The European Union's climate and energy package, agreed in December 2008, sets out the means by which the bloc will meet its goal to reduce emissions from 1990
levels by 20% by 2020. However, as international talks continue with a view to agreeing a new climate treaty to replace the Kyoto Protocol (which expires in 2012), the European Union has pledged to increase its emissions reduction target to 30% provided that other countries make comparable commitments. In March 2010 the commission presented its strategy to reinvigorate global negotiations after Copenhagen, promising to present an analysis of how the European Union might switch to a 30% reduction target.
In accordance with this promise, on May 26 2010 EU Climate Action Commissioner Connie Hedegaard presented a European Commission Communication.(1) The document analyzes the European Union's options concerning a possible new emissions reduction target and assesses the risk of carbon leakage (ie, where EU industries relocate to non-EU countries in which they will be subject to less stringent carbon taxation or emission reduction measures).
The scenarios set out in the report are likely to be of interest to those exporting goods from third countries into the European Union, and to those importing such goods, since they indicate the European Union's approach to global issues which could directly or indirectly impact on trade. Notably, the communication considers whether the European Union should take a unilateral decision to move towards a goal of 30% emission reductions. The realization of such a goal would necessarily lead to the imposition of increasingly stringent environmental measures on commonly traded goods.
Traders may be relieved to note that while the communication states that a 30% reduction in emissions is possible, it is not advisable at present unless some form of international agreement is reached. However, the possible scenarios (described below) remain on the table, and could gain the European Union's favour over time.
The scenarios put forward in the communication are extremely noteworthy as efforts towards reaching an international agreement at the climate change talks will continue in Mexico in late 2010, together with discussions on the 30% emissions cut. The communication provides an advance indication of areas which might be subject to further environmental measures which the European Union may consider, to redress the balance between EU industry and imports from industries located in countries with environmental legislation which is perceived by the European Union to be less stringent.
The communication suggests that additional emission reductions required to meet a 30% target could be achieved by:
- a stricter application of the European Union's Emissions Trading Scheme (EU-ETS);
- the introduction of a minimum carbon tax for consumers, and for those industries not currently regulated by the EU-ETS (carbon dioxide taxation);
- the possible extension of the EU-ETS to imports of products from outside the European Union, which would constitute a type of 'carbon tariff' (or border measures). This would directly impact on non-EU traders carrying out business in the European Union the most;
- encouraging energy efficiency; and
- encouraging green investment.
With regard to carbon dioxide taxation, the suggestion is that the EU tax system could be adjusted to reflect the carbon dioxide component of fuels or products. Carbon dioxide taxation could potentially make production more expensive in the European Trade & Customs - European Union, in particular where significant energy is required in the manufacturing process. More relevantly, any intra-EU carbon dioxide tax could raise calls for the introduction of border measures.
The communication does not rule out taxing imports (through border measures) from non-EU countries that have not taken measures to reduce emissions. Any such measures could see a tariff imposed on goods imported into the European Union from countries such as China. Accordingly, additional tariffs may raise the prices of such goods on the European Union market, and in turn lead EU marketers to reconsider their sourcing choices.
Energy efficiency and green investment are seen to be key to the European Union's ongoing emission reductions, with the commission stating that there is already widespread consensus that the development of resource-efficient and green technologies will be a major driver of growth. The communication and accompanying documents highlight the EU Ecodesign Directive (2009/125/EC) as a means by which to set efficiency requirements for a wide range of products. The commission has been encouraging further regulation in this area. For example, in 2009 the scope of the directive was increased to encompass energy-related goods, rather than merely energy-using goods, as was previously the case.
More specific areas considered in the communication include electricity generation, with the communication suggesting that this sector holds the greatest potential for further emission reductions. Sector-specific emission reductions targeting this area could potentially increase power prices. Subsequently, such measures could raise production prices for EU manufacturers of all types of goods, making them less competitive.
Another sector singled out for particular attention is that of maritime transport. Indeed, the European Union considers that this sector has scope for cost-effective emission reductions. This is significant as any emission reduction scheme involving maritime transport could potentially add to the cost of importing goods by sea into the European Union from third countries. While further overall emission cuts may be put on the back burner for the time being, the European Union has suggested that it may take unilateral steps to include international maritime transport emissions in the European Union's emission reduction commitment if no international agreement is reached by December 31 2011, with the aim of any proposed act entering into force by 2013.
Endnotes
(1) For further information, a copy of the communication and the accompanying staff working documents can be accessed at:
http://ec.europa.eu/environment/climat/pdf/2010-05-26communication.pdf and
http://ec.europa.eu/environment/climat/future_action_com.htm.
