EU urged to be business-friendly on climate

Lobby group pledges industry cooperation, calls for state incentives, not penalties

European industry is ready to live in a "carbon constrained" future but governments should encourage action by companies rather than penalising them, lobby group the European Round-Table of Industrialists (ERT) said today. In a new report, the ERT argues that promotion of voluntary action by firms plus the UN Kyoto protocol's three "flexible mechanisms" should form the foundation of climate policies.

Incentives for voluntary action should be central to climate policies, the ERT says, because "the only way" that greenhouse gas emissions can be limited "is to encourage constructive behaviour from all sections of society". Circulated to EU governments and the European Commission, the report lists a number of examples of corporate actions to limit greenhouse gas emissions.

The report sets out ten recommendations to EU governments for implementing the Kyoto protocol, first of which is to promote voluntary agreements with business "to stimulate early and effective action". Governments should recognise that businesses operate in a competitive environment, ERT adds, by avoiding market distortions, recognising that time is needed to develop solutions and avoiding "counterproductive" actions that "may penalise those willing to deliver early results by setting targets that disadvantage them later".

ERT also makes proposals for operating the Kyoto protocol flexible mechanisms of emission trading, joint implementation (JI) and the clean development mechanism (CDM). While accepting that the mechanisms should be "supplemental" to domestic action, ERT opposes the EU's demand for "concrete ceilings" on their use. This, it says, "would be a damaging signal of inflexibility to the market".

On trading, ERT says, the rules should provide "maximum flexibility and the lowest effective cost" by encouraging trading on the widest possible basis. Trading through brokers in independent markets should be encouraged to ensure greater liquidity and price transparency.

Restrictions on the JI and CDM mechanisms should be kept to a minimum, ERT argues. It opposes suggestions to impose a levy on JI projects to compensate for relative disadvantages of CDM projects as "perverse" and calls for parallel rules to ensure that "emission reduction units" from both schemes are tradable. Projects under the CDM should not be restricted to a "positive list" as environmentalists want, it says. "As long as a project reduces greenhouse gas emissions...it should be eligible".

"Sound projects" based on carbon absorption in "sinks" such as forests should be allowed under the CDM, ERT argues. It also calls for baselines for determining whether greenhouse gas emissions will be cut under the CDM to be set project-by-project, based on the key criterion of "environmental additionality". The alternative approach of financial additionality would be "unworkable," it argues.

Follow Up:
{ERT} ({http}://{www}.{ert}.{be}), tel: +32 2 534 3100.

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