Huge fight looms in EU over climate change

By Stephen Castle and James Kanter
Published: October 14, 2008

BRUSSELS: Relief over the success of Europe's intervention in the banking crisis will give way Wednesday to discord over climate change, with nations battling over whether a looming recession makes European Union carbon-reduction targets unaffordable.
After two weeks of crisis diplomacy over the banking meltdown, European leaders will gather in Brussels for a two-day summit meeting that probably will be dominated by the impact of the economic turbulence and expectations of a sharp downturn.
On the eve of the meeting, Franco Frattini, the Italian foreign minister and former European commissioner, called for "flexibility" over the EU's ambitious plans to reduce planet-warming emissions by 20 percent by 2020, pointing out that such measures would cost 1.14 percent of his country's gross national product. Speaking in Rome, Frattini called for the proposals to be accompanied by an "impact study on the real economy," the news agency Ansa reported.
Germany is arguing for protection against foreign competition for sectors like steel, cement and aluminum, and Poland says it should have to shoulder less of the burden of combating global warming.
The dispute is one example of how the financial crisis has changed Europe's political landscape in several respects.

The success of the bank rescue agreement, announced Sunday and modeled in part on Britain's bailout proposals, has proved the value of pan-European intervention. But fears of a recession may prompt nations to abandon important investments and to extract themselves from existing commitments.
At the summit meeting, France, which holds the rotating EU presidency, will seek to persuade all 27 member nations to sign on to most of the principles of the banking rescue package agreed to by the 15 euro-zone nations.
On Wednesday, the European Commission, the EU's executive body, will propose initiatives to change accounting rules so that assets will not have to be revalued so often, and to guarantee bank deposits of up to €50,000.
Plans are being drawn up to establish a college of regulators to coordinate banking oversight. And future proposals are also being promised from the Commission on executive pay and possible regulation for hedge funds.
At the same time, EU officials are worried that several countries will use the crisis to try to dismantle long-established rules designed to deter state aid to ailing companies, one of the pillars of the EU's internal market.
The European commissioner for science and research, Janez Potocnik, predicted a reduction in European research and development, but said that that would be an error. "We must be careful that by trying to fix the crisis in the financial sector we do not simply displace the problems to another part of the economy," Potocnik said.
The most immediate division is set to surface over climate change, which was to be discussed at a dinner of heads of government Wednesday night.
The European Commission president, José Manuel Barroso, warned Tuesday that if the EU signaled that it considered climate change a less-urgent challenge, "that could be the end of the global effort."
"This is not a luxury we now have to forgo," Barroso said in Brussels. "Saving the planet is not an after-dinner drink, a 'digestif' that you take or leave. Climate change does not disappear because of the financial crisis."
But diplomats said the member states were divided over how to distribute the burden of tackling climate change among the bloc's 27 nations, and, in particular, whether newer states like Poland should get an easier ride.
Another issue dividing the EU is the extent to which governments should be obliged to plow money generated by the bloc's emissions-trading program into efforts to curb climate change.
An annex to the draft conclusions of the summit meeting, put forward by France, seeks to earmark funds generated toward climate efforts. Other nations regard that as trampling on their fiscal sovereignty. The annex also argues for concessions for heavy industrial users of carbon if a global deal on carbon dioxide reduction cannot be agreed upon.
It calls for 100 percent of allowances to be given free to the most affected companies and for a list of the criteria used to determine them to be set beginning in 2009. The European Parliament and the European Commission want such a decision in 2010.
An earlier date would be controversial because environmental campaigners argue that it would undermine confidence in the ability of a conference in Copenhagen to negotiate an international climate treaty in late 2009.
That would "trigger an international race to the bottom for weak climate policies for these sectors" because nations like India, China and the United States would "also try to protect the same industries," said Joris den Blanken, climate and energy policy director for the European unit of Greenpeace in Brussels.
Serious rumbling began several weeks ago over reforms to the emissions trading system. Those reforms seek to make the industries covered by the system buy the majority of their permits to pollute by 2013, to raise the cost of polluting and drive new, cleaner technologies.
One of the most vocal opponent is Poland, which generates almost all its electricity from highly polluting coal. If the price of emitting goes up dramatically, that would force Polish utilities to spend more on complying with the regulations than utilities in, say, France, where the majority of electricity comes from nuclear power, which produces little carbon dioxide.
In recent weeks, Poland reached accords with Hungary, Slovakia, Bulgaria, Romania and Greece to lobby for a more gradual approach to the reforms.