What were the climate change outcomes of the G8 meetings?
Mark: Along with African debt relief, climate change was one of the two most prominent issues on the agenda going into the G8 meetings last week. After the bombings in London last Thursday, however, there was some question as to whether there would be any climate change declaration at all.
The importance Tony Blair attaches to this issue is illustrated, however, by the fact that the G8 did issue a Climate Change, Clean Energy, and Sustainable Development Agreement and Plan of Action last Friday (web link). Both the Agreement and the Plan of Action are wide-ranging documents. The key climate change policy paragraph is the following:
"Climate change is a serious and long-term challenge that has the potential to affect every part of the globe. We know that increased need and use of energy from fossil fuels, and other human activities, contribute in large part to increases in greenhouse gases associated with the warming of our Earth's surface. While uncertainties remain in our understanding of climate science, we know enough to act now to put ourselves on a path to slow and, as the science justifies, stop and then reverse the growth of greenhouse gases."
In Europe, the spin put on this paragraph and the rest of the declaration was quite interesting. Initial reports pointed to "movement" in the U.S. position on climate change, and even France's President Chirac said that there had been more progress on climate change than originally anticipated. Yet there is nothing in this paragraph or the rest of the text that suggests any real change in U.S. negotiating positions. The words "as the science justifies" are carefully positioned to satisfy the divergent policy positions of G8 members.
The rest of the Agreement and Plan of Action contain statements regarding the promotion of building, industrial, and vehicle efficiency, research into aviation emissions and carbon sequestration, promotion of renewable energy, promotion of adaptation to climate change, and other topics involving climate change, clean energy, and sustainable development. Reference is made to the need to support a variety of existing energy and sustainable development initiatives. In some sense, the biggest winner in the Plan of Action is the International Energy Agency, which is charged with a long list of research and related tasks.
The bottom line is that the G8's Climate Change, Clean Energy, and Sustainable Development Agreement and Plan of Action contain a lot of ambitious objectives and statements, but there is very little there that would suggest near-term implications for U.S. policy or the business community.
Also: Update on EU Allowance Prices
What's been happening with emissions allowance prices in the EU’s Emissions Trading System (ETS) is quite extraordinary. Last week, prices climbed to over $30/ton! Some companies are arguing allowance costs are more than wiping out their profit margins, and they may be forced to curtail production. Just six months ago observers (including me) were noting how loose the National Allocation Plans were and how weak the first phase of the EU ETS was likely to be. Although it’s easy to misinterpret what these prices mean (see Ask the Expert column XX), it’s a remarkable development.
An intriguing paradox underlies these higher prices, namely the relationship between oil prices and EU allowance prices. While rising oil prices should constrain energy demand and lower emissions, rising oil prices are also increasing the gap between natural gas and coal prices. This makes switching from coal to gas as an emissions reduction strategy more expensive. As long as fuel switching is the perceived marginal source of emissions reductions in this first phase of the EU ETS, allowance prices could follow oil prices higher! Unfortunately, this could create a serious political problem for emissions trading, with consequences that extend well beyond the first phase of the EU ETS. The situation bears careful watching.
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Dr. Mark C. Trexler has more than 25 years of energy and environmental experience, and has focused on global climate change since joining the World Resources Institute in 1988. He is now president of Trexler Climate + Energy Services, which provides strategic, market, and project services to clients around the world.
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