With the global climate conference coming soon in Paris, Europe is still contending with many issues at once that only add to the complexity that all countries face. Pilita Clark provides a good article in the Financial Times about how the EU is trying to ensure energy supplies are secure, affordable and do not raise greenhouse gas emissions.
EU stuck on horns of ‘trilemma’
The Volkswagen pollution rigging scandal has cast an unsettling light on one thing Europe was supposed to be good at: being green.
So it comes at an awkward time for the union’s energy industry as the EU prepares to host a December UN conference in Paris where a global climate change accord is due to be struck.
Europe has long had some of the world’s most ambitious climate change targets, giving the EU authority in the long-running UN climate talks.
The Paris meeting stems from a 2011 UN climate conference in Durban, South Africa, that might have collapsed if not for the dogged diplomacy of then EU climate chief, Connie Hedegaard.
Much of the EU’s authority on climate has stemmed from VW’s home of Germany. The German government’s Energiewende, or energy transition away from nuclear and fossil fuels towards renewable power, has been held up as a model for how the world can shift to a low-carbon economy.
The Paris climate accord is supposed to deliver precisely this type of global transformation. If it fails, some leading business figures fear profound implications for the bloc’s energy sector.
“The biggest risk for European industry and also European energy producers is that what comes out of Paris is not ambitious enough,” according to Markus J Beyrer, director-general of the BusinessEurope lobby group. “It’s very clear that Europe has been by far the most ambitious on climate change,” he adds. If the rest of the world does not follow its lead in Paris, that will obviously be bad for the climate, Mr Beyrer argues. But it will also exacerbate what he claims are “alarming signals” of competitive distortions in the chemical and aluminium industries.
“We need to bring the others in the boat. We need the commitment of all major economies because otherwise it distorts competition and at the same time, the climate cannot be saved by 9 per cent of the emitters.”
There is little sign the Volkswagen crisis, provoked by deception over emissions from some of its diesel vehicles, has had a direct impact on the UN climate negotiations themselves.
But it has clearly shaken assumptions about the environmental credentials of the EU countries that brought the world its biggest carbon market, largest offshore wind farms and first solar-powered aircraft. That has added to demands for Europe to toughen its environmental regulatory systems in the lead up to Paris.
“European carmakers have to make up for lost time,” says Jos Dings, director of the Transport and Environment campaign group. “And on the road to Paris, politicians have to restore Europe’s credibility with international partners in combating climate change.”
This comes at a time when energy companies across the EU have been faced with a series of problems as countries struggle with what has become known as the “energy trilemma”. The term sums up the difficulty of trying to make sure energy supplies are secure, affordable and do not raise greenhouse gas emissions.
Tumbling oil prices have added a troubling dimension to the picture, not least in countries such as the UK, which this year marked 50 years since drilling for oil and gas began in the once bountiful North Sea.
Lower oil prices have forced North Sea companies to slash jobs and capital expenditure, just as warnings multiply that the basin’s supplies could run dry sooner than some had expected.
The UK has been struggling to bring to life a huge new source of low-carbon electricity, the Hinkley Point nuclear power plant, which has suffered a series of delays.
It is being developed by the EDF Energy group in France, a country that has long led the global nuclear industry.
However, in the wake of rising international competition, the aftershock of the 2011 Fukushima disaster in Japan and other woes, one of France’s nuclear champions, Areva, was this year forced to strike a multibillion rescue package with EDF and the French government.
Meanwhile in Germany, power utilities previously dependent on fossil fuels have been struggling with consequences of the growth in renewables spurred the country’s Energiewende. But the companies facing some of the most significant pressure, especially as the Paris climate meeting nears, are fossil fuel producers.
In the lead-up to the December meeting, pressure on Europe’s coal, gas and oil companies has increased as a campaign, which initially swept through university campuses in North America and Europe, urging investors to sell their holdings in fossil fuel companies, has spread.
In May, the French insurance company, AXA, said it would sell €500m of coal assets. In June, Norwegian politicians decided that the country’s $857bn oil fund should no longer invest in companies whose businesses rely at least 30 per cent on coal. In July, the UK’s Aviva insurance group put 40 coal companies on notice that it would sell its shares in their businesses unless they could demonstrate they are serious about tackling climate change. In September, divestment campaigners claimed that investors controlling holdings worth $2.6tn in fossil fuel companies had agreed to sell or reduce them.
At the end of September, the governor of the Bank of England, Mark Carney, warned that investors faced “potentially huge” losses if tougher climate action made fossil fuel assets “literally unburnable”. His comments coincided with a report by the bank on risks climate change posed to the insurance industry.
Coming some 10 weeks before the Paris meeting, Mr Carney’s comments inevitably sharpened a debate about how fossil fuel companies might be affected by a global agreement to transform energy systems. Some companies have tried to address this by urging the UN to let them help countries devise a strategy.
The chief executives of six European oil and gas groups, including Royal Dutch Shell, the UK’s BP and Total in France, have asked for a dialogue with UN officials and governments on designing an international carbon pricing framework. The UN welcomed the move, although some companies behind it acknowledge that it is unlikely to affect a final accord.
“It won’t influence the outcome of Paris,” says David Hone, chief climate change adviser at Shell, and author of a recent book, Why Carbon Pricing Matters.
But he adds that it might help boost efforts to ensure that an agreement in Paris recognises the need to accelerate the use of carbon markets nationally and internationally.
This is important, he argues, because, in the absence of carbon pricing, countries could opt for regulatory measures that might be worse for both companies and the climate. “You leave yourself open to two things,” he says: “Less certainty that you will solve the [climate] issue and almost certainly a higher cost if you are able to solve the issue.”