Despite Global Recession, Focus on Climate Change Critical

Stavros Dimas, environmental commissioner for the European Union, says the global economic crisis is no reason to lose focus on efforts to fight climate change. In an interview with Yale Environment 360, he talked about the lessons of the EU’s emissions trading system, and why the U.S. should not give away permits in a cap-and-trade system — it should get something for them.

Stavros Dimas, environmental commissioner for the European Union, says the global economic crisis is no reason to lose focus on efforts to fight climate change.

In a wide-ranging interview with Yale Environment 360 senior editor Fen Montaigne, Dimas also talked about how the EU has succeeded in reaching its early goals of cutting carbon emissions, the lessons of its emissions trading system, and why the United States should not give away permits in a cap-and-trade system — it should get something for them.

Yale Environment 360: I wanted to ask you a few major questions about major issues facing the EU, obviously climate change at the very top of them.

As you are aware, recent news on emissions is not encouraging. Emissions went up 3 percent globally from 2006 to 2007. They are growing in the 2000s at several times the rate of growth of the 1990s. The U.S. has taken very little action to help in this effort.

What do you think is your role and the EU’s role in trying to lead the world in starting to slow down and reduce emissions, which we have not great success with so far?

Stavros Dimas: The European Union is trying to persuade the international partners to contribute in reaching an international agreement which will tackle effectively global warming and stop the global warming to about 2 degrees Celsius, 3.4 degrees Fahrenheit, by the year 2050, which will require reductions of emissions of the level of 50 percent globally or 60 to 80 percent by developed countries by 2050.

In order to achieve this level of global warming, we need to have also a midterm target. Efforts should begin now actually, and around the year 2020, to have reductions of 25 to 40 percent by developed countries.

What the European Union is doing: first, to cooperate with our international partners, for the achievement of this agreement. In order to show that what we are asking others to do, we are doing at home, and [that] we practice what we preach, we have introduced a series of legislative measures, in order to achieve reductions of emissions by 20 percent by 2020 unilaterally. And if other developed countries agree — participate in an agreement and take up similar reduction obligations — we can reduce by 30 percent or more if it is necessary. We hope that by the end of the year, we shall have approved all the necessary instruments and means necessary in order to be able to achieve these targets.

At the same time, the European Union is going to achieve the target of reduction by 8 percent of our emissions in comparison to 1990 level, that we have undertaken under the Kyoto protocol. In 2005, for which we have verified data, the collective target of the European Union was 2 percent [points] below the 1990 level. The data for 2006, which are not yet verified, we were about 3 percent below the 1990 level. And according to the calculations, projections, and the measures that we have already taken, by the end of 2012 we are going to achieve a reduction of about 8 percent. With additional measures, we are going to overshoot our 8 percent target. We could receive an 11 percent reduction in comparison to 1990 levels. So the European Union is doing its small effort to reduce emissions.

At the same time, we have proven that we can reduce emissions without hindering our economic development. And also we provide industry and our economy the opportunity to adjust. We provide the right incentives to adjust to a low-carbon future.

e360: Do you think that, looking at your emissions trading scheme — which was certainly one of the first, if not the first, in the world — what were the good things that the scheme has accomplished to date and what were the mistakes? Specifically, do you believe that not auctioning some of the permits at the beginning to emit greenhouse gases and carbon was a mistake, that it has watered down the impact of your scheme?

Dimas: You are right, the European Union emissions trading system [ETS] regarding carbon dioxide was the first in the world. But it was an imitation of the American emissions trading system regarding sulfur dioxide, which very successfully fought acid rain. So actually, it’s an American invention, and we introduced it into the European Union.

It is functioning since 2005. It is functioning very satisfactorily. Of course we have identified various problems, and this is the reason that we had an initial trading period, between 2005 and 2007. It was a learning period, if I could call so, and there, as you said, we made some mistakes. We found out, for example, that we had an overallocation of allowances, which led, towards the end of the first trading period, to the price of allowances to be near zero. But we corrected this mistake during the second trading period by being stricter in allocating emissions allowances. Now the price of carbon is $35 per ton of carbon dioxide.

Regarding auctioning — which is, again, a very important feature of our revision of the emissions trading system — because having identified the mistakes, we are revising the legislation in order to correct certain of these mistakes for the third trading period from 2013 onwards. Up to now, auctioning was voluntary; it was up to the member states to auction up to 10 percent of the allowances. So we had a ceiling, which is a mistake. It is better to have a floor, actually, instead of a ceiling. To require at least a certain percentage to be auctioned. What we propose to do is to start auctioning at a certain level for industries — for example, 20 percent — and by 2020, to have a 100 percent auctioning of the allowances. For the power sector we propose a 100 percent auctioning from the beginning.

e360: From the beginning in 2013?

Dimas: From 2013, yes. So this is the way that we are going ahead. This is a piece of legislation that is currently being discussed in the European Parliament and among the member states.

e360: And by 2020, do you expect to have the transportation sector brought into the system?

Dimas: Aviation we have already included. Or, rather, we have the legislation, which requires aviation to participate in the emissions trading system, from 2012 onwards. And in the European Union, the emissions trading system will cover energy-intensive sectors and industries. But transportation, except aviation, is not included at this stage.

But we require transportation and other sectors — like agriculture, waste, and households — to make the fair contribution in both the reduction of emissions, but by various other means, either by introducing legislation. For example, requiring energy-efficient standards for cars, which are quite ambitious, or energy-efficiency standards for electrical appliances, or standards for waste landfills, and a series of other legislation, which will all contribute to the achievement of the 20 percent reduction by 2020, or 30 percent if other developed countries follow. Because we have provisions which will permit the automatic enabling of the measures to achieve the 30 percent reduction target by 2020.

e360: Do you have any advice for the U.S. Congress, and the new administration, which is going to try to pass some sort of cap-and-trade bill in the next year or two? Learning from the mistakes of the European Union, if you sat down with the leaders of Congress and the new president, what would you advise them to do, in terms of putting a price on carbon and establishing a cap-and-trade system?

Dimas: Definitely, whatever we have learned from the first trading period and the fact that we have a very well-functioning system right now that would permit us to cooperate with our American friends, and give the information and our experience. The Americans, of course, do know about the market-based instruments; they had the experience of sulfur dioxide. Actually they are the inventors of these systems.

We try to make our emissions trading systems operating or to be introduced in various regions or countries like Australia, Japan, Canada, and making the systems compatible. So at a future date we will be able to link together and provide a network of emissions trading systems, which will fight climate change and reduce emissions in a most cost-efficient way. The more emissions trading systems are linked together, the wider the carbon market is, [and] the cheaper and more efficient will be reducing emissions.

e360: So sometime in 15 or 20 years you envision a world where there might be one universal market and system or an overall coordination of governments in some sort of carbon trading system?

Dimas: Of course. We hope and we believe it would be very beneficial in fighting climate change. An effective and efficient way is to have a global carbon market, which already exists. But the main buyer in this global carbon market is the European Union — 80 percent, because of the activities of the activity of the European Union member states or companies. So what we hope is to expand this market, have rules that will link all the markets in the world. There are various proposals and ways that we can do this. And what you said previously, I hope it would materialize, but not so far away in the future, but much earlier.

e360: If U.S. congressional leaders called you to Washington and said, “What percentage of our emissions permits in our cap-and-trade systems should be given away initially and what percentage should be auctioned?” What would you tell them?

Dimas: Actually, I had this discussion already, in the Congress, with the senators, congressmen. And it is very interesting. They know the issues so well; I was amazed. And they know what the economists say is that auctioning is the best way of allocating allowances, and 100 percent auctioning is the best way to go for both the economy and for fighting climate change. They know it so well, so my advice wouldn’t be necessary.

But of course there are some political considerations, and we face the same political difficulties in the European Union. And perhaps a phased-in approach is more realistic, I would say. We have to see how we shall go ahead without compromising the environmental objective, without compromising our target of reducing emissions. We shall see how we shall distribute the burden or the effort in the initial years and, of course, always taking into account that we should assist the lower- and middle-income people to cope with any electricity price increases.

e360: Do you think that if a new U.S. administration, cooperating with the European Union, takes an aggressive and bold stance on reducing emissions, that China, India, Brazil and other developing countries will join in this effort and not show the reluctance that they do now?

Dimas: It is absolutely necessary for the United States and European Union to work together, cooperate. The leadership by the United States and European Union is absolutely necessary. And of course, by cooperating together, we shall bring on board China, India, and other fast-developing countries, which now contribute to more than half of the global emissions of greenhouse gases. So, in order to be effective, we need all those countries to make an effort, according to the principle of common but differentiated responsibilities, which both the United States and the European Union have accepted. So we have to work together.

Of course we have to commit also that we are going to make absolute reductions. But these countries have to make an effort according to their capabilities.

e360: And you feel as though it is incumbent upon the EU and the United States, given their historical share of greenhouse gas emissions, to take the lead role at this point?

Dimas: I think it is in our interest to take the lead, because climate change will not affect only the developing countries, it will affect us. And also, the earlier we adjust to a low-carbon future, the better it is for our industries and our economies. Also, it is easier, much cheaper, and we shall avoid negative impacts if we act now. So, the earlier we act, the cheaper it will be, the fastest the results, and the more efficient we shall fight climate change.

Of course, we hear the argument, because of financial crisis, “Let’s leave environmental issues or climate change for the future.” But without underestimating the importance of this financial crisis or other crises that from time to time we have — food crisis, energy crisis, avian flu crisis or whatever other crisis that exists; I realize that this is a very important crisis that we have to deal with — but still, the climate crisis is going to have permanent impacts, which will start, have already started. Because climate change is already here, and it will be more intense and frequent in the future. So, we have to deal with the issue.

To give you a comparison, the [Wall Street] bailout of $700 billion is about 6 percent of the GDP of this country. Fighting climate change would be less than 0.5 percent of the GDP, with tremendous benefits and co-benefits for the economy. For example, fighting climate change reduces air pollution, makes the health bills come down. So it is very important to do it now.

To fight climate change now is good from the economic point of view, from the environmental point of view, from the social point of view, even from the security point of view. Because, according to a study conducted by some retired generals of the United States, climate change poses a threat to the security of the United States and other countries of the world. So, let’s work together in order to fight this global threat.

It’s up to us to achieve an agreement [to succeed the Kyoto Protocols] in Copenhagen [in December 2009], work together, persuade the other developed countries and developing countries to come on board, and do what is required in order to avert this global threat.

e360: As important as the problem in economic market solutions is renewable and alternative energy. Could you summarize what steps the EU has taken so far to promote the development of renewable energy and what steps you hope the EU will take soon to further advance use of these alternative fuels?

Dimas: Both the United States and the European Union are taking steps towards promoting renewable sources of energy. This is just common sense. I think that renewable sources of energy will contribute to fighting climate change, to more energy security or increasing energy independence. And reducing the import of oil — saving energy, saving the oil — means less money spent. The bill will be lower regarding this. If you have a car which uses less fuel, the consumer will benefit from this energy-efficient car.

In the European Union, we have a series of measures. First of all, incentives are provided by the functioning of the emissions trading system. Almost three-quarters of our renewable target of 20 percent by 2020 will be achieved through the emissions trading system. But this is a calculation; it could be a bit more or less than this. So we have an incentive already there. It is $35 per ton of carbon dioxide sale. So this is first incentive. And this is the importance of the cap-and-trade system in this country to promote renewable source[s] of energy.

Then we have other possibilities offered to the member states, because some member states in the European Union have more potential for renewable sources of energy than others. So those countries that have more potential and will achieve their individual target for 2020, they can sell their overachievement to those countries that will not be able to achieve their target in an economic way, domestically. We have other national subsidies, if I can call them, for renewable sources of energy. And, in some cases, we had very spectacular results: for example, wind farms in Germany, Denmark, and Spain. They have developed excellent technology, which they are using and they are exporting also. So they can gain from this.

Biofuels is another way of contributing to reducing dependency on oil. But still we have to be very careful about them, because of the various problems that we have identified, including the competition with the food industry and the increase of food prices. But also other negative impacts, for example, cutting down of rain forests in order to cultivate fuel crops. So in the European Union, we have proposed a series of sustainability criteria. So we shall make sure that, looking at biofuels — at the life cycle, from production to consumption — that we have net benefits for the environment, including net benefits for reducing greenhouse gases, and without causing rain forests to be destroyed or food prices to be increased. This way we shall encourage second-generation, sustainable biofuels.