27 June 2008

BELGIUM - It has been hailed as the most important European Union legal proposal in the last five years: a package of laws aimed at fighting global warming by reducing carbon-dioxide (CO2) emissions from everything from power stations to cars.

When France takes over the European Union's rotating six-month presidency on July 1, one of its key challenges will be to get all 27 member states to approve the European Commission's proposals.

Officials say that a political deal must be done by the end of the year if the EU is to maintain the moral high ground in talks on agreeing a successor to the Kyoto Protocol on climate change. However France will have to do a lot of persuading if it is to forge consensus on such a high-profile topic in just six months.

Commission experts say that several issues could torpedo talks.

First comes the question of how the EU's 27 member states, with their very different industries and economies, should share the efforts, the costs and the profits of fighting climate change. Under the commission's plan, each member state is given a reduction target based on its emissions in 2005 - the first year for which accurate EU-wide figures were available.

That proposal has angered new members such as Hungary and the Baltic states, who demand credit for making major emissions cuts between 1990 and 2005 - even though the "cuts" came largely from the collapse of Soviet industry, rather than government policies.

A second split threatens over the question of how much of the money raised by selling industrial-emissions permits the old member states should send the new ones to help them modernise.

Under the commission's proposals, industrial plants such as power stations and chemical factories will have to bid for CO2 emission permits at a national auction. The commission wants 10 per cent of the permits - and thus income - allocated to the EU's richest nations to be transferred to its poorest ones.

The sum at stake is enormous. In 2005-07 the commission issued permits to emit an annual average of some 2.2 billion tons of CO2. The price for a one-ton permit currently stands at 27.74 EUR (43.13 USD) - giving the EU market a value of 61 billion USD a year.

That has sparked a row between poorer member states who want the share-out to be greater, and richer ones such as Britain, which argues that the money raised in each country should be spent there.

Further disputes loom over the impact the emissions-trading scheme (ETS) will have on key industries such as energy generation, public heating and steel production.

Poland, for one, has already warned that any move to make its power stations, 95 per cent of which burn coal, buy emissions permits could push up electricity prices by up to 70 per cent.

Many member states also fear that any attempt to make heavy industries bring in expensive emissions-reduction techniques will force them to move their factories out of Europe - a process codenamed "carbon leakage."

The commission has promised to study that risk and report back to member states by the end of 2009, with a list of the industries it thinks most vulnerable expected in 2010.

But even that promise has not been enough to calm European nerves, as the debate has shifted to which industries should be classed as "energy intensive" - and therefore potentially benefit from free permits in the future.

It all adds up to a spider's web of conflicting interests which the French government will have to negotiate in just six months.

And while the chance to claim the credit for forging a compromise on such a, literally, hot topic is one which many an EU leader would love, few are likely to envy France's President Nicolas Sarkozy as he tries to find a way through the labyrinth.

By Ben Nimmo

[Expatica]