European solutions to climate change

Away from the theatrics of Copenhagen, the EU quietly leads the way in putting emissions-tackling market structures in place
Éloi Laurent and Jacques Le Cacheux
guardian.co.uk, Monday 21 December 2009 18.00 GMT
The US and China have stolen the show in Copenhagen, with a very unhappy ending. This is quite understandable: they produce nearly half of global greenhouse gas emissions. But in the midst of this trans-Pacific rift, the EU perspective has received too little attention, as Europeans have sidelined themselves by being unable to speak loudly in one voice. This is regrettable, for two sets of reasons that point respectively to praise and constructive criticism of the EU climate policy.
The EU, often maligned on the world stage as a power so soft it is hard to feel it, deserves a high mark on the climate front. The road to Copenhagen was indeed largely paved by the EU, acting within the UN in its most important capacity, that of global normative power. Europe was the first region in the world to write down in its laws the basis of the scientific consensus on climate change tenaciously built over the past 20 years by the Intergovernmental Panel on Climate Change. The EU acknowledged the need to limit the increase in earth's temperature to 2C, which is now a global reference included in the Copenhagen agreement.
Furthermore, without the European commitment taken in 2007 to unilaterally deliver a 20% cut on 1990 emissions by 2020, and possibly 30% if other countries aim for comparable targets, emerging and developing countries would have hardly been seen at all around the Copenhagen table.
Finally, the EU leads the way in terms of economic instruments mobilised for mitigation, whether one considers standards and norms, cap-and-trade or carbon taxes. In this respect, the EU has managed to construct the core element of the potential global co-operative effort to curb emissions that will have to be worked out in 2010: the EU's emission trading system (ETS), ie the European carbon market.
This market now accounts for two-thirds of all carbon traded worldwide, which means that any meaningful agreement between developed and developing countries will have to rely on the EU ETS. This also means that the global price for carbon will be determined in Europe. And this is where praising the EU for its climate commitment should also lead to asking the EU for a better climate policy.
In a study just published, we show that the price signal coming from the EU ETS is actually hard to catch: it is unstable and too low. Since its creation, the cost of a tonne of CO2 in Europe has twice collapsed, first by 65% between April and May 2006, then by 75% between July 2008 and February 2009. Today's price, around €14, has not yet recovered from the effect of the global recession. It also does a poor job as a benchmark for national carbon taxation, as the French example shows. The French government finally opted for a level of €17 per ton of CO2 for its carbon tax, half of the €32 recommended by experts, following the principle that households should not be asked to pay more than firms in the EU ETS.
Yet, the inefficiency of the EU ETS can be easily fixed to make the EU the centre of the decarbonated world. One of the scenarios we propose aims to "taxify" the EU ETS. "Taxify" here means both strengthening the obligations on carbon emissions and making them more predictable, thereby making the EU ETS's effects comparable to a tax. Coupled with a reform of the clean development mechanism, the reform of the EU ETS could prove to be the EU's most important contribution to fighting climate change in the coming decades.
Before it even began, Copenhagen was at once already a success, because no country could pretend to ignore any longer the scientific consensus on climate change, and already a failure, because it was clear that no binding treaty or full protocol would emerge from it. The meagre agreement painfully reached in Copenhagen screams for European leadership: as we enter the nuts and bolts era in climate change policy, we will need fewer and fewer grand declarations and more and more small steps towards efficient economic instruments.
• Éloi Laurent and Jacques Le Cacheux are economists from OFCE (Sciences-po Centre for Economic Research) and the authors of the policy brief An ever less carbonated Union? Towards a better European taxation against climate change