Eurozone woes push climate reform to backseat

Not long after the European parliament cast doubt on the future of the EU’s key policy to confront global warming, José Manuel Barroso, the European Commission president, huddled with his climate commissioner, Connie Hedegaard, in the VIP lounge at Strasbourg airport.

Mr Barroso, according to people present, reassured Ms Hedegaard that he remained absolutely committed to tackling climate change – in spite of MEPs’ rejection of her plan to prop up the EU’s troubled carbon market.

But beyond the confines of that room, Tuesday’s vote has provoked much soul searching about the bloc’s devotion to an issue that once topped its agenda and shaped its self-image.

Four years ago, in the run-up to the international climate conference in Copenhagen, Mr Barroso and other EU leaders pledged publicly and repeatedly to lead the world in the fight against global warming. They touted the EU emissions trading scheme as the hub of what would one day be a global carbon market.

Their embrace of the climate issue cast a halo over the European project as a benign and collaborative force for good in the world. “It was an integral part of the brand,” said Tom Brookes, director of the European Climate Foundation.

These days, it is accepted – even by climate warriors like Mr Brookes – that global warming has been consigned to a seat in the waiting room while the EU tends to a chronic economic crisis that has threatened the single currency and increased unemployment.

Correctly or not, complaints from business groups that the carbon market and other climate policies are contributing to higher energy prices at a time when they are already grappling with a weak economy appeared to be decisive in Tuesday’s vote.

The shale gas revolution in the US, which has lowered energy prices for the country’s manufacturers, has heightened Europe’s concerns about industrial competitiveness, according to Matthew Gray, a carbon analyst at Jefferies.

“The deindustrialisation trend goes to the heart of the EU’s body politic and explains why [carbon market] reform faced such strong resistance,” Mr Gray said.

Tuesday’s vote is only the latest evidence of how a crisis-hit continent’s appetite for climate change policies appears to have faded in recent months.

Late last year, Brussels abruptly gave way to furious protests from the US, China and other trading partners, and agreed to suspend its plan to force international airlines to pay for their carbon pollution.

Then, another scheme to spend part of a €1.5bn pot of money to help companies build carbon capturing equipment suffered an embarrassing collapse, after several governments failed to come up with required matching funds for some projects.

The more striking move came earlier this year, however, in Germany. The EU’s largest economy has long been an ardent proponent of renewable subsidies, to the extent that even with its less than tropical climate, it accounts for nearly half the bloc’s installed solar power capacity.

In January, it announced moves to freeze and cap incentives to green electricity generators amid growing political concern about spiralling energy costs ahead of September elections.

The move was seized on by opponents of renewable energy outside Europe as evidence that this expensive technology was becoming a strain even in the heartland of climate change champions.

With the carbon market now flailing, Mr Brookes and others worry that national governments will increasingly introduce their own, competing climate policies, such as the UK’s carbon price floor or the Dutch tax on coal. The result would be a hodgepodge of regulations that would inconvenience business and erode the notion of an EU climate policy.

Commission officials insist that Mr Barroso is aware of this and will not abandon what he views as a key part of his legacy. Later this year, they are hoping to launch a new climate and energy package that would set tough binding emissions reductions targets through 2030.

But, as one official acknowledged: “They were different economic times in the run-up to Copenhagen. It was a euphoria,” he said, referring to the 2009 summit on climate change.

In the meantime, the repercussions of Tuesday’s vote are spreading far beyond the EU to other nations with carbon market plans, including Australia, Korea and China.

In Australia, Tony Abbott, the opposition leader, had already vowed to repeal a government policy to introduce a carbon market in 2015 – which would eventually link to the EU market – if his Liberal National coalition wins the federal election in September.

Greg Hunt, the shadow minister for climate action, pointed to the EU market’s price swings in the aftermath of Tuesday’s vote. “The European system to which the government has tied Australia’s electricity prices is now deeply unstable,” Mr Hunt said.