European industry also dwindled. As a matter of fact, the EU industrial production index decreased by 2.1 percent in the same period of time. In short, the EPP says that the recession had an impact on carbon allowance prices, which proves that the ETS works. At the same time, they forget about the crisis in telling that the emissions shrunk, and instead of acknowledging that, they praise the ETS for this decrease. The conservative MEPs refer to the crisis when it helps to motivate their market-oriented argumentation and defend the ETS in its current shape, but when they further endorse the existing scheme as successful in reducing the carbon production, they don’t link it with the economic crisis and shrinking production.

With all respect to the different intentions or perspectives present among the nay-sayers, it must be said that the conservative MEPs demonstrated uttermost arrogance by preserving a mechanism that evidently doesn’t deliver, and instead of improving it by an adjustment to the new economic situation, they let the ETS dwindle to being a nice wrapping for unsustainable development. As a result of this decision, the ETS is at risk of drifting away and becoming an irrelevant, deficient system.

The fundamental question the MEPs should ask themselves now, is if the EU ETS should exist to be a trigger for a real change; or just to be a smoke screen, ensuring that there is some EU environmental regulation, whereas all the actual events are left to the market mechanisms and to individual states.

What do you think?