CAP&TRADE WORKS — EU CUTS EMISSIONS AGAIN

Europe poised to meet Kyoto target: Does this mean the much-maligned European Trading System is a success?
Joseph Romm, June 5, 2009 (Climate Progress)

SUMMARY
In the Annual European Community greenhouse gas inventory 1990–2007 and inventory report 2009, the European Environment Agency (EEA) reports that the EU’s greenhouse gas emissions (GhGs) fell for the 3RD consecutive year.

Under the Kyoto Protocol, the EU is committed to cutting its emissions 8% between 2008 and 2012 compared to emissions in the 'base year'. The commitment includes:
(1) Monitoring anthropogenic GhGs covered by the Kyoto Protocol;
(2) Evaluating progress toward reductions;
(3) Implementing UNFCCC and Kyoto obligations to inventory and establishing national systems and registries;
4. Ensuring “timeliness, completeness, accuracy, consistency, comparability and transparency of reporting…”

The European Commission GhG inventory is the sum of the EU member states' national inventories.

The agreement was adopted by the European Commission in Janaury 2008, agreed to by the European Parliament in December 2008 and adopted by the Council in April 2009.

The objective: To limit the rise in global average temperature to no more than 2 degrees C. above pre-industrial levels and reducing total EU GhGs 20% below 1990 levels by 2020 by means of the EU Emissions Trading Scheme (ETS).

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Summary of greenhouse gas emission trends in the EC:
(1) Decreased 9.3% between 1990 and 2007 (519 million tonnes CO2-equivalents).
(2) Decreased by 1.2 % between 2006 and 2007 (59 million tonnes CO2-equivalents)
(3) EU emissions decreases would have been greater but for the ongoing process of including Eastern European nations, many of which continue to work to update what are essentially developing world-level Soviet-era power generation systems and Energy Efficiency capacities.

Main trends by source category, 2006 to 2007:

EU emissions decreased 1.6%, mainly due changes in public electricity, heat production, road transport and – less so – in manufacturing industries.

Main reasons for emissions changes, 2006–2007:

(1) Lower emissions from households and services, especially from reduced use of fossil fuels (oil, gas and coal) because of (a) a lower number of heating-needed days. (Ex: Germany reported the highest emission decrease as a result of a warmer winter; (b) a fuel tax increase in 2007 that encouraged stockpiling in 2006; and (c) a sharp increase in household gas prices in 2007.
(2) Lower CO2 emissions from manufacturing industries (excluding iron and steel), mainly in Italy, Spain and the United Kingdom.
(3) Lower CH4 "fugitive" emissions, mainly in Germany and the United Kingdom, due to reduced coal mining activity and improvements to the gas distribution network.
(4) Lower emissions from iron and steel production due to reduced energy use, mainly in Germany.

Emissions changes in 2006–2007 had divergent source patterns and showed diverse trends:

Emissions from public electricity and heat production increased in Germany, Greece, the Netherlands and Spain, due to higher electricity production in conventional thermal power plants. Denmark produced less electricity from coal, higher imports and lower exports. Finland reduced electricity production from coal and made more use of hydropower. The United Kingdom shifted further to gas from coal. The use of liquid fuels decreased by 21%, while the use of solid fuels was constant and the use of gaseous fuels increased by 8%.

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Other trends reflected in EU emissions:

There were increases in HFC from the consumption of halocarbons in refrigeration and air conditioning, highest in France, Germany and Italy.

The most important GhG by far is CO2, accounting for 83% of total EU emissions in 2007. 2007 EU CO2 emissions were 4.8% below 1990 levels.

Energy generation was by far the most important source of emissions, accounting for 79% of total EU emissions in 2007. The second largest sector was agriculture (9.2%) and industrial processes were third (8.5%).

EU Member States showed large variations in GhG emission trends. The overall trend was dominated by Germany and the United Kingdom, the two largest emitters. They accounted for about a third of total GhG emissions. Italy and France were the third and fourth largest emitters, both with a share of 11%. Spain and Poland were the fifth and sixth largest emitters in the EU-27, accounting for 9% and 8% repectively.

(1) Germany’s reductions were due to increasing efficiency in power and heating plants and the economic restructuring of the five new Länder after the German reunification.
(b) United Kingdom reductions were primarily the result of more liberal energy markets and the subsequent fuel switches from oil and coal to gas in electricity production and N2O emission reduction measures in adipic acid production.
(c) Italy's GhG emissions were about 7% above 1990 levels in 2007. Italian GhG emissions increased since 1990 primarily from road transport, electricity and heat production and petrol refining.
(d) France's emissions were 6% below 1990 levels in 2007. Large reductions were achieved in N2O emissions from adipic acid production but CO2 emissions from road transport increased considerably between 1990 and 2007.
(e) Spain increased emissions by 54% between 1990 and 2007, largely due to emission increases from road transport, electricity and heat production, and manufacturing industries.
(f) Poland decreased GhG emissions by 13 % between 1990 and 2007. The main factors for decreasing emissions in Poland — as in other new Member States — were the decline of energy inefficient heavy industry and the overall restructuring of the economy in the late 1980s and early 1990s. Transport emissions (especially road transport emissions) increased.

International aviation and maritime transport GhGs continued to rise in 2007, increasing by 1.8%. GhGs from these sectors are not currently included in the national totals. GhGs from international aviation are lower than for international maritime transport but are growing significantly faster. Together, they account for ~6% of total GhGs.

The UNFCCC performed reviews of prior calculations during 2007 and 2008. The recalculation is the result of inventory improvements, which Member States were required to undertake. Of the 5.0% reduction in emissions between the Kyoto base year and 2007, 0.8% was due to the recalculations.

The total indirect GhG and SO2 emissions were reduced significantly from 1990 levels. The largest reduction was achieved in SO2 (75%), followed by CO (58%), NMVOC (48%) and NOX (35%).

Most Member States used ETS data to improve and refine the estimation and reporting of CO2 emissions from energy and industrial processes. Some also used it for quality assurance/quality control purposes and checked data consistency between sources.

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COMMENTARY
There is an adage among lawyers on how to argue a case. When the facts are against you, pound the table with the law; when the law is against you, pound the table with the facts; when the facts and the law are against you, just pound the table. That is what opponents of cap&trade are left with.

EU emissions have fallen for 3 years in which the economy and energy consumption grew significantly. It could be just a coincidence that they were the first 3 years of the EU ETS. Or it could be there is something to this capping of emissions and trading of emissions allowances by which companies pay more for more emissions and profit when they reduce emissions.

It is likely the EU ETS has barely begun to show the impact it has already had and is capable of having going forward. A separate report found that the volume of emissions allowances (EUAs) traded fell last year, suggesting that the caps had a measurable impact for the first time in the first year of the system’s second phase.

The worldwide financial downturn will make it more difficult to accurately assess 2008 statistics as they continue to be reported in the second half of this year and the early part of next year, but the overall impact of the preceding 3 years is undeniable. The EU is meeting its Kyoto goals and the ETS is part of the success.

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It would also appear that the EU’s participation in the much-maligned United Nations Clean Development Mechanism (CDM), through which EU companies are allowed to offset a portion of their emissions with the purchase of Certified Emissions Reductions (CERs) to finance emissions reducing projects and New Energy installations in emerging and undeveloped nations, did not harm the emissisons-cutting process.

2008 was the first year it was possible for installations to use CERs to offset part of their emissions. CERs accounted for 3.9% of all allowances. 41% of these originated in China, 31% in India, 15% in South Korea, 7% in Brazil and the last 5% were in 14 other countries. Most of the uses were of allowances given to installations for free in the past. Less than 5% were allowances purchased in auctions or free allowances allocated for 2009.

These findings are the best endorsement possible of the Waxman-Markey bill now working its way through the U.S. Congress. Waxman-Markey would institute a U.S. cap&trade system and allow a portion of the revenues from the system to go toward international offsets.

The EU ETS success does not guarantee the success of a U.S. system. The EU 8% target was not incredibly strong and its population is smaller and more adaptable to strong central systems than the U.S. population. But the EU started with higher energy taxes, more efficient vehicles, higher electricity prices, and a number of stronger energy efficiency regulations than the U.S., so hitting its target this early is a real achievement.

The U.S. has lots of “low hanging fruit” and only needs to commit itself to the noble goals of cutting emissions and creating a New Energy economy. With such a commitment, there can be little doubt that the manufacturing engine that won World War II and the economic engine that won the Cold War can surely join forces to effectively turn back global climate change. (And make a mint doing it.)

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QUOTES
- Stavros Dimas, Environment Commissioner, on the drop in 2008 EUA volume: “The 3 per cent reduction was partly due to businesses taking measures to cut their emissions in response to the strong carbon price that prevailed until the economic downturn started. It confirms that the EU has a well functioning trading system, with a robust cap, a clear price signal and a liquid market, which is helping us to cut emissions cost-effectively. This should encourage other countries in their efforts to set up comparable domestic cap-and-trade systems, which we would like to see linked up with the EU ETS to create a stronger international carbon market.”
- Joseph Romm, author, Climate Progress: “the bottom line: Europe made a major commitment under the Kyoto protocol that U.S. conservatives have been telling us for years they would never achieve. It now seems clear they will meet their commitment under the terms of the protocol. It will become increasingly difficult for those who don’t want a U.S. cap-and-trade system to point to the European Trading System ETS) as an obvious failure.”

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- Romm: I understand why some people in this country seem to glory in any problems Europe has in meeting its target: It somehow implies we should be let off the hook for not ratifying Kyoto and for not embracing any serious domestic action. But I actually consider it rather amazing that the EU has accomplished so much given the sorry state of international climate politics…[I]naction by China alone is used by conservatives and businesses in this country as a major justification for opposing all domestic action. Imagine how tough it must be for European leaders when they have to keep pushing climate action in the face of inaction by China and the United States — their two major economic competitors…What they have done and are doing is an impressive achievement that should serve as an inspiration to the world…Kudos to Europe. Jeers to those who are still trying to diminish what they’ve accomplished.”