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The European Commission is pushing for rapid decisions on its future climate policy. It is proposing to raise the EU’s target for CO2 emissions cuts to 30 percent by 2020. The German government is going along with the Commission. Companies now expect the worst. In many sectors of German industry there is growing uncertainty and concern.

BRUSSELS / BERLIN. From the perspective of the EU Commission, the conditions are ideal: The economic crisis has reduced CO2 emissions without the need for major efforts. On this basis, the Commission estimates to easily surpass the original objective of the EU countries, to reduce CO2 emission by 2020 by 20 per cent against a baseline of 1990. Therefore, it now proposes to increase the reduction target to 30 percent.

German industry estimates this would lead to substantial additional cost burdens. The risk of relocation and job losses would increase further if companies, which participate in emissions trading, were to be saddled with additional costs, according to an internal evaluation by the Federation of German Industries. It is very worrying that the Commission demands greater cuts, particularly in economically uncertain times, BASF board member Hans-Ulrich Engel told the Handelsblatt.

The European Commission is unimpressed by such arguments. After a meeting with industry representatives yesterday, EU Climate Commissioner Connie Hedegaard underscored her goal to commit EU states to reductions by 30 percent. In wide parts of the economy, however, uncertainty and concern is growing. Participants of the meeting found it incredible that Hedegaard has not been stopped by EU Commission chief Jose Manuel Barroso and Industry Commissioner Antonio Tajani.

At present, the “20-20-20-formula” still remains the foundation or European policy to tackle climate change. Under this regime, both energy efficiency and greenhouse gas emissions should decline by 20 per cent by 2020 compared to 1990. In addition, the EU wants to generate a fifth of its energy usage from renewable sources by 2020. Raising the target for the reduction of CO2 emissions from 20 percent to 30 percent was only anticipated in case an international climate agreement had committed other states to significant reductions, replacing the Kyoto Protocol which expires in 2012.

Warning of higher targets

This condition, however, has not been met so far. Therefore, business leaders are warning of any unilateral increases in reduction targets. Nonetheless, Hedegaard is pushing to have the 30 percent target enshrined by heads of state and government at the next EU summit in June. The German Environment Minister Norbert Röttgen (CDU) has already signalled his approval.

The EU’s emissions trading scheme is the main instrument to reduce CO2 emissions. Energy producers and industry, which jointly account for the lion’s share of CO2 emissions, are obliged to participate in the trade. For every tonne of CO2 that they emit, they have to have a certificate. Until the end of 2012, energy companies only have to buy a portion of the certificates; most of them are assigned to them for free. All other sectors of the industry receive these certificates for free. From 2013, however, things are about to get serious: energy generators will have to bid at auc-tion for all their certificates, some sectors of the industry will have to bid for 20 per-cent of the certificates. In addition, the total quantity of certificates will be reduced year on year.

The German Chamber for Industry and Commerce estimates that as a result of the new reduction target companies which are obliged to participate in system will need to reduce their emissions not just by a fifth, but by more than a third for the period of 2005 to 2020. This is also consistent with Hedegaard’s considerations.

The Commissioner wants to convince the EU leaders with the argument that more stringent reduction targets could bring member states higher revenues from the emissions trade scheme as revenues inevitably go hand in hand with a further re-duction in the number of certificates. This could lead to a strong rise in prices for the certificates. It is “shocking” that the European Commission was trying to lure EU member states with the prospect of higher revenues, commented the Federation of German Industries. BASF board member Engel said the emissions trading scheme was apparently developed more and more into a political tool to fill European governments empty coffers.

Interview with Hans-Ulrich Engel, BASF: “The state wants to cash in”

Handelsblatt: The EU wants to lead by example on climate change and reduce greenhouse gas emissions more than expected. Is this the right strategy?

Engel: If this means that we Europeans are leading but no one follows, then “lead-ing by example” is the wrong strategy. It requires a global agreement. This is not the case; there will be no level playing field for all.

HB: Especially in times of crisis this is not good news. Do you understand what the EU does?

Engel: You can get the impression that behind the project lays a fiscal intention that the states are looking for ways to raise money in times of empty coffers.

HB: Energy-intensive industries are threatening to leave and relocate.

Engel: This danger exists. This has been recognised by the Commission. Therefore, there are exceptions for specific sectors, including the chemical industry.

HB: But this is not enough for you?

Engel: The measure, to be obliged to buy emission certificates in the future, leads to higher production costs. If the costs go up, you are naturally looking for ways how you reduce them.

HB: The chemical industry has contributed more to energy efficiency. Do you feel punished by the EU policy?

Engel: We wonder how far we can still rely on political promises.

Handelsblatt, 19 May 2010

translation: Philipp Mueller