October 18, 2002	Friday	Sha'aban 11, 1423

BRUSSELS: European Union industry is bracing itself for two major new policies to make it slash greenhouse gas emissions under a global climate treaty the EU fought to protect.

As the Kyoto global warming pact, rejected by the United States over fears it would harm the economy, nears coming into force, the EU faces some stark choices about how to cut pollution from its factories, farms, transport and homes.

On Thursday, EU environment ministers will discuss one of the most radical ideas — a bill to limit the amount of carbon dioxide (CO2) industry can emit and get firms that breach their caps to buy emissions credits from less polluting companies.

And by the end of the year, finance ministers are due to agree a new EU energy tax system that would raise minimum tax levels on the use of oil products and set, for the first time at EU level, minimum tax rates on coal, electricity and gas.

EU Environment Commissioner Margot Wallstrom robustly defended the emissions trading bill in front of a sceptical electricity industry conference earlier this week.

“The major risk is climate change itself,” Wallstrom told EU power body Eurelectric. “It is an obligation of the business community to take on climate change, but it is an obligation of policy makers to use the most cost effective measures.”

Wallstrom led diplomatic efforts to convince the rest of the world to stick with Kyoto following the US pullout last year and she said the EU now had to live up to its promises.

“The EU’s credibility is at stake should (the emissions trading bill) fail,” Wallstrom told the conference.

Kyoto aims to reduce greenhouse gas emissions from the developed world by 5.2 per cent of 1990 levels by 2012 as a first step to bigger cuts aimed at stopping global warming. The treaty will come into force once ratified by Russia.

GERMAN OPPOSITION: The EU emissions trading plan is touted by the European Commission as a way to let companies find the cheapest way of reducing their emissions of CO2 — the main Kyoto gas, which is an inevitable by-product of fossil fuel use.

But the bill hit a major political obstacle in June when the head of the EU’s biggest economy, German Chancellor Gerhard Schroeder, said it would disadvantage EU industry.

Under Kyoto, the EU has to reduce its greenhouse gas emissions by eight per cent of 1990 levels during the period 2008-2012. But under a burden sharing agreement between EU member states, Germany faces the biggest reductions.

To allow less developed EU countries to increase their emissions, Germany agreed to cut its output by 21 per cent — making up around three quarters of the total EU cut, a point Schroeder repeatedly reminds his EU colleagues.

Germany’s concerns on a system that would cap CO2 emissions from most of its big industries including power plants, metals smelters, glass, paper and cement makers, have meant there is no chance of a deal on the bill this week at the ministers’ meeting.

According to EU diplomats, Germany asked for a delay on the issue while its new government coalition beds in. But on Tuesday, German opposition to the bill softened to reflect the increased profile of the Green party in the ruling coalition following last month’s election.

Germany said it would now support the bill, but will request many amendments that would favour its industry.

ENERGY TAX: EU industry has welcomed the principle of emissions trading — a concept that was first used in the United States as a way of reducing the acid rain pollution — but has many concerns over how it might look in the EU.

When the scheme starts in 2005, industry wants it to be on a voluntary basis for a trial period of around three years, to allow for a learning by doing process. Such a voluntary system has already been launched in Britain.

Big business also wants a payback for making the effort to cut emissions in the form of less old style regulation that told them how and where to apply environmental rules and, more importantly, no new environmental taxes.

Unfortunately for industry, a new energy tax is under serious consideration. At a summit in Barcelona, Spain in March, EU leaders said they wanted a deal on the issue by year-end.

“If there is emissions trading there should be no double jeopardy — no energy taxes applied to those (firms involved) in emissions trading,” said William Kyte, head of sustainable development at British electricity firm Powergen.

But tax reform has become one of the key goals of Europe’s vocal environmental movement.

Green group coalition, the European Environmental Bureau, says the issue is urgent, not only because of the impact the tax could have on emissions, but also because a deal would be even harder once the EU expands in less than two years’ time.

Unanimity among member states is required to alter EU taxation rules, unlike in the environment field where a weighted majority of countries is sufficient to pass laws.

Despite the message from Barcelona to agree on energy tax, EU diplomats consider a deal on the bill — which has languished on the negotiating table for five years — as a tall order.

Wallstrom also has little faith. “I’ll believe it when I see it,” she told a conference.—Reuters