June 26 2017 brussels

June 26, 2017

Europe’s main business lobby group insists the EU should disregard Donald Trump’s decision to pull out of Paris. But it also insists that the EU cannot shoulder what other major economies are expected to deliver. Sonja van Renssen looks at the complex decisions that need to be made for the EU’s new 2030 climate change framework, which must be finalized by early 2019. A merging of low-carbon and industrial strategies seems to be in the making.

Climate policy is not a subject that European leaders have enthusiastically embraced at recent summits. So the fact that there was a paragraph in the conclusions of the summit in Brussels on 22-23 June of European heads of state and government recommitting the EU to leadership in the fight against climate change was noteworthy.

More powerful still, they called the Paris Agreement “a key element for the modernisation of the European industry and economy”.

But rhetoric does not always match action and it is worth remembering that the EU is currently having a tough time negotiating a new climate and energy policy framework for 2030. In practice, this consists of:

• a reform of the EU Emission Trading Scheme (ETS)
• national emission reduction targets for non-ETS sectors (transport, agriculture, buildings)
• and new rules for renewables, energy efficiency and electricity market design

This whole 2030 framework is supposed to be wrapped up by early 2019, before the current European Parliament and Commission end their 5-year mandates later that year.

Carbon leakage reminder

None of the files under discussion are easy (see our report last week on the arguments about non-ETS targets). But on-the-ground experts in Brussels agree that the Trump fallout so far is relatively contained. “I would have expected more laggards and industry groups to use this as an excuse to call for less ambition,” says one Brussels insider. “[But] so far I haven’t picked up much appetite for this.”

In a press release issued in response to Trump’s decision, BusinessEurope, Europe’s main business lobby, insisted that: “Despite the US decision, moving backwards on climate protection is not an alternative. The EU should stay fully committed to implementing the Paris Agreement.”

However, it also said it hoped there would be “no spill-over effects” on other countries’ commitments and warned that “the EU, which already has the world’s most ambitious emission reduction effort, cannot shoulder what other major economies have committed to deliver”.

Groups like BusinessEurope have supported the Paris Agreement as a significant step towards the global level playing field they say is essential for EU businesses to stay competitive. BusinessEurope’s Director of Industrial Affairs Alexandre Affre told Energy Post: “One of the main reasons why we support Paris is because it brings convergence in terms of climate ambition.”

For Affre, Trump’s decision does not put into question the long-term decarbonisation objective, but: “It brings even more relevance to some of the questions we are raising regarding competitiveness vis-a-vis other major economies.”

In other words, it underlines BusinessEurope’s argument for a strong framework to guard against carbon leakage, or businesses leaving Europe for regions with weaker carbon constraints. In practice, this has translated into a call for more free carbon allowances for European energy-intensive industries, whose emissions are capped by the EU ETS. NGOs like Carbon Market Watch want to limit these “pollution subsidies” as much as possible.

EU-China honeymoon

There are several reasons why Trump’s announcement is expected to have this kind of indirect, not direct effect on the EU 2030 talks.

One, it remains unclear whether the US will finally leave the Paris Agreement. According to the Paris text, the US can only formally notify its departure three years after the Agreement’s entry into force, i.e. on 5 November 2019, and actually leave a year later. But 5 November 2020 is also two days after the next US presidential election.

Two, “the EU is not on its own any more”, Jonathan Gaventa, a Brussels-based Director at think tank E3G, pointed out to Energy Post. Other major economies such as China and India have wasted no time in reconfirming their own commitment to Paris. At an EU-China summit in Brussels on 1-2 June, the two parties pledged to deepen their cooperation on climate change.

“This is the strongest bilateral statement on climate I have seen,” said Nick Mabey, E3G’s Chief Executive, after the summit. “President Trump has driven the EU and China together to write the rules for the clean economy.”

The EU, China and Canada plan to co-host a ministerial meeting in September to accelerate the implementation of the Paris Agreement. The EU is also stepping up cooperation with climate-vulnerable countries (see a joint communiqué with the African Union from 1 June, for example), India and indeed State governments in the US.

This could be a third reason for the limited fallout so far, Gaventa suggests: climate action in the US is not coming to a standstill. Instead, the US president has galvanised US cities, states and companies: “It seems to have emboldened those who want to go further.” In this vein, the new Global Covenant of Mayors for Climate and Energy will hold its inaugural board meeting in Brussels on 27 June.

Finally, Energy Post notes that the October 2014 EU council conclusions which underpin the Commission’s proposals for 2030 – often invoked as a ceiling on EU climate ambition – now double up as a defensible minimum because they pre-date Paris.

US threats

If the US’s actual departure from the Paris Agreement remains uncertain, so does its engagement in the global climate talks until then. Affre, who was in Washington DC last week, confirms reports that what the US would really like to do is to renegotiate the terms of its participation in the Paris Agreement. The details remain unclear, he says.

The new administration’s basic idea seems to be to release the US from former President Barack Obama’s pledge to reduce greenhouse gas emissions by 26-28% by 2025 (below 2005 levels) because it deems this unrealistic. The Paris text, however, clearly specifies that any future revision of pledges can only increase, not decrease ambition.

Nevertheless, at least some US officials seem to believe that the US could downgrade its pledge without re-opening the text of the Agreement. Rather, they see an opportunity to soften the requirement for an upwards revision through the elaboration of a “rulebook” for the Agreement’s implementation. This is due to be discussed at the next UN climate conference (COP23) in Bonn this November and finalised next year.

Aside from the huge political challenge of the US’s plans, how much of a say can it have when it has already announced its departure? For EU Climate and Energy Commissioner Miguel Arias Cañete, the last G7 environment ministerial in Bologna, Italy, on 11-12 June “showed the isolation of the US”. The upcoming G20 summit in Hamburg, Germany, on 7-8 July may do the same thing.

Speaking to EU environment ministers on 19 June, Cañete admitted that it was unclear how the US will participate in the UN climate talks from now on. Since it is only leaving the Paris Agreement and not the UN Framework Convention on Climate Change (UNFCCC), some wonder whether it might maintain its role as defender of strict transparency and reporting rules, for example.

What Cañete was categorical about is that “one of the most immediate political consequences of the US’s actions would be to make it more challenging for the remaining donor parties, including the EU and its member states, to meet the collective goal of mobilising US$100 billion annually by 2020 to support developing countries”. This climate finance underpins a substantial part of developing countries’ promises to combat climate change.

Cañete added that “cuts in US support may also strain the resources of the UNFCCC secretariat, as the US is expected to contribute up to 20% of its core budget”. The UNFCCC underpins the Paris Agreement and its secretariat is “key to the running of the international machinery that support [international climate] negotiations”.

Big decisions ahead

In its press release responding to Trump’s announcement, BusinessEurope called on EU decision-makers “to engage as soon as possible in a dialogue with the EU business community to assess the implications of the US decision”. That dialogue is due to start this week, Affre said, with meetings with Cañete’s cabinet.

Even if experts like Gaventa and Affre agree that the US announcement is not about to lead to a meltdown in EU climate policy, they see big challenges further down the road. Critically, next year the Commission will start work on a new mid-century decarbonisation strategy for Europe. The EU’s current 2050 low-carbon roadmap dates back to 2011. The new one is due to be delivered by early 2019. Its development is likely to have major implications for the EU’s 2030 targets.

This is all the more so because of two parallel developments at international level.

One, the International Panel on Climate Change (IPCC) will deliver a new study in autumn 2018 on the potential mitigation pathways for and impacts of limiting global warming not to two degrees but 1.5 degrees Celsius.

Two, 2018 is the year of the first global stocktake of collective efforts to tackle climate change, with a view to ratcheting up national emission reduction (and financing) pledges in 2020.

Femke de Jong, EU Policy Director at the Brussels-based NGO Carbon Market Watch, is clear that the EU will have to do a lot more in future, regardless of what happens in the US. “Even if we fully implement the 2030 climate package – without any loopholes – it would not be enough for 1.5 degrees,”, she told Energy Post in an interview.

For Gaventa, the revised 2050 roadmap will be a big test of what the Trump announcement really means. Another big challenge he sees is Brexit: what happens if the UK withdraws from the EU’s shared climate targets? Would the EU revise its ambitions downwards? The EU-Brexit talks are also due to be concluded in early 2019.

The EU is expected to revisit its 2030 climate and energy targets in 2019-20, under the leadership of a new Commission. The final point to note is that that revision will also be informed by a new EU industrial strategy. On 23 June, European heads of state and government not only discussed the Paris Agreement, but also endorsed a call by EU competitiveness ministers in May for a new EU industrial policy strategy. They want to see this on the table by spring 2018.

Together the low-carbon and industrial strategies will shape the next big battle over EU climate ambition in 2020. And they will no doubt take account of the Transatlantic context.