The Times They Are A-Changin’


artikkeli EPP-puolueen The European View -julkaisuun

“The Times They Are A-Changin' ”

Eija-Riitta Korhola MEP reflects on the Protocol called Kyoto, its birth, life and current state of health after almost 10 years of global battering and asks: Just how right was Bob Dylan with his 1964 protest song?

(Headlines and sub-headlines are thanks to Bob Dylan)

Though this protocol was born in Kyoto almost 10 years ago, it had a gestation period of a quarter of a century. The very first Earth Summit was in 1972 in Sweden where world leaders announced their intention to hold a meeting every ten years to determine the health of the planet.

This was the same year that the USA bombed Hanoi for Christmas, the 'Black September' terrorists killed 11 Israeli athletes at the Munich Olympics, the 'Super Powers' signed treaties to limit nuclear and anti-ballistic missiles and the email was invented. No surprise then that the news media of the day had little to say about the Earth Summit. No wonder too, that the planned second Earth Summit took 20 years to be realised following an abortive attempt in Nairobi in 1982.

But, thankfully, in the intervening years we saw two major factors in the build up to the birth of the Kyoto Protocol. Firstly, in 1988, the United Nations created the International Panel on Climate Change (IPCC) and secondly the Toronto Conference on the Changing Atmosphere, also in 1988, brought world attention to the global warming issue. And, at last a political lead was taken.

“Come senators, congressmen, please heed the call
Don't stand in the doorway, don't block up the hall.”

It was two former Prime Ministers, Canada's Brian Mulroney and Norway's Gro Harlem Bruntland who hosted this first global scientific conference on climate change. The conference conclusions called for a 20% cut to 1988 greenhouse gas emissions by 2005 and called the potential effect of climate change, "second only to global nuclear war." Two years after its formation, the IPCC released its first report. That report said there is reason to believe that the planet was warming and that human activity was causing it.

The creation of the IPCC and its initial reports plus the conclusions in Toronto, more than anything else, put the needed seriousness into the 1992 2nd Earth Summit in Rio de Janeiro, Brazil. That summit was the largest gathering of world leaders ever, and it created the United Nations Framework Convention on Climate Change (UNFCC), also known as the Rio Convention which called on the world to stabilize 1990 greenhouse gas emissions by 2000.

The United States signed and ratified this convention but perhaps more importantly, former U.S. president George H W Bush negotiated an agreement to allow developing nations to actually increase their emissions and that is why they are not included in the Kyoto Protocol.

'Parties' to the Rio Convention have then held a conference each year since 1995. As more and more countries have signed up, these Conferences of the Parties (COP's) have reviewed the adequacy of the Convention and it was the third COP in 1997 in Kyoto that led to the wholesale review of the targets and the Kyoto Protocol was drafted and agreed.

Like so many of these major global initiatives, not content to struggle with 100+ languages of the delegates, it seemed necessary to invent a whole new language to define what the protocol was setting out to achieve.

“And don't criticize what you can't understand”

The problem was not to invent a new word, phrase or acronym – that is easy – the problem was, and still is, to agree amongst almost 200 nations the definitions applicable to the new language. One such definition: Carbon Sinks, (sinks are reservoirs that withdraw carbon from the carbon cycle and thus bind CO2) almost wrecked the process. The 2000 COP in The Hague failed because delegates could not agree on this definition. A subsequent emergency meeting to resolve the problem, this time in Ottawa, also failed. It took a dawn agreement in a 3rd meeting the following year in Bonn to sort it out. In itself, not a big issue today but an illustration of how good intentions get snarled up in vested interests.

One example in this context is the whole issue of nuclear power. In the EU, about 1/3 of the electricity generated is from nuclear fuel. The Carbon emissions are virtually zero, yet nuclear power is excluded from all benefits under the flexible mechanisms that Kyoto encourages. This rejection of the obvious source of energy that emits almost nothing has to be political dogma but it exists even today as the effects of global climate change are more and more alarming.

“Then you better start swimmin' or you'll sink like a stone.”

The Kyoto Protocol has dominated the climate debate, but after 7 years of non-ratification by Russia and the USA it became in danger of losing its impact in practice. After a long period of persuasion, Russia ratified the Kyoto Protocol in November 2004, thus filling the criteria for the protocol coming into force in February 2005.

The US stubbornness not to join and the role of the developing countries in the Kyoto Protocol were hence the most important reasons why delegates to the Climate Conference in Buenos Aires in December 2004 went headlong up a blind alley. The Protocol provides binding emissions targets for the industrialized countries for the period 2008-12 but, those restrictions do not concern the developing countries.

The rapidly increasing emissions of China are a clear bottleneck when discussing the future actions in climate policies. Even in the mildest of scenarios, China's emissions are estimated to double by the year 2030, which means an increase of 60% in the global energy consumption from today's level. Two thirds of that increase in energy consumption takes place in the developing countries.

The Montreal meeting one year later did not take many steps forward either. The most important topic of the Montreal meeting was to define the Post-Kyoto guidelines after 2012. In public, the results have been described as success and a considerable progress, but in the light of practical results, there is no reason to triumph. It still did not promise any binding targets for developing countries and it is hard to see why those growing economies would say yes to the restrictions. With the help of Kyoto only one quarter of the emissions will be under control. So, since the emissions of the developing countries cover half of the total emissions and the USA is responsible for one quarter, it means that three quarters of global emissions are not within the scope of reduction negotiations. This is clearly not good enough.

For the EU, it is politically important to stand in the frontline and to show a good example, hoping that the others will follow sooner or later. But what makes it challenging is the effect one-sided efforts have on the markets. In the global markets this means giving the competitive advantage for the polluter, as the costs of the environmental investments and emissions rights can't be included in the prices. We call it carbon leakage: the international capital of the global markets invests where there are neither emissions restrictions, nor environmental norms. A pollution shift not a pollution cut.

The high prices hit the energy intensive industry hard. This arrangement threatens to change the principle of "polluter pays" into "pay the polluter" policy.

The EU has emphasised that future climate policies must have a wider front: it is essential that USA, China, India and Brazil are included in the reduction measures. In the coming decades the 25 (or 27) EU countries' share of the emissions will drop to under 10% of all emissions at the same time as the developing countries increase their contribution to half of all emissions. Unless the front can be widened, the EU's efforts will be like taking a few drops out of the ocean.

In their March 2005 Summit Meeting the leaders of the EU Member States agreed to cut 15-30 per cent of greenhouse gas emissions by the year 2020 and even 60-80% by the year 2050. In the light of scientific evidence the decision was necessary and pressing. A 2004 research report of change in the Arctic climate confirmed the threat of climate change and that the Polar Regions were particularly vulnerable. The prospect of melting polar ice-caps leading to higher sea levels is both real and alarming. Moreover, the recent drought in Europe as well as record-breaking floods demand bold political action to slow down global warming.

“Come gather 'round people wherever you roam,
And admit that the waters around you have grown…”

In other words, the EU's political decisions and rhetoric are sound but their implementation is becoming problematic. A decade of emission reduction has now ended and many Member States now find themselves facing an increase which they cannot halt, now that the easiest reduction measures; the "low hanging fruits" of the emissions have been picked.

The European Commission has also noticed that the emissions curves are now moving in the wrong direction. The EU has corrected the problem on paper and has straightened the curve by offering "additional measures" which, however, have not yet been sufficiently defined. The truth is that unless something radical is devised the EU will soon have to admit that it cannot achieve its Kyoto goals.

Apart from being disastrous for the planet, this would also be very embarrassing for the EU which has got used to being able to accuse the USA for its arrogant climatic policies and its refusal to sign up to the Kyoto protocol.

The EU's own Emission Trading Scheme, aimed at meeting Kyoto commitments simply does not solve the problem. At long last, the dawn of reality is shining on some of the Scheme's distortions in competition regarding quota trading. One problem is that the emission allowances leading to their trading do not depend on the country's reduction measures alone but on past emissions. Allocations based on historical emissions, so-called grandfathering, do not create a genuine incentive to reduce emissions to their minimum.

Now that the internal emissions trading in Europe has been in affect for more than a year and half, most of the European energy intensive industry stakeholders are remarkably unanimous about the whole system being a mistake. In the beginning of 2006 the German steel industry demanded that trading be interrupted. Many companies have given rising costs, deriving from the emission trading, as the reason for their closing down factories and moving production elsewhere.

The biggest problem in emissions trading is considered to be its effect on electricity prices. Only listed companies producing electricity, like the Finnish energy company Fortum, are satisfied as the emissions trading system guarantees them a considerable profit from producing electricity without emissions, benefiting from the so-called windfall profit. Legislators are slow to admit that they made a mistake. Only last December in Montreal European emissions trading system was introduced as a fine example of the successful European climate policy. We have been politically proud of having been able to create such a large-scale climate-related enterprise in the first place. As an answer to criticism coming from the industry, it has been pleaded that it is too early to draw conclusions after only one year of experience.

However, the signs are not promising. If one of the measures for political success is that the plans are based on correct predictions instead of miscalculations, the commission can be considered failed. The most critical mistake was made when calculating the price of an emission ton: even the worst scenarios did not consider the current price.

In my own career as a legislator, I have never before seen a proposal for an EU directive so unfinished and incomplete as the one regarding emissions trade made in 2001. The plan, which was to be the basis of the whole European economy, the competition and climate strategy, had huge gaps in it. Hardly any theoretical studies had been carried out on the impacts of the emissions trading yet Europe stepped on an unknown land in a tremendous hurry.

The proposal did not include estimations on the impacts of expansion, no guidelines for companies on how to keep books on emission trading, no proposals for VAT taxation, no emergency strategies in cases of serious market distortion or speculative attacks, no accurate information concerning member states' emissions, nor any suggestions for rights of appeal what so ever.

The proposal did not take a stand on the competitiveness of companies that restricted their emissions at an early stage, no more than it pondered what national limitations caused by distributed allowances meant to companies, or the factors distorting competition between member states. The relation between emissions trading and governmental taxation was left open, as was trading's impact on the open energy market. In addition, the proposal seemed to confuse goals with measures, national and private as well as market measures and traditional control-driven administration. During two years we managed to improve and complete the proposition in many aspects, yet were not able to mend the basic problems.

However, emission trading is a brilliant idea, at least in theory. It gives companies time to adjust to a large-scale change, where atmosphere has a price tag just like land. Emissions can be reduced where it is cheapest or, if it is cheaper to buy rights from others who have already cut their emissions, it can be done too. At the same time the market mechanism encourages an environmentally friendly behaviour. In fact, industry itself wanted a mechanism like this at one point, but the result was a disappointment.

First of all, the one-sided climate measures taken by EU were considered a serious mistake. The price of environmental investments and emission allowances can not be included in world market prices which gives a competitive advantage to the producers that pollute more. The second basic mistake was connecting emissions trading to the emission reduction targets defined for each member state. When a flexible market mechanism meets a strict national limit, emission trading becomes more like a planned economy directing sources into bureaucracy and misplacing rewards instead of emission reduction.

A good example of this is Finland, where steel and paper production methods are the purest in the world. Still, due to the high emission reduction target, against all expectations, Finnish manufacturers are in a tight spot. In fact we pay twice for reducing emissions: firstly in emission reduction investments, and again in the form of emission allowances. Therefore it has to be stated that the emissions trading system used in Europe has more to do with structural politics than with curbing greenhouse gas emissions.

“Your sons and your daughters are beyond your command
Your old road is rapidly agein'”

How can Europe make mistakes like this? One reason lies behind the former commission's addiction to directives: they wanted to be in control like parents of the European family. They tried to achieve greenhouse gas reduction by various legislative measures, such as directives on promoting the co-production of electricity and heat, promoting renewable energy sources, frameworks for water policy, energy and electricity taxation, as well as energy services and end-use efficiency.

All these measures have similar goals: reducing emissions and increasing energy efficiency. The problem is, however, that they pursue the goal with overlapping methods.

If each impact on another is not taken into consideration, it will create double burdens. Cases in point are emissions trading and energy taxation, whose purpose was to include cost of emissions in the end price. Or the fact that the impact of emissions trading on combined heat and power (CHP) was not considered. Lack of coordination between the different Directorate Generals seems to gain a considerable and embarrassing role in European legislation.

What do we have now?

The first trading period of the European Union Emission Trading Scheme (EU ETS) was to provide a soft transition to the 2008-2012 period when the Kyoto protocol sets strict targets for the EU. The cost of the cap-and-trade system in 2005-2007 was expected to be reasonable with high shares of free allowances and a limited application.

After one and half years of experience, the EU ETS is an immature and volatile market. Due to its large influence on the electricity market prices, the electricity market volatility is now influenced by the carbon market volatility. The result of the EU ETS is a massive redistribution of income from power intensive industry to power generators. The electricity prices increase because of the increased marginal costs of producing power. For further long term energy investments this kind of market environment is difficult. The uncertainty continues to exist of how the market will develop and how the problems will be fixed.

It is because of this that the EU's energy self-sufficiency can be expected to weaken further. At present the EU imports half its energy from outside and by the year 2025 its dependence on imports is estimated to exceed 70%. In practice this means being dependent on Russia's natural gas, whose price development is unpredictable. The EU competes with India and China for the available energy while the joy of pricing it is left to Russia. This great dependence is not just an uncertain supply problem: in the near future it can also affect the quality of the EU's foreign policy and human rights. Moreover, although burning gas emits about half as much as burning coal per kilowatt-hour, it is still a polluter the planet cannot afford. The UK prides itself on emission reductions in the 90's but that was simply because gas largely replaced coal in the energy mix.

But not everyone is reducing their coal burning for electricity generation. China is getting hungrier by the day in terms of energy consumption and this year, China is commissioning 1000MW of coal plant every 5th day.

For the above-mentioned reasons the interest in non-emitting energy sources, chiefly nuclear power, is growing again. My home country Finland is not alone in its discussions about building additional plants. France, Great Britain, Slovakia, Slovenia, Croatia, Poland, Bulgaria, Romania, Italy and the Baltic countries are also waking up. Also Belgium looks set to dismantle its nuclear shutdown plans which were only formulated a couple of years ago.

But that is only a handful and still some countries are running down nuclear power and as demand continues to grow, the consumption of fossil fuels is also continuing to grow.
The climate is not equipped with ideological filters: it can't tell the difference between increased fossil fuel emissions due to so-called "nice reasons", i.e shutting down nuclear power and of those deriving from pure ignorance. The experience has shown so-far, that declining the use of nuclear energy means in practices an increase on the use of fossil energy sources.

A "political" abandonment of nuclear power is much easier to do than finding adequate alternatives in practice. Sweden has almost tripled its nuclear output after deciding to give it up following a 1980s referendum. In Germany the previous Social Democrat-Green coalition government was, for reasons of "sustainable development" set to give up nuclear power which produces almost 30% of the country's electricity. They, nor the current Grand Coalition government do not explain how they will replace nuclear power with emission free generation, because wind power would supply only a small part of the deficit. Germany has a lot of installed wind capacity but it does not produce much electricity because wind power has a short period of peak output. All of Germany's windmill capacity is around 18 500 MW, which provides only 35 TWh a year whereas Finland's fifth nuclear power station (1600MW) will alone produce 13 TWh a year. Here we can, yet again, quote another great Bob Dylan song:

The answer is (not entirely) blowin’ in the wind

Moreover, wind energy is by its very nature intermittent and governed by chance – this means that a back-up supply that is not wind dependent has to be available. In practice, this has to be the existing plants not already generating and that means the least efficient and often, therefore, the dirtiest. Such a practice means that 2/3 of every day, wind power is replaced by dirty, high emission power.

However, a decision to build additional nuclear plants should not be made unless it is strongly linked with a political commitment to reduce emissions. Nuclear power alone does not solve the climate problem – but I guess that the climate problem cannot be solved without it. What is needed is a holistic strategy based on emissions-free, renewable and cost effective energy. In energy debates, nuclear power has often been set against forms of renewable energy. In the light of climatic goals this juxtapositioning has to be eliminated once and for all, so that the necessary emission reductions can be achieved in practice. Quite simply, we need as much non-emitting energy as we can develop – and still we will not have enough.

Of course it is not only electricity production that is responsible for harmful emissions. The transport sector too carries the guilt of decades in this respect. That sector has not the opportunity to use neither wind, solar nor nuclear power to replace the gas guzzling and polluting engines. I hear and read a lot about the so-called electric car or bus but this normally means fuel cells that combine hydrogen with oxygen to produce electricity. The weakness in all the promotion of this is simply that hydrogen, as a fuel, does not exist. We have no hydrogen mines or hydrogen wells – it has to be made. The most advanced processes do this by electrolysis of water or methane. Those processes are very energy hungry so, unless the primary fuel used for the electricity consumed in the process is renewable or nuclear, the end result is not a pollution reduction – it's another pollution shift from the cars or buses in the towns to the fossil fuel power plants on the coast or in the rural areas. Maybe hydrogen production would be a better use of the previously mentioned intermittent operation of wind power plants.

The way out?

What should be done, then? My conclusion is that it is time to face the weaknesses of the current Kyoto protocol. For the post Kyoto period, we will need an international carbon economy, where the carbon emission has the price, wherever it is emitted and that price is included for every competitor in every market.

It was clear from the beginning that Kyoto would not alone halt nor reduce climate warming. In fact, the intention was to initiate a process that would eventually lead to other more efficient actions. But now it is reasonable to ask, whether Kyoto is a beginning into the right direction for efficient climate actions – for surely it cannot provide the destination? Even though the ratification of the protocol is important and welcomed as a political symbol, its impact in terms of climate targets is uncertain.

It seems now that the starting point created in Kyoto is the unfortunate. Namely, country specific reduction targets have launched the member states into a fight for their own economic survival. That cannot encourage meaningful emissions reductions. Instead, a global and binding carbon economy is needed, which realistically also takes into account those quarters where emissions are threatening to increase.

Country specific reductions should be replaced by industrial sector specific examinations that would be based on efficiency or best performance, in other words defining the theoretical minimum of emissions for a ton of production. This would provide a genuine incentive for real emission reductions anywhere and without delays, as this system would reward the actor with the lowest emissions. The emissions trading scheme linked up together with this kind of a BAT-approach (best available technology) wouldn't distort the markets nor give a competitive advantage for the polluter.

“For the loser now will be later to win
For the times they are a-changin' ”

The main emphasis of the UN post-2012 framework model should be on energy savings and eco-efficiency, low-emitting technology and its development. Individual consumers should be included in the emission reductions by further developing emissions trading scheme in the traffic sector, which is the strongest growing source of emissions. If it was known, that low emissions would also be the basis for the developing countries in the next Kyoto period, it would already now affect the investments made in those countries. Developing countries deserve their growth, but through clean technology. Developed countries must be ready to take the lead.

I will continue to beat the drum of pragmatism for reducing emissions whilst retaining fair and viable market conditions. Sometimes, in the past, I have felt a little lonely with my drum, but I am gratified by the growing support of like minded politicians, scientists and others as the seriousness of climate change hits closer and closer to home. I finish with a palindrome sub-headline of my choosing which makes sense either way:

“Are we not drawn onward, we few, drawn onward to new era?”

Eija-Riitta Korhola
Vice-Chair of Kokoomus (National Coalition Party)
Member of the European Parliament

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