Behind the Scenes: A huge deal

Behind the Scenes: A huge deal
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Weekly analysis with Sam Morgan

The European Union signed off on new laws this week that promise to revolutionise how the bloc fights climate change. It is surprising that arguably the most ambitious decarbonisation programme ever undertaken did not get more attention.

We are on the cusp of a summer that will hit Europe with scorching heatwaves and destabilising droughts, according to forecasts, and it has all been made ever more likely by the effects of climate change.

Spain recorded its hottest ever April, Italy’s rivers are drying up because there was little snow in the winter and there are more record-breaking climate events to come. 

This week, Brussels policymongers agreed on a reform of the emissions trading scheme — the pollution-busting programme that is driving much of the EU’s green success — and a new trade superweapon that will aim to make the rest of the world do its bit.

But there was surprisingly little fanfare for this mega milestone. Behind the Scenes looks into why that might be.

BRUSSELS BEHIND THE SCENES includes weekly analysis not found anywhere else, as Sam Morgan helps you make sense of what is happening in Brussels. If you want to receive Brussels Behind the Scenes straight to your inbox every week, subscribe to the newsletter here.

Emissions trading has taken its time to get there but now it really is the linchpin of the EU’s entire Green Deal. More than 15 years of trading, tweaks and reform have got the ETS to a point where carbon is priced at around €100 per tonne.

Compare that to even a couple of years ago and it is a monumental achievement. Steelmakers, aluminium smelters, power producers and a whole host of other polluting industries now have to factor this pollution premium into their investment decisions.

Before, switching production of these valuable commodities from emissions-producing blast furnaces and coal-fired turbines was not worth the injection of capital, it was cheaper to just pay the ETS charges.

Now, we are at or even possibly beyond the tipping point needed for these decisions to be made. Those industries that want to get first-mover advantage are electrifying everything now and sourcing clean energy to power their factories.

A new ETS reform bill approved by government ministers this week is expanding and tightening up the carbon market as well, leading analysts to predict that the carbon price will only increase as a result.

New rules will reduce the number of carbon permits released onto the market — excessive supply was a major weakness in past years — and the number of free allowances gifted to industries will gradually phase down.

More significantly, the market will also expand to include the maritime sector for the first time. The importance of this has been criminally downplayed in Behind the Scenes’s humble opinion, as shipping is massive polluter that has emitted with impunity up to this point.

A new ‘mini-ETS’ or ‘ETS2’ will also be rolled out to cover road transport and buildings, again for the first time. It is a controversial move as the risk of hitting households with the effects of carbon pricing are not completely reduced.

In a bid to shield voters from those new charges, numerous safeguards have been put in place and a multi-billion-euro Social Climate Fund has been set up to provide help to the most vulnerable of households.

Nevertheless, this is possibly the climate policy issue that will need to be watched in the coming years and it will undoubtedly be one of the major talking points for populist politicians across the EU.

In addition to all of this, governments also gave the final thumbs up to the carbon border adjustment mechanism or CBAM, a sort of border tax that will be levied on certain imports that do not meet a set of sustainability criteria.

This is the kind of climate policy that economists have been championing for decades, as it successfully marries environmental concerns with trade matters, one of the key drivers of greenhouse gas emissions.

CBAM will be used on products like steel, iron, aluminium and electricity, with scope to add more to the list in the future. It has already provoked action in non-EU countries.

Canada, Japan, South Korea and the UK are all looking into setting up their own systems, while India and Russia have threatened to launch legal challenges at the World Trade Organisation. They have, however, also started making plans for life with CBAM.

China and the US, the two main players in this arena, are also watching it very closely indeed. If enough nations get on the same page, then climate targets globally suddenly start to look very achievable.

Why the long faces?

This is all great news whichever way you look at it, so why was the reaction to this week’s success so muted. Your columnist has narrowed it down to a couple of reasons.

Firstly, EU policymaking is still too boring and complex for casual readers of news to keep up with or take an interest in.

The ETS and CBAM reforms were first agreed in December when trilateral talks ended. Then earlier this month the Parliament gave its vote of consent, before the Council gave the final rubber stamp this week.

At what point in that process are you supposed to get excited with the result?

Once the trilogue agreement is struck – normally in the dead of night, behind closed doors – whatever was agreed is agreed. 

Germany threw that convention out of the window last month when it refused to approve new car engine standards, holding out until the European Commission promised to factor hypothetical e-fuels into the legislative mix.

It is a bit like modern football now that the video assistant referee or VAR is standing by. Fans do not celebrate goals as fervently as they used to because a video replay might cancel it out for offside or a foul in backplay.

Headlines instead focused on a Monday summit between North Sea countries, where leaders pledged to build more windpower and construct more electricity connections. Despite the fact that these were just nice promises, not legally binding in any form at all.

Contrast that with the ETS and CBAM rules which will, quote, "enter into force 30 days after they are published in the Official Journal of the European Union". That just does not have the same cache as 'the President signed an executive order on the Resolute Desk'. Call it Hollywood conditioning, but the EU just is not sexy.

Secondly, both the ETS and CBAM suffer from an, unfortunately, entirely necessary curse of EU jargon. It is a devil of a job to regularly explain these policies and measures without sounding institutional or boring.

That is why Behind the Scenes uses terms like ‘carbon market’ or ‘anti-climate-dumping tool’ and ‘trade superweapon’. But it is like fighting against the tide, the jargon will get you in the end because information still has to be conveyed to the reader.

Thirdly, and this is a rather simple one that applies to quite a lot of EU policies, we are dealing with depressingly long timelines.

Many of the rules written into these new reforms will only take full effect in the 2030s. Sure, that is not actually that far away but to many human minds, anything longer than say five years is just too distant to care about.

But the next time some pundit or talking head claims that the EU is not doing anything about climate change, remember this week, because this week Brussels did its job and then some.

BRUSSELS BEHIND THE SCENES includes weekly analysis not found anywhere else, as Sam Morgan helps you make sense of what is happening in Brussels. If you want to receive Brussels Behind the Scenes straight to your inbox every week, subscribe to the newsletter here.

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