EU's tough line on carbon sparks eastern backlash

Five of the EU’s new member states are resisting lower emission trading caps ordered by the European commission. Wojciech Ko?? and Pavel Antonov explore the background to this potentially dangerous dispute
If the European commission learned one lesson from the first phase of the EU emission trading scheme it was that oversupply of allowances spells disaster. It is now taking huge pains to ensure there is scarcity in phase two, running from 2008 to 2012.
By late July the EU executive had approved 23 out of 27 national allocation plans (Naps) for phase two. In all but three cases it ordered reduced allocations.
The cuts sparked widespread grumbling. But most countries eventually swallowed their pride and submitted to the commission’s diktat – except some among the new member states of central and eastern Europe.
By late July, five governments had announced legal challenges before the European court of justice, all of them ex-communist states.

One driver is a sense of unfairness. In the EU-15, excluding Luxembourg’s tiny Nap, the biggest cut of 9.5 per cent was imposed on Sweden. In contrast, the smallest cut imposed on the EU’s post-communist members was 12.4 per cent (see figure 1).
The Czech Republic, Estonia, Hungary, Poland and Slovakia claim that the caps imposed by the commission threaten their economies. In addition there are allegations that the EU ETS is flawed, ineffective, counterproductive and globally irrelevant.
In legal terms, all the applicants are seeking to prove the commission either breached procedural rules or exceeded its powers when deciding on their Naps. In this way it infringed the 2003 emission trading directive, particularly articles 9(1) and 9(3) and several criteria of the annex III, they claim.
Poland claims the decision on its Nap came “after the expiry of the three-month period for rejection of the [Nap]”.
The Polish government also claims the commission exceeded its powers by “[without justification] limiting… the possibility of transferring CO2 emission allowances from the first period (2005-07) to the second (2008-12)” as well as “taking the decision without any previous consultations [and] not taking Poland’s specific energy balance into account”.
Finally, Warsaw charges that the commission “failed to assess the facts submitted by Poland in its Nap and replaced an analysis of those facts by an analysis of its own facts”.
According to Ma?gorzata Tomaszewska from the national EU ETS administration, the commission wrongly rated Poland’s economic growth at 4.7 per cent, while in fact it is 6.2 per cent. Czech Republic and Hungary also claim the commission underestimated their economic growth (see figure 2).
Slovakia also alleges it failed to consider the shutdown of the country’s sole nuclear power plant, which must now result in increased CO2 output from carbon-intensive sources.
Estonia charges that its quota was miscalculated because the commission treats shale oil, the main fuel used to generate electricity in Estonia, as equivalent to brown coal, even though it produces less CO2.

The bottom line of all five complaints is that the EU ETS itself conflicts with the EU’s commitment to foster economic growth and infrastructure development. The fight against global warming is an important task but, the five countries claim, the EU ETS is a wrong tool used at a wrong time.
The EU’s eastern states are particularly sensitive to CO2 issues, according to Ms Tomaszewska. “Their economies are based on coal. Investments in energy take a long time to carry out and clean coal technologies will become important only after 2012. Despite liberalisation and increasingly strict environmental rules, coal will still be a guarantee of Poland’s energy security,” she says.
Secondly, continues Ms Tomaszewska, 2008-12 will be a period of dynamic growth in Poland and other new member states – growth which is now threatened by the Naps rulings.
“Industrial production in the Czech Republic is growing at an annual rate of 8-9 per cent. Launching the new Hyundai car plant alone will increase the country’s electricity consumption by 2.5-3.0 per cent, causing emissions to grow as well. Reductions in emission allowances will throttle the Czech economy,” concurs Tomáš Bartovský, spokesman for the Czech industry ministry.
Views in the other complainant countries are similar. “The new member states want to catch up with EU-15 in all aspects – that is the meaning of real cohesion”, observes Tibor Faragó, Hungarian’s government senior environmental negotiator.
His view is backed by Zsuzsa Ivanyi, climate change analyst of the Budapest-based Regional Environmental Center. “I am convinced that in this case the commission did not fully take into account the economic interests of the new member states”, Ms Ivanyi says.
Poland is particularly disappointed because its authorities believe it is a world leader in curbing CO2. National emissions have fallen by 32 per cent since 1990, compared with 2 per cent in the EU-15, the environment ministry notes (see figure 3).
Tomasz Chruszczow from the Polish Glass Manufacturers’ Association, and deputy head of Forum CO2, a body established to lobby for Polish industry over the EU ETS, accepts the need for modest phase two allocations.
“We hoped, though, that the commission would... take into account differences between the economies of new member states and those of EU-15, where economic growth is stable, but small,” he adds.

The only government that is divided on the commission’s ruling is that of the Czech Republic, whose coalition government includes a Green party element. “The ministry, since the early beginning, was against [the lawsuit] and the government agreed with [environment] minister Martin Bursik’s proposal that our ministry will have nothing to do with it,” ministry spokesman Jakub Kašpar told ENDS.
The Czech environment ministry is convinced the government’s lawsuit is unlikely to succeed and can hardly be seen as real policy measure. “It has no real consequences. [Allowances] are being distributed in the way approved by the commission,” says Mr Kašpar.
For some governments and affected industries, the current situation is only a starting point for wider-ranging criticism of the entire EU ETS, deemed ineffective and producing results opposite to those it strives to achieve.
“In global terms, the EU states produce around 15 per cent of CO2 emissions. Even if the EU stopped emitting CO2, the problem of global warming – if this problem actually exists – will not be solved”, says Tomáš Bartovský from the Czech industry ministry.
“Unless the largest emission producers – the US, Canada, China, India and Japan – buy into it, the whole emission trading scheme is basically only for show and will lower global competitiveness of European companies,” he goes on.
In a memorandum issued in March, the Polish cement industry put it even more directly. “The imposed limit for CO2 emissions is an interference with the competitiveness of the Polish economy. It will cause investment capital to move away from Poland and a rise in imports of goods manufactured in countries not participating in the EU ETS, where emissions are much bigger. The commission is thus abandoning the basic aim of the 2003/87/EC directive, the global protection of climate,” the memorandum read.
All leading Polish cement producers and the biggest power plant Elektrownia Be?chatów filed their own lawsuits against the commission. So did US Steel’s Slovak branch.
“Trading volumes in 2006 of 800 million allowances versus real emission savings speak for themselves. If it is 5 per cent of the volume, what is the point of such a system? It is symptomatic: the loudest advocates of the EU ETS except the commission’s environment directorate are brokers and finance institutions. There will be no regrets on our side if such a system collapses,” charges Jozef Zboril, board member of the Confederation of Industry of Czech Republic (SPCR), expert for environmental and industry topics.
He also defies the commission’s certainty that the lawsuits stand no chance in court. Quoting the 2003/87/EC directive – “the commission may reject that plan, or any aspect thereof, on the basis that it is incompatible with the criteria listed in annex III or with article 10” – he goes on to claim that “if the court of justice follows the directive closely enough, the case is not lost at all”.
“There’s a push to curb emissions in the EU, even if it means closing factories down. So the production is getting relocated outside the community with goods being transported back to us by rail, ships and cars, which of course means higher emissions. But we’re told it’s good for climate. I think it’s extremely two-faced,” charges Mr Chruszczow of Polish Glass.
“The commission should think why five new member states and several companies decided to go to court and challenge its decisions. Maybe it’s the commission that’s wrong,” he says.

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