Carbon Policy and Effect: An IFIEC Europe Perspective

1. Carbon Policy and Effect:An IFIEC Europe Perspective Presentation to AEM by David Gillett IFIEC Europe Climate and Efficiency WG IFIEC World Board Member Prague 8 September 2004

2. 1979 – 1st World Climate Change Conference 1988 – UN 43/53 “Protection of global climate for present and future generations of mankind” 1988 – Intergovernmental Panel on Climate Change (IPPC) set up 1990 – 1st IPPC Assessment Report – confirmed threat 1990 – 2nd World Climate Change Conference – call for global treaty 1990 – UN 45/212 – called for a Convention & set up mechanism 1992 – UN Framework Convention on Climate Change (UNFCCC) agreed 1992 – UNFCCC opened for signing of the Rio Earth Summit 1994 – UNFCCC came into force and 188 States now signed & ratified the Convention

3. That was the easy part! It became much more difficult!

4. In 1988 the Board of IFIEC Europe decided an environment focus was needed. Why? Links with the Commission were indicating the future policies (Delors Presidency). The European Commission was growing stronger and saw climate change as a route to establishing itself globally. Different standards were being discussed - dangerous for energy reliant industries competing in global markets.

5. Large Combustion Plant Directive (introducedand revised) IPPC Directive and Horizontal BREF’s Air Quality Standards CHP (and Comitology Committee) Renewables Kyoto Protocol and EU burden sharing Emissions Trading Environment Taxes Issues

6. IFIEC Europe saw the UNFCCC process as a major challenge to European manufacturing. Action was taken to rebuild IFIEC’s elsewhere as part of the IFIEC World structure and to use the NGO status IFIEC World held with the UN. This would give IFIEC access to the meetings and rights in making interventions. IFIEC and the Protocol

7. Much of the early 1990’s was spent with detailed studies on climate Doubts were expressed widely over the validity and independence of some of this work, but this is now history. Climate change is part of everyday talk. By 1995 the political pressure was on for all Annex 1 countries to sign the Protocol with substantial reduction commitments

8. IFIEC World attended the March SUBSTA meeting in Bonn in 1997. These meetings were meant to be technical, but the 2nd part had become a senior political meeting with heavy pressure applied. USA wanted trading built into any Protocol and were talking with Russia. EU wanted to lead the world to agreement. In August 1997, IFIEC World “went it alone” at the Bonn SUBSTA meeting. A booklet was produced and delegates invited to a Workshop and Lunch. Over 100 attended.

9. IFIEC World attended Kyoto. Every delegate received an update leaflet to go with the booklet. IFIEC World was given an Intervention and spoke to the full Convention. No other consumer grouping had this.

10. EU returned from Kyoto with a European commitment to an 8% reduction in GHG in each Member State. That 8% (336m tonnnes) was then re-assigned in an EU “Burden Sharing” agreement in a range from +27% (Portugal) to -28% (Luxembourg)

11. The Kyoto Protocol was an agreement that activated the Convention’s principles of: allowing economicdevelopment; the polluter paying. This produced a mechanism where Annex 1 States (the long term industrialised economies said to have caused historic damage) were required to reduce GHG emissions, whilst developing economies were not.

12. It was clear when the Protocol (KP) was signed at COP 3 in Kyoto that persuading at least 55 signatory countries, representing 55% of the 1990 CO2 emissions, to ratify the Protocol was going to be difficult. • 189 have ratified but these only represent 44.6% of the required emissions

13. Since KP was signed, detailed meetings have been held to define “sinks”, monitoring regimes, verification procedures and baseline accounting. IFIEC Europe not been involved in these. We decided that our focus must be within EU, as the commitment to carbon reduction means Europe “going alone”, regardless of whether KP comes in force; Increasingly that focus has moved to the Council and Member States where the social and economic effects of reducing competitiveness carry greater weight than with DG ENV;

14. IFIEC position in 1996 and 2004 is that: global problems need global responses. market measures based on voluntary agreements take us forward taxes take us backwards only 16% of OECD emissions are from the manufacturing sector and are declining steadily ultimately, technology is the only answer, so research and promotion must be part of the “package”. polluter pays principle is supported, but obligations must be linked to proven technologies. retaining competitiveness is essential IFIEC and the Protocol

15. Politically, arguing against carbon reduction is futile. Climate change is a political fact. It is the speed and extent of the reduction where the debate lies. CDM and JI need company involvement and States need credits to meet commitments, so companies must be able to trade if there is to be market liquidity. Manufacturing is vulnerable, so argue: that targets are national and should be met by national apportioning; the social and economic results of eroding competitiveness. that “cap and trade” schemes restrict growth; that viable trading needs open energy markets; Emissions Trading

16. IFIEC was in debate with: DG Energy (and as part of the Consultative Committee); DG Industry DG Competition ….. and took part in DG Env Workshops and consultative groups as well as making direct presentations ….. and made a presentation to the President’s Chef de Cabinet Emissions Trading

17. Little progress was made, which was exactly what other industry groups in the Brussels lobby were experiencing! What was meant by a “market mechanism” in parts of the Commission differed from our understanding. Power of DG Environment vs other DG’s Emissions Trading

18. IFIEC moved the debate to Member States ready for the debate on Council How will credits be allocated? How is growth included in a capped scheme? How will new enterprises be included? How will national credits link with international CDM and JI schemes?

19. Can National Allocation Plans “harmonise”? Can Governments act proportionately on carbon producing sectors? What will be the value of a tonne of carbon? IFIEC does not believe Kyoto is the correct tool or that the EU burden sharing is deliverable without severely affecting manufacturing and the wider economies. Do Member States believe this as well?

20. IFIEC launched the results of its study into the costs of emissions trading at its Forum in October 2003. This followed the change to annual allocation = 85% of emissions. The results show the costs of trading probably is small, but the effects on electricity prices and generator margins could be dramatic. Other studies show the same potential effect. €0.07/MWh added costs from trading rising to €17/MWh @ €20/tonne CO2 on electricity prices; Windfall profits from excess allocation sales from coal based generation.

21. ---- and the reality? On all EU exchanges the forward prices of gas and electricity are higher from 2005. The baseline cost has moved already. Gas demand will not be met and prices will increase. During phase 1 of EUETS the carbon cost addition could be €4/MWh. Early in phase 2 of EUETS the projected carbon cost addition could be €7-10/MWh and rising to 2012.

22. And next? Lobby EU during phase 1 of the Directive (to 2007) for changes in the Directive’s structure for the 2nd period (to 2012). Lobby EU against the electricity price effect. Argue strongly for the Lisbon Strategy and competitiveness to be at the core of the New Commission’s policies. Decide a position with IFIEC World to support the move in COP 10 to review whether the Kyoto Protocol principles can be achieved in a way that is attractive to all nations.

23. Carbon Policy and Effect:An IFIEC Europe Perspective David Gillett