Winning the EU Climate Battle

Philippe Leglise-Costa had some busy days last week at his office in the Justus Lipsius building, in Brussels. The French EU ambassador's office had been converted into what is known as a "confessional" in EU lingo. A place where representatives from each member state can share their deepest thoughts, in complete confidentiality – with the experienced French EU diplomat playing the role of priest, listening and giving good advice. The visitors that the Leglise-Costa was receiving had not come to confide their sins to the Frenchman, but rather their problems with the proposed EU climate package.

The package was the center of spirited debate at the recent EU summit in Brussels. Italy and seven Central and East European countries, questioned the plan, which aims to reduce the EU's CO₂ emissions by 20%. "Can we afford to implement our climate goals at this time, with Europe in the middle of a financial crisis?," asked the Italian Prime Minister, Silvio Berlusconi. He received solid support from the EU's new member statesin Central and Eastern Europe, particularly Poland and Hungary, which mounted a strong offensive against the planned climate requirements.

The French president and sitting EU president, Nicolas Sarkozy, did his best to contain the climate skepticism of his East European colleagues, and prevent the EU's climate goals from being watered down. He succeeded in preserving the "three times 20%" objectives, which heads of state and government approved last year, i.e. total CO₂ emissions must be reduced by 20% in 2020, the EU's total energy consumption must be reduced by 20%, and renewable energy sources must account for 20% of energy consumption in Europe.

The price Sarkozy had to pay was to promise that the EU would look at how the climate burden would be distributed between the member states over the coming months. Having decided on the final outcome, the 27 contributions now have to be negotiated. If Poland is going to make a smaller contribution to the EU's total climate initiatives, other countries will have to pay more. Otherwise there will be a shortfall.

The Monday after the summit, environment ministers had their opportunity to discuss the climate package. This discussion did not produce any breakthroughs. Negotiators stuck closely to what the heads of state and government had agreed, though with raised voices yet again from Poland and Hungary. The 27 environment ministers did not look like a group of people who would be presenting a unified proposal for the world's most ambitious, comprehensive and binding climate initiatives in less than two months.

They will get there. But the road to the ambitious end result will be exceptionally difficult.

Huge jigsaw puzzle

Among EU diplomats, there is great satisfaction that the French EU presidency has responsibility for the final climate package negotiations. French politicians and public servants have extensive experience with the EU system and close ties to Germany - the country seen as posing the greatest threat to climate negotiations. Of all the EU countries, France has the best chances of getting Germany to adhere to an ambitious climate policy.

The French presidency has only a few weeks to achieve unity on five proposed pieces of European legislation on technical issues such as renewable energy and trading in emission quotas. This is a task which will require both oversight and focus.

The purely legislative side of the negotiations alone is a gigantic jigsaw puzzle. Like the majority of EU legislation, the five directives that make up the heart of the EU climate package are part of the legislative procedure whereby the Council has to make decisions in close corporation with the European Parliament.

For the French leader of negotiations, this means he has to get the 27 member states to first agree on draft legislation. This draft must then be discussed with a select group of members of the European Parliament. When they require changes, Philippe Leglise-Costa  must return to his ambassador colleagues on Rue de la Loi, revisit their discussions and arrive at a new text formulation.

It shouldn't actually be possible for this system to work: 27 ambassadors, four different parliament spokesmen, a number of shadow spokesmen, together with the chairmen for the two Central Parliamentary committees.

But like so many other things within the EU, the system actually works – despite the odds. The vast majority expect that efforts to reach a climate agreement in December will be successful.

This is primarily because the French Presidency have devoted their prestige and energy to achieving an agreement. When a presidency is not interested in achieving a result, the EU system makes this very easy. It is a very simple matter to ensure that an issue is delayed, muddled, or otherwise derailed.

The opposite is more difficult. It requires insight and focus above all. The French EU presidency has already demonstrated that they have focus. Insight is something that has to be gained over the coming days.

For example, when Poland raises a series of problems and proposes a number of quite different calculation and distribution methods, which could have been used instead of those being proposed, this calls for discussions between Poland and the presidency.

This is essential in order for the Polish ambassador, Andrzej Babuchowski, to be able to send clear signals to Warsaw about the thoughts and ideas that might gain acceptance, and those which have no earthly chance. To put it bluntly, Poland presented a proposal at the summit which no one understood. The public servants and ministers in the Polish capital must therefore be quickly notified that if Poland hopes to achieve anything at all from the negotiations, the alternative Polish calculation proposal has to be cast aside, and quickly.

This will clear the way for sensible and focused discussions between the French EU ambassador and his counterpart about specific Polish problems. For example, the majority of Polish electricity is produced at coal-fired power plants. Replacing these plants with other energy sources will be very expensive, and will not happen overnight. The EU actually has various tools at its disposal for resolving problems like this.

Bilateral, confidential negotiations play a vital role in such a process. If all 27 ambassadors sat around the table, Babuchowski would be unable to be completely frank for strategic reasons. And any concession from the presidency would immediately result in demands for equivalent compensation for the other countries. At the large meetings, member states always argue that they have particular problems that require special treatment. Philippe Leglise-Costa's first and most important task is to reduce this long list of special demands to something realistic and manageable.

Large toolbox

The ‘confessional' is only the first step in the process towards a European climate agreement. The ambassadors and members of the European Parliament have to work together to clarify countless technical details and formulations, so that the two Council meetings in December (environment and energy) can focus on the political issues.

This will pave the way for the summit of heads of state and government, where the final battle for the climate package will take place. On Thursday, December 11, French President Nicolas Sarkozy will take his seat at the head of the negotiation table to hammer out the final details. The decisive battle is going to be about the distribution of burden, or as the European Commission calls it, the distribution of effort.

If there is one thing the diplomats in Brussels agree on, it is that the December summit is not going to be pretty. Everyone expects the summit to drag on far beyond the agreed timetable. On paper, the summit is due to finish at lunchtime on Friday. But no Brussels veteran will be the least bit surprised if the heads of state and government are still sitting in the Justus Lipsius building after midnight on Friday.

A number of countries will focus purely on one thing: How expensive is the total package going to be? During last week's summit, Italian Prime Minister Silvio Berlusconi presented calculations showing that Italy is the member state which will end up bearing the lion's share of the total EU climate burden. If the climate package is approved in the form proposed by the Commission, Berlusconi claims it will cost Italy 181 billion euros up until the year 2020. This corresponds to almost 20% of the total EU price tag.

One of the biggest and most controversial issues relates to emission quotas. A number of industries have been made subject to the Emission Trading Scheme (ETS). This means, for example, that power plants have to buy the right to CO₂ emissions. It is currently expected that a tonne of CO₂ will end up costing between 40 and 50 euros. But ETS quotas will be freely traded, so the price may be higher or lower, depending on supply and demand.

With regard to Poland's problems, a classic EU solution would be to assign free quotas to the Polish electricity sector, such that the plants are still required to reduce their emissions, but do not need to spend as much money buying quotas. Another model could be to give Polish Power plants more time to adjust, or phase them gradually into the EU system. This approach would be nothing novel in the EU context either.

Another major issue in the negotiations will be how the member states will be able to afford to implement the comprehensive climate investments necessary to achieve the objectives.

There are several compensation options in this area also. The Commission has proposed that almost all ETS income should be returned to the treasuries of the member states. However, the European Parliament has proposed that some of the money be placed in a fund, set aside for EU climate projects. It is clear that Poland, Hungary, and other Central and East European countries already have their sights firmly set on such a fund. If the fund is large enough, and organised such that the money targets the poorest member states, the burden might suddenly be much lighter for the "difficult" Eastern countries.

The ETS system only represents half of the EU climate strategy. The other major climate burden will be placed directly on member states. They have to reduce CO₂ emissions from households, transport, agriculture, etc. This will also require significant investment. Especially given that the biggest opportunities for savings lie with private households, which need to be motivated to reduce their energy and fuel consumption. One way a country can reduce its burden is to make use of the Clean Development Mechanism (CDM), which makes it possible to invest in projects that reduce CO₂ emissions in other countries.

The logic is that in countries where energy and climate have been on the agenda for years, most of the simple and cheap solutions have already been implemented. However, in countries where no energy savings have ever been implemented, it will be possible to quickly implement simple initiatives which have major effects. For example, if Denmark can finance projects in other countries and use them to offset the Danish accounts, it can have a bigger impact, without necessarily being more expensive.

The initial CDM proposal has limited application. Expanding it might be one way to make it cheaper and easier to implement national CO₂ objectives.

Another central issue will be 'carbon leakage.' Industries will be at a competitive disadvantage if their products become more expensive due to ETS costs. The steel and chemical industries want to see this question resolved immediately. Countries such as Denmark are happy to delay resolution. If an international agreement is reached in Copenhagen next year, corresponding industries in the rest of the world will also have to buy ETS quotas, making competition fair. Yet even if no agreement is reached in Copenhagen, Europe still has tools available to it. For example, one can make use of the EU regulations regarding government aid, or introduce import quotas on products from third countries.

Naturally, none of these instruments are free, and they will not be brought into play without tough negotiations. The climate negotiators for the various EU countries are facing some extremely difficult weeks, where threats of blockade, accounts of breakdowns, and expert opinions on the various options, will abound. Once the dust has settled, it looks like the EU countries will be able to approve an ambitious climate package – possibly some time during the night between December 12 and 13.

*Editor's Note: This story originally appeared, in somewhat different form, in Monday Morning weekly.