Breakthrough

It has become an article of faith among environmental leaders -- most especially the architects of present efforts in the U.S. Congress to pass domestic cap and trade legislation -- that the European Union has set the standard among wealthy nations for Kyoto compliance. When it comes to taking action to reduce carbon emissions, the E.U., and particularly the emissions trading system that it established in 2005, is held up as a model that the U.S. and other developed nations ought to emulate. E.U. leaders have done nothing to deter this impression. Indeed, a recent report released late last year by the European Environment Agency boasted that the fifteen advanced developed economies in the European Union, known as the EU-15, will meet - and perhaps even over-shoot! -- its 2012 Kyoto target to reduce greenhouse gas emissions to eight percent below 1990 levels. Now, "the serious business of Kyoto begins for real," proclaimed EEA Executive Director Jacqueline McGlade.

Unfortunately, a closer examination of the report itself suggests that this optimism is probably misplaced. When you take out the UK and Germany, whose emissions decreased due to factors exogenous to Kyoto or EU climate and energy policies (UK emissions declined precipitously after Margaret Thatcher broke the coal miners union in the 1980's and the UK switched over to North Sea natural gas. German emissions declined by similarly after reunification, when East German heavy industry collapsed), the remaining advanced developed economies in the EU (call them the EU 13) saw their emissions increase by almost 12 percent between 1990 and 2005. With full implementation of existing policies, projections for 2010 are in fact marginally worse among these nations, exceeding 1990 emissions by over 12 percent.

Even under the best case scenario in the report for EU 15 emissions, which projects an 11 percent reduction in GHG from 1990 levels, over 70 percent of that reduction can be accounted for solely by the reduction in actual emissions in the UK and Germany between 1990 and 2005 (put another way, the 8 percent reduction required by Kyoto can be almost entirely accounted for by the reduction in emissions in the UK and Germany since 1990). The best case scenario, of course, assumes a lot, including:

• Full delivery of emission reductions from existing domestic policies and measures already implemented by Member States;
• Rapid adoption and implementation of additional policies and measures currently under discussion at European and national levels;
• Substantial overachievement of their individual targets by some Member States, to cover the gap left by those Member States which currently anticipate that they will not achieve their targets; and
• Achievement of the emission reductions, currently projected for the single year 2010, during each year of the whole five-year commitment period, from 2008 to 2012.

Even in the best case scenario, which would "over-deliver" on the EU 15's
Kyoto commitments, it would appear that the full suite of policies assumed above, along with the much touted Emission Trading System (ETS), can really only account for about a three percent reduction in greenhouse gas emissions. Almost all of the rest would appear to be a function of exogenous factors in the UK and Germany, and even the three percent decrease projected above that requires that one accept that reductions accomplished through carbon sinks and the United Nations Clean Development Mechanism (wherein EU industries that fail to reduce their own emissions pay to reduce emissions in developing nations such as China), are real.

The prospects for the ETS also appear -- as noted in the report -- to be seriously threatened by challenges to the allowances granted to new member states. Should those challenges succeed, the ETS will - once again, as in the first round of trading - be awash in allowances. This dynamic, as Michael and I suggested in our recently released whitepaper, "Fast, Clean, and Cheap,"[PDF] is not a failure of policy makers to properly manage the system; it is a political dynamic inherent to the entire approach. Even if EU policy makers deter the current challenge to the trading system there will be ever more that follow. And every significant success in reducing emissions will make the following round of constraint more difficult and costly to achieve, which is likely to make challenges to the system both more numerous and more powerful.

The reality is that EU policies have, to date, accomplished little by way of actual emissions reductions. I don't doubt that the EU will, one way or another, manage to comply with its Kyoto commitments on paper. Had the EU 13 even been able to slow the growth of its emissions, the EU's Kyoto obligations would be easily met simply by using the reductions from Germany and the UK. But even constraining the growth of emissions, much less reducing them in absolute terms, has proven extremely difficult. Hence even with the enormous head start bequeathed to the EU by Margaret Thatcher and German reunification -- and ten years after signing the Accord -- EU compliance is still dependant upon the establishment of a wide range of prospective policies and actions that have yet to be adopted or implemented.

This raises the real question, which is whether it is reasonable to assume that advanced developed economies are going to achieve deep reductions in their actual emissions through targets, caps, and regulations. It is sobering to note that the report projects little reduction in emissions from the energy sector and very modest reductions in emissions from the transportation sector. Perhaps subsequent iterations of the Kyoto framework and its implementation in the EU and elsewhere will be more successful at driving deep reductions and major shifts in energy and transportation technology. But taken in its totality, the EU's actual performance reducing carbon emissions belies the optimistic spin that EU technocrats and American environmental leaders have put on the story.