A tale of two certainties - climate change and the fact that Europe can't go it alone

This week’s leaked drafts of the International Panel on Climate Change (IPCC) upcoming report confirmed what everyone already knew, humankind is to blame the earth’s rising temperatures.

According to the leaked drafts, first seen by news source Reuters, scientists can now predict with 95% certainty that human beings are causing this phenomenon. The level of certainty is up from 90% in 2007, 66% in 2001 and just over 50% in 1995. All in all, arguments by a small minority of scientists that natural variations in the climate might be to blame are steadily becoming marginalized.

Here in Brussels, the report will be music to the ears of the vast majority of EU policymakers who made up their minds about climate change a long time ago. These policymakers have introduced various pieces of legislation accordingly, such as the EU’s 2020 Climate & Energy strategy.

Unfortunately for EU policymakers, it’s ‘go it alone’ Climate & Energy strategy did not take into account the independent nature of global energy markets. The inevitable consequence has been that emissions reductions achieved through renewable energy subsidies have been offset by the greater use of coal in power generation. The cost of these renewable subsidies have been very expensive for the European taxpayer and a much lower than expected real benefit in terms of overall emissions reductions.

With just a year to go under the current Commission and Parliament, focus now needs to be placed on getting the optimal framework in place to combat climate change, something which the EU under messianic leadership of Climate Action Commissioner Connie Hedegaard has not been too successful at achieving during her tenure at the helm.

While the EU is on track in reducing emissions and should easily reach its targets of a 20% reduction in GHG emissions by 2020 compared to 1990 levels, (Somewhat by default given the effect of the financial crises on emissions) it is in the marginal cost-abatement of these reductions where the EU struggles, especially vis-à-vis our counterparts across the Atlantic.

In the US, which has outperformed the EU in terms of emissions reductions in recent years, these reductions have been a hell of a lot cheaper. The glut of shale gas has led to a collapse in the price of gas, the result being that cheap gas has been pushing out much dirtier coal in power generation. Unfortunately for EU policymakers, the EU does not live in a vacuum and this cheap coal has been exported to Europe, leading to a renaissance for coal and what some have described as “the Golden Age of Coal”.

At an event I attended a few months back, a Chief Economist of a major international energy company highlighted that the 3 targets of the EU’s 2020 Climate & Energy package were not complementary, with the result being that the entire advantage of increased use of renewables had been wiped out by increased use of coal in power generation. It had been an “extremely expensive experiment”, he said.

He also noted just how cheap coal in Europe had become, about 44% lower than natural gas. In order to make up this price differential and incentivise gas in power generation, a price of emission under allowances under the ETS of €40-45 a tonne would be needed. As the time of writing, emission allowances under the ETS stand at €4.28 a tonne.

With one year to go under her leadership, Climate Action Commissioner Hedegaard does not have ample time to develop a whole new Climate & Energy framework. The Climate Action Commissioner is under significant time pressure and should focus her attentions on the low hanging fruits, creating an incentive to push coal out in power generation would be a good place to start.

Cillian O’Donoghue