March 2007
No Longer Conducting The Climate Change Orchestra, The EU Is Writing The Opus!
Following this month's environmental summit, the EU has set some of its most ambitious targets to date.
The biggest of these is a reduction of greenhouse gas emissions by at least 20% from their 1990 levels by 2020, to become 30% if other rich countries joined in. These targets are to be lauded as the EU attempts to combat what Tony Blair has called “the greatest challenge facing humanity”. But as Europe attempts to tackle this problem, critics have pointed to the fact that EU member states produce only one seventh of world carbon pollution, representing just under a 3% global reduction if targets are met. This is a figure that China and India will have easily consumed by 2020, raising the question whether there is any point in these reductions in the first place?
However, the reduction in real terms represents only part of the equation. The EU is realistic in recognising the limits of its ability to influence the setting of emissions targets globally, especially in the light of US obfuscation over climate change science and intransigence over Kyoto. What our politicians are really seeking to do is to revolutionise the way in which our lives and businesses are run.
The targets set provide businesses with a clear view of their likely future obligations toward reducing emissions. They also act as a moral impetus for less high minded nations such as the United States to reassess their attitudes. Most importantly though, they readjust the direction that Europe’s economy is heading. Green energy production, environmentally and socially aware business and long term strategic planning based on themes which were previously regarded as externalities of economic progress all form part of this brighter future.
Governments have three routes open to them in reducing emissions: subsidising alternatives, imposing standards on products and processes or pricing greenhouse gases that cause the damage. Criticising the first two of the options, the March edition of the Economist cited failures in green energy subsidies. Ethanol subsidies in the US are linked with rioting in Mexico over rising maize prices, as solar subsidies in Germany were attacked for diverting solar-cell production from areas where the technology may have been more usefully employed. However, its selective examples fail to paint an accurate picture. Regardless of subsidies, grain prices were rising at an alarming rate as international demand from both automotive and livestock feed sectors outstripped prices available on the market for human consumption. It also remains highly unlikely that many equatorial nations would capitalise on a fall in prices of solar cells were Germany not investing heavily in these. In nations where accessing clean drinking water remains a serious problem, solar cell technology is seldom high on a country’s wish-list. Moreover, championing green technology at a national level can prove a success if the right technology is championed. This is exemplified by Cuban investment in wind and solar power, or Icelandic investment in hydro-electric and geo-thermal energy sources. It is a truism that all such projects are only as brilliant as the brains behind them.
With regard to the imposition of standards, market failure warrants such an approach by government; for example, the requirements of companies to produce a proportion of the fuel they sell from renewable resources. Although it is suggested that markets are better than governments at allocating resources, such a view overlooks the necessary structural change required in industry that the free market cannot as successfully achieve without state intervention. Emissions trading exemplifies this dilemma, as unless government imposes reductions of emissions in real terms through specifically legislating the nature of that change, heavy polluters merely buy a cheap excess of carbon credits, thus circumventing the true purpose of the emissions reduction plans themselves – to truly become greener.
Therefore the EU’s deft management of emissions trading schemes and pricing has been necessarily so because of its holistic approach. Over-reliance on pricing would give businesses an excuse to continue to pollute and pass far higher prices onto customers as energy companies engage in highly monopolistic competition. Similarly, industries would in-turn look to government subsidies, citing their inability to compete with India and China on cost. Thus, the effect of real change is mitigated through an acceptance of an inflationary burden. There is some agreement that ETS permits have been handed out too readily and easily, but in any new system, some mistakes will be made. A far bigger mistake however, would be to see carbon pricing as our best and only answer to a problem that is not so simply reduced into free market economics.
As such, Europe’s wide ranging plans on climate change may be viewed as somewhat of a scattergun approach to the issue, but to not investigate all available avenues whatever their supposed economic pedigree is risible, considering that the economy would be the least of our worries if we don’t honestly face up to our own failings right now.
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