The Berlin Wall and Europe’s internal ‘climate diplomacy’

The European Union’s 28 prime ministers and presidents begrudgingly reached a consensus on the broad outlines of the bloc’s climate and energy strategy heading toward 2030 last month, replacing its current 2020 targets and locking in place its transition strategy toward 2050.

As Europe is the first major power to ‘ante up’ its mitigation pledge ahead of next year’s make-or-break UN climate talks in Paris, climate policy watchers, industry stakeholders, scientists and campaigners around the world were watching how high the bar was being set by the once ambitious Europeans.

In the end though, the result was far too much along the lines of what had been expected: neither terrible nor terrific, neither dashing all hopes for an international agreement, nor taking a bold leadership position. And so the international response to the European package has largely been muted.

But a closer inspection of the result, the interests at play, the power imbalance and the decision-making structure tells us a great deal about what we can expect in Paris next December. For the European Union’s internal ‘climate diplomacy’ is in so many ways just a microcosm of the unruly, deadlocked exercise that is the UN process of climate diplomacy.

And this means that Paris could result in a similarly underwhelming deal, not really getting anywhere close to what is needed to avoid global average temperature increases above two degrees.

European Council meeting

From left to right: José Manuel Barroso, President of the European Commission; Angela Merkel, German Federal Chancellor; Alexander Stubb, Finnish Prime Minister. Photo: European Council

What are the main positions Europe will be taking to Paris?

The headline target, in discussion since the European Commission issued its proposals for the 2030 package might look like in January, is a cut in CO2 emissions of at least 40 percent as measured against 1990 levels, up from a 20 percent cut by 2020.

The key element here that was fought over were those two little words, “at least”, which allows the bloc to increase its promised cuts in Paris should other powers commit to similar reductions.

For comparison, environmental and development NGOs were calling for a 55 percent cut, the Greens in the European Parliament wanted a 60 percent cut, and the Committee of the Regions, the European institution that represents cities and regions but has only advisory powers, wanted a 50 percent cut.

An environmental audit firm, Ecofys, notes that a 40 percent cut is only barely in keeping (PDF) with a fair contribution to limiting global temperature rises, and not at all in line with the EU’s own climate goals of an 80-95% cut by 2050 because even achieving the lower end of this range would require a greater acceleration in adoption of low-carbon policies in the current period. In essence, it leaves the heavy lifting to be done much later on, when it becomes more difficult to do so.

Beyond the emissions cut figure, the “heads” (euro-shorthand for the more unwieldy but technically correct term, “heads of government and heads of state”) agreed a commitment to at least 27 percent share for renewable energy, up from, again, 20 percent by 2020.

They also backed a 27 percent improvement in energy efficiency, measured against a 2005 business-as-usual projection. This latter target is down from the 30% efficiency goal that the commission had proposed.

Spain and Portugal had been pushing strongly for a binding requirement for member states to make at least 15 percent of their national electricity generation capacity to be made available to other EU states by 2030. Spain regularly produces an excess of wind power but cannot transmit it to France due to a lack of electricity connector infrastructure.

This 15 percent interconnection goal was endorsed by the commission as part of a wider project of building what EU bods call an ‘Energy Union’ – a single market in energy across Europe. France has long resisted agreement in this area however. Paris maintains that it is concerned about reliability concerns from intermittent renewables, while Madrid and Lisbon suggest that this is a cover for protection of its nuclear industry.

In the end, the heads backed a 10 percent target by 2020, with a non-binding commitment to work towards 15 percent by the later date and a special focus on the “energy islands” of the Iberian Peninsula and Baltic states.

What about the Emissions Trading Scheme?

Meanwhile, the bloc’s flagship climate policy, the Emissions Trading Scheme (ETS) has been widely derided for delivering windfall profits to energy companies but entirely failing to produce the carbon price needed to spur a transition to a low carbon economy. Due to a glut of emissions credits and regulatory loopholes, the price of carbon has crashed from a high of €30 per tonne of CO2 at launch, to a mouldering €6 today, and has at times drooped below €3.

Some green groups want to see the excess 2 billion credits removed from the system, others say that the scheme should be scrapped and replaced with a carbon tax, or direct industrial and national targets policed by the commission.

Rather than put the ETS out of its misery however, the “heads” agreed to keep the scheme stumbling along via a so-called “market stability reserve”. The reserve would launch in 2021 and remove some allowances from the market, but not the full amount demanded by NGOs. An independent assessment of the market stability reserve plan by Thomson Reuters Point Carbon, a research group, concluded that it could push the carbon price up to about €9 by 2020 and €48 by 2030—figures and dates that analysts say remain too cheap and too late to have a significant effect on Europe’s carbon emissions. France, Germany, the UK and the new climate and energy commissioner, Miguel Arias Cañete, all want the reserve mechanism to start much sooner.

One of the reasons for retention of the ETS is that it allows western European states to promise compensation to their more coal-dependent but poorer eastern cousins. The compensation is made in return for signing on to emissions cuts that are easier for the west to make than them.

European Council meeting

From left to right: Robert Fico, Slovakian Prime Minister; Ewa Kopacz, Polish Prime Minister; Bohuslav Sobotka, Czech Prime Minister. Phtoo: European Council

The Visegrad wreckers?

And this is where we begin to see parallels with global climate negotiations.

The Czech Republic, Hungary, Poland and Slovakia regularly come together as the ‘Visegrad group’ or simply V4, a semi-formal alliance of the most powerful eastern European member states that was initiated after the collapse of the Eastern Bloc to coordinate their integration into the EU. While strongly supportive of the wider European project, the Visegrad states have only strengthened the alliance since then, seeing themselves as having a common set of interests in distinction and sometimes opposition to the wealthier western EU member states. Next to defence, it is climate and energy policy that is perhaps the main topic that keeps bringing the Visegrad group together and regularly reminds these countries’ leaders that it is not time just yet to wrap up the Visegrad alliance.

In September, the ‘V4-Plus’—the Visegrad group plus Romania and Bulgaria—warned that they could not support the 2030 package if it resulted in high burdens on their economies (PDF), and threatened to veto.

Because of their relatively higher coal dependency, many of these nations have a greater burden in terms of the necessary infrastructural investments. Poland for example depends on coal for 90% of its electricity needs. But due to their relatively low GDP per capita, it is that much more difficult for them to do pay for electricity modernization. The problem is not merely the cost of building new infrastructure, but the fear of loss of competitiveness for industry.

A third eastern demand is ‘technology neutrality’. They worry that there is an embedded preference in EU climate thinking for renewables over nuclear, yet six eastern countries are existing nuclear states (Bulgaria, Czech Republic, Hungary, Romania, Slovakia and Slovenia), and six are planning new nuclear build (the same six, but swapping Slovenia for Poland). Meanwhile, most of western Europe, with a handful of exceptions, is retreating from nuclear. The east, with its much lower standard of living, looks on with horror at the spike in energy poverty in Germany as a result of its shift away from nuclear.

Europe’s existing climate policy recognizes this inequality via a differentiated sharing of effort. So while Denmark, for example, was tasked with reducing its emissions by 20 percent by 2020, Bulgaria at the other end, is permitted to increase its emissions by 20 percent by the same year.

In addition, under the ETS, eastern states were allocated additional credits, and their power sector was given free credits instead of having to purchase them.

However, a report from Greenpeace and the WWF (PDF) in September found that Poland had been spending some 82 percent of such transfers on fossil-fuel subsidies and only eight percent on renewables.

It is an open question whether western states such as Sweden, France and the UK would be willing to voluntarily embrace binding emissions reductions even without Visegrad opposition, and it’s far too simple to suggest the division in Europe is strictly east-west. Nevertheless, the line in the sand drawn by the V4+ and divisions over ability to pay for emissions cuts is perhaps the key reason for Europe’s modest overall ambition.

European Council meeting

From left to right: Mark Rutte, Dutch Prime Minister; Mr David Cameron, UK Prime Minister.

Solidarity and burden sharing

In the end, the EU heads agreed on a compromise. The wealthier western member states are to shoulder a greater burden of the overall 40 percent cut while poorer states will receive easier reduction targets. Poorer states will also continue to be able offer their power sectors free credits under the ETS.

In a second concession, a new fund is to be established using monies from two percent of all ETS credits to be used to aid energy modernisation in eastern countries. France, Germany and the UK had been pushing for the European Investment Bank to manage the fund so that decisions were taken out of the hands of eastern governments whom western states do not trust to not keep supporting coal-fired power stations. Warsaw and its allies, chafing at this chaperoning of domestic decision-making, managed to win a final wording that required only that the bank be “involved” in fund allocation decisions.

Thus in order to keep eastern Europe—the ‘dirtiest’ but poorest EU states—on side, the west has to keep the ETS going.

The problem is that all estimates of how much these transfers via the ETS are worth assume a price per tonne of CO2 of between €10 and €20, prices that are unlikely to be achieved, given the excess credits and loopholes.

But without the ETS as a cash cow, the only way to fund eastern low-carbon transition would be via direct transfers of public monies—something cash-strapped western governments are loath to do. The same Greenpeace and WWF report estimated that ambitious emissions reductions would only be fair to eastern states if there were an annual transfer west to east of about €30 billion between 2021 and 2030.

In the end, the Visegrad ‘wreckers’ dropped their threat to veto, but remain deeply sceptical that the floundering ETS will ever be able to cover their economic losses.

Eastern Europe and the Global South

What is striking about Europe’s internal climate diplomacy over the 2030 package is how similar the dynamics are to global climate negotiations.

Globally, as in Europe, one of the greatest sources of concern is the dirtier, coal-based emissions from the poorer nations. The wealthier global north plays the same role as western Europe, wanting the less developed nations to sign up for robust emissions cuts. Meanwhile the global south play the same role as eastern Europe, concerned that the ladder that allowed other states to improve their standard of living is now being kicked out beneath them.

The poorer states, global south or eastern Europe, say “Show us the money” that can pay for the low-carbon transition, if they are to sign up to emissions cuts that will undoubtedly inhibit their economies.

The wealthier states say they will pay, but then are reluctant to commit to any substantial redistribution of wealth, arguing that free-market mechanisms will take care of the transfers instead. In Europe, the mechanism is the failing ETS; globally, it is the Global Climate Fund’s ‘Private Sector Facility’ – which views the climate finance process not in terms of north-south solidarity, but in terms of the development of an independent financial institution dependent upon Wall Street and the City of London and focused on serving the interests of investors.

Finally, to the extent that there are actually any cash transfers, the wealthy states do not trust their dirty, corrupt, badly trained poorer counterparts to spend the money wisely, and demand external supervision, while the less developed countries chafe at what they view as paternalism. In Europe, this is expressed through the fight over the role of the EIB; globally, the struggle is over what is called “country ownership” of resources—meaning whether national and local governments get to decide for themselves which climate projects to launch and manage how resources are distributed, or have to operate under some level of international oversight.

European Council meeting

From left to right: Mark Rutte, Dutch Prime Minister; Charles Michel, Belgian Prime Minister; Helle Thorning-Schmidt, Danish Prime Minister. Photo: European Council

Twenty-five years since the fall of the Berlin Wall

This month sees the 25th anniversary of the fall of the Berlin Wall, with a welter of commemorations marking the date across Europe. Amidst the celebrations, Serbian-American economist Branko Milanovic decided to crunch some numbers on how the former Soviet space had fared since 1989, focusing on real GDP per capita. It was a dispiriting exercise for the World Bank economist and one of the world’s leading experts in inequality.

Covering all the former Eastern Bloc, not just those states that have joined the EU, Milanovic came up with four categories, ranging from clear failures to clear successes. In the latter camp, the sole EU states were Estonia, with an average growth rate per capita per year of three percent, and Poland, at 3.7 percent. He noted however that while Estonia had not done too badly in terms of growth, it and the other two Baltics, as with Russia, had experienced extremely high increases in inequality, of more than 10 GINI points. Thus the sole former Communist state now within the EU that could be described as a true success, according to Milanovic, is Poland, and even there, inequality has increased substantially.

“What is the balance sheet of transition?” he asks in conclusion. “Only three or at most five or six countries could be said to be on the road to becoming a part of the rich and (relatively) stable capitalist world. Many are falling behind and some are so far behind that they cannot aspire to go back to the point where they were when the Wall fell for several decades.”

“The Wall only fell for some.”

Eastern European states are regularly treated as carbon wreckers. But in reality, however incongruous it may seem to speak of the coal-loving east as a climate underdog, all they are demanding is that oft heard phrase from their cousins in the Global South, “climate justice”—the egalitarian idea that the burden of making the necessary carbon transition should not be borne by those least able to do so.


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