The Truth – and Consequences – About EU Kyoto Performance

1. “Expressions of pious wishes inserted in legal documents, whether treaties or business contracts, generally come back to plague their authors.” Allen Dulles, Foreign Affairs, July 1931

2. The Truth – and Consequences – About EU Kyoto Performance “The Gambler’s Dilemma” Christopher C. Horner Copenhagen, 28th July 2005

3. Summary • EU, Japan and Canada all predict violating Kyoto, barring massive new interventions • Efforts to buy compliance also likely will fail – there won’t be enough GHG credits • EU-demanded penalties (Marrakech) make clear the EU can never comply (post-2012), so long as climate agreement is tied to Kyoto • This leaves the principal question whether the EU will opt to play games (more Kyoto stalemate), or accept a different path

4. EU and Kyoto:The Gambler’s Dilemma The disconnect between EU Kyoto performance and rhetoric = policy of “Let’s Not and Say we Did” The Gambler’s Dilemma: Thinking one must either win or lose everything, the EU doubles the bet Losing on the first draw, the EU insists climate talks presumptuously be of a deeper “second compliance period”: an even grander promise that clearly, too, would be broken

5. Planned emission reductions, etc., will NOT bring EU into Kyoto compliance The EU projects that under current measures it will fall short of its obligation of 8% below 1990 by …7.4% (i.e., will only reduce emissions 0.6%; disinterested parties predict actual EU emission increases) This is because 12 of the EU-15 project violating their (more forgiving) “Burden Sharing” promises, some spectacularly (actual Kyoto performance is even worse) 5 of the EU-15 project violating even these promises by 20% or more, up to 67% Japan predicts exceedance by 34%, Canada by 20%

6. “Q: So the EU is not a champion either in reducing emissions, is this what you are saying? A: They are actually bringing emissions down but their targets were the easiest...You could say that the US did a very bad job at negotiating [in Kyoto] while the EU did a good job. ...On the other hand, the EU, despite the targets they have set, is not getting there either.” http://www.euractiv.com/Article?tcmuri=tcm:29-140339-16&type=Interview Egenhofer Euractive Interview 2 June 2005

7. Per EEA, the EU “Dirty Dozen” emission projections respectively expressed in relation to their 1990 baseline, the 8% < 1990 to which they are collectively (and, in Kyoto, individually) committed, and the Burden Sharing Agreement (BSA). Portugal over 1990 by 53%, 66% over “Kyoto”(.92 of 1990),21% over BSA Spain over 1990 by 48%, 61% over Kyoto, 29% over BSA Greece over 1990 by 38%, 51% over Kyoto, 11% over BSA Ireland over 1990 by 29%, 41% over Kyoto, 15% over BSA Luxembourg over 1990 by 20%, 31% over Kyoto, 67% over BSA Finland over 1990 by 17%, 27% over Kyoto, 17% over BSA Denmark over 1990 by 16%, 26% over Kyoto, 47% over BSA Italy: over 1990 by 4-13%, 13-26% over Kyoto, 11-25% over BSA France over 1990 by 9%, 19% over Kyoto, 9% over BSA Austria over 1990 by 8.8%, 18% over Kyoto, 25% over BSA Belgium over 1990 by 7%, 16% over Kyoto, 15% over BSA Netherlands over 1990 by 3.3%, 12% over Kyoto, 10% over BSA

10. “Your credit is no good” • “Have Nots” will need over 4,450 Million tons (Mmt) of GHG creditsover Kyoto’s 5-years • The “Haves” might possess about 3,900 Mmt • This leaves them short about 500,000,000 • CDM and JI have proven largely dry holes, and can’t be viewed as major considerations (even if they are proposed and approved (rare), projects yield 500k-1Mmt each)

11. If neither reductions nor credits, how will the EU claim “compliance!”…? • The EU can either try negotiating forgiveness in Montreal(COP-11, if over the likely objections of ve$ted intere$t$ Russia, LDCs, and green NGOs); • Accept a new approach, which need not be (but clearly is) seen mostly through a political lens, and as a loss; or • They might play games…

12. What sort of games? • For example, play with the baselines: • For some reason, EU emissions data from 15 years ago keep changing • The EU has published 4 different sets of numbers since 2001 • These include individual member state variations ranging from 0.8% (ironically, Denmark) to 12.4% (Portugal) • If allowed to cherry-pick, the EU can claim it is nearly halfway (3.5%) to its 8% Kyoto promise even without one ton actually being reduced

13. Speaking of forgiveness… • Given EEA’s reports, one might be forgiven for thinking that the EU might claim compliance that ultimately proves less than true – too late for the designed “second round” penalties • After all, it does already crow about merely possible reductions, and even compliance, based upon a speculation (“with additional measures”) built on an unlikely hypothesis (“over-compliance”) • Once violation looms near, the major financial costs and loss of the claim of political face (“world climate leader”) are not insignificant motivators

14. For some reason, EU never mentions the 2001 Marrakech Accord… • Ensures that each violating country bears a 130% penalty for each ton by which it exceeds “8%-below-1990” • As such, each EU-15 country will receive not only a) a lower allowance post-2012 than it presently has (e.g., “15-30% cut”), but b) that allowance will be reduced by each ton by which the country exceeds its first commitment, plus c) a 30% penalty.

15. So, even with no new promises: • At present, Denmark projects being over its 1990 emissions by 16% (vs. Kyoto promise of 8% below) • However, due to a wild “Burden Sharing” promise, this places Denmark over its 1st compliance period allowance by 47% (> U.S.!) • Then, with its Marrakech penalties, Denmark’s effective “round one” projected Kyoto violation becomes a staggering 61%

16. What about the “centerpiece” ETS? • Upon EU insistence: • “Legal entities may not transfer and/or acquire under Article 17[NB: emissions trading]during any period of time in which the authorizing Party does not meet the eligibility requirements”(Marrakech, 2001; Annex: Modalities, rules and guidelines for emissions trading, Para. 5) • That is, under Marrakech the ETS will not be expanded, as the EU promises, but disallowed for any Kyoto purposes post-2012

17. Now, back to those games…“Rules a problem? Erase them!” • The ban on violators buying credits post-2012 is inarguably ruinous to Kyoto • As such, viola!, according to the UNFCCC “acquire and/or transfer” helpfully -- if inexplicably -- means only “transfer”: • “If, at the end of this [2008-2012] period, a Party’s emissions are still greater than its assigned amount, it must make up the difference in the second commitment period, plus a penalty of 30%. It will also be barred from selling under emissions trading…” [HUH?]

18. Something’s gotta give • Now obvious that actual EU emission reductions and purchases will not yield compliance with Kyoto • The US (and China, India…indeed those producing the majority of anthropogenic emissions) could not be more clear in rejecting Kyoto’s scheme of caps • The EU insists that the US is indispensable to any “second round” of Kyoto, and others must join • So the EU proposes...a deeper “second round” of the same failed-and-flatly-rejected caps • So be it, but so long as an agreement is tied to Kyoto, be it “round two” or otherwise, the EU is bound by its penalties for “first period” violations

19. The Four Stages of EUKyoto Policy Rehabilitation • Anger • Denial • “You are here”, between Denial and Bargaining • Bargaining • Acceptance

20. Summary – Pride and Prejudice • Emission reductions will not yield Kyoto compliance for Japan, Canada…or EU • Insufficient GHG credits also unavailable • New pact shows Kyoto parties – even a covered party Japan – accept reality • Europe remains legally bound by Kyoto’s penalties until it says it no longer is • Kyoto process can die a peaceful death, or tricks and stubbornness can drag out a noisy and unproductive one

21. 28th July: 1st day of “Post-Kyoto” • Either the EU joins a new course or it, not anyone else, is responsible for no “global” agreement • Gleneagles confirmed Kyoto as yesterday’s solution to yesterday’s assessment of tomorrow’s problem • With 27th July announcement, EU isolation is clear (so, how badly does it want to hang on to those Kyoto penalties?) • 2-3 tracks of climate pact talks will proceed. Kyoto, once the engine and now the caboose, will be let go

22. Instead of games, a reality check:“I think we all have to go back to the drawing board and understand better where we want to go.”Christian Egenhofer, CEPS, 2d June 2005 http://www.euractiv.com/Article?tcmuri=tcm:29-140339-16&type=Interview

24. “Do as I say, not as I do” Europe projects it will miss its collective Kyoto commitment of 8% below 1990 by…7.4%. That is, EU on track to reduce emissions by 0.6%.http://reports.eea.eu.int/technical_report_2004_7/en/Analysis_of_GHG_trends_and_projections_in_Europe.pdf Disinterested projections are less optimistic, predicting overall increase from 3-7.5%.

25. Further, all of the EU-15’s reduction would come from the “one off” political decisions of two actors – the UK and Germany(the “dash to gas”, and shuttering East German production, respectively)

26. What’s the real EU projection?Or, “I’m sure there are reductions under the sofa cushions…” In December, after regularly projecting failure and upon Italy pledging “no second commitments” at COP-10, the EEA suddenly projected compliance, with a (possible) 7.7% reduction from 1990, or even 8.8%! FINE PRINT: “However, this relies on several Member States cutting emissions by more than is required to meet their national targets, which cannot be taken for granted.” Just see the UK and German legal challenges. [“If no over-delivery by these Member States is included, the EU-15 will [sic] achieve a 5.4 % reduction with additional policies and measures.”] http://reports.eea.eu.int/eea_report_2004_5/en Yes, this sudden reversal is “with additional [NB: hypothetical] measures”. In the real world, under real policies: “If Sweden and the United Kingdom do no more than meet their agreed targets, the EU-15 reduction will be just 0.6 %.”http://reports.eea.eu.int/eea_report_2004_5/en In fact, scrutiny reveals no change in the projection of a 1%° reduction. There is no support for the 7-8% reductions. They are fantasized.

27. Did you know? While the prevailing interpretation is that Kyoto’s first commitments continue in perpetuity post-2012, the flexible mechanisms expire upon violation of the same commitment? (So, will the pressure groups let the EU change the rule in the middle of the game…?) Also a result of these realities, the EU-15 is not only on target to violate Kyoto’s “first commitment period”, but also a second commitment period if any, each getting increasingly more costly yet unattainable?

28. That was then… '‘[The day the EU submitted its ratification, 31st May 2002] is a great day for climate and a great day for sustainable development,'' said the EU's Environment Commissioner Margot Wallström. 'It allows us to maintain our credibility and keep taking the lead in climate change policy. Of course all countries have to act, but we in the EU have a certain responsibility and have to take the lead on this.'‘ EU: Activists Cheer Kyoto Ratification, Inter Press Service, 4th March 2002http://www.corpwatch.org/article.php?id=1954

29. This is now… "I understand, another key sticking point on that wish-list from Britain for the G8 was that there would be some kind of process agreed to whereby any action in the process would be followed-up. We [would] see whether countries were doing what they said they would do. It now seems even some European countries are finding it hard to agree to that." BBC Science Editor Susan Watts, Newsnight, Transcript of 8th June 2005 broadcast http://news.bbc.co.uk/1/hi/programmes/newsnight/4074654.stm

30. Did you know? • Even were the EU to try and buy its way out of noncompliance: • The wealth transfer to the EU-10 and Russia, at €20 per ton – assuming no cost increase as the deadline looms — would be nearly €6,000,000,000 …per year? • With many or most tons likely closer to the € 40 penalty price, yearly “trading” should cost nearly € 11 billion • Regardless, under no projection will the tons exist for such a purchase (Japan, Canada and the EU project requiring approximately 850 Mmt; Russia projects it will have 500-600 Mmt, and Eastern Europe offers no hope of making up the difference) • If the US ratified as the EU insists – which it will not – this scenario becomes even more far-fetched.

31. Brussels Knows, But… • Despite all of this, Brussels refuses to address these realities of penalties, individual burdens, and disallowance of the ETS. • Brussels will only use sectoral econometric models, ignoring the true economic impact, whatever baseline they use • Brussels insists on modeling only the irrelevant Burden Sharing baseline. • The EU-CEPS “Task Force” paper only vaguely references “difficulties”, premising its entire discussion on expanding ETS post-2012 as the “critical… centrepiece” of EU climate policy…which in Marrakech the EU ensured will be disallowed. • In talks, the EU now pretends all is well and seeks to simply compound a failed regime, adding more fantastic promises.

32. “As the world leader [sic] in climate, Europe can change the rules” in the middle of the game: Typical Brussels response when pressed. The Russians, EU-10, LDCs, and green pressure groups have enormous financial incentives to not let that trick slide. Given the players, “face”, and money at stake, however, such a ploy is not out of the question. With one principal impediment: The US is “indispensable” to any “post-2012” agreement. No US President would join up should the EU and/or IPCC attempt that kind of stunt, in Montreal or thereafter. Even Clinton-Gore walked the last time Europe tried this, at COP-6 in The Hague in November 2000.

33. Time to Get Real • Instead of pretending these realities do not exist, Brussels must openly acknowledge and address them, willingly or through 3d party pressures. • Kyoto must be rethought, not compounded.

34. How to Get Real • The EU business community must rethink its method of approaching – rather, ignoring – the painful issues. • The US is not coming to the Eurocracy’s rescue. Period. • The politicians face strong pressures only to compound the situation. The trade groups continue to value “a seat at the table” (i.e., comity), over realistic member protection. • Individual companies must step forward, however publicly they choose, to discuss the naked climate Emperor and demand sanity and realism in this debate.

35. Progress…and in the Right Direction “I think we all have to go back to the drawing board and understand better where we want to go.” Christian Egenhofer, CEPS, 2d June 2005http://www.euractiv.com/Article?tcmuri=tcm:29-140339-16&type=Interview Think tanks, membership organizations (e.g., taxpayer groups) and the like with platforms in Brussels and key Member States must be engaged and supported to continue their progress in building on such admissions and exposing and educating on Kyoto’s problems and the EU’s realities.

36. No More Navel Gazing • Given these realities that the political and climate establishments seem unwilling or unable to openly acknowledge, the regulated community must consider: • What is the cost to your shareholders of the first commitment period, and the discussed second commitment period (15-30% below 1990, with 130% penalty and without JI or ETS)? • What are the increased costs to consumers? • What are you willing to do to ensure that the Member States and Brussels openly acknowledge this, and cease the navel gazing papers and talks? • What can you and Third Party experts do to help?