KYOTO NOW MATTERS TO SPAIN

UNCLAS SECTION 01 OF 02 MADRID 004020 SIPDIS SENSITIVE DEPARTMENT PASS TO ESTH COLLECTIVE; DEPARTMENT ALSO FOR OES/EGC (ED FENDLEY) AND EUR/WE E.O. 12958: N/A TAGS: SENV ENRG ECON PGOV SP SUBJECT: KYOTO NOW MATTERS TO SPAIN REF: A. MADRID 3273 ¶B. MONTEVIDEO 1390 ¶1. (SBU) During an October 13 courtesy call by newly arrived ESTHOFF, Environment Ministry General Coordinator for Climate Change Teresa Rivera stressed that the Kyoto Protocol enjoyed the strong support of the entire cabinet of the "new" Spanish Government, and that Spain was determined to do its utmost to fulfill its CO2 emissions targets under the terms of the agreement. Rivera (please protect) said that the previous center-right Aznar Government found Kyoto "inopportune" and had thus "parked" any serious effort to meet Spain's target of limiting CO2 emissions to 15 percent above 1990 levels. Instead, emissions were allowed to grow unchecked and have arrived to the level of 40 percent over 1990 levels. By contrast, the "new" (elected this past March) center-left Zapatero Government views Kyoto compliance as one the principal planks of its "return to Europe strategy." (Note: During the election campaign, Zapatero consistently criticized Aznar's emphasis on strong ties with the U.S. and made several gestures toward France and Germany immediately after taking office. End Note.) ¶2. (U) Rivera acknowledged that it would be "very difficult" for Spain to meet the 15 percent above 1990 levels target, but that Zapatero and the rest of his cabinet were determined to do the best they could to limit CO2 emissions. The first part of the Government's compliance strategy was to complete its National Emissions Compliance Allocation Plan, as required by EU Directive 87/2003. This was submitted to Brussels in September (Ref A). The second step was to create a National Emissions Rights Register which allocates CO2 emissions rights to the sectors of the economy covered by the EU Directive. Requests for emissions rights were required by September 30 and the Environment Ministry is in the process of finalizing the register. Both steps will allow Spain to participate in the EU's CO2 trading regime which will debut in January 2005. ¶3. (U) The harder part of the equation, according to Rivera, is not the bureaucratic framework but instead the industry/government reform and transformation required to actually reduce CO2 emissions. The Government's strategy focuses on three areas: (1) significantly reduce the amount of electricity generated by burning coal (replacing it with natural gas "combined cycle" generation); (2) reform tax policy to encourage greater energy efficiency; and, (3) use multiple tools available to government to greatly increase the percentage of energy generated by renewable energy sources. Rivera stressed that all three areas required significant inter-ministerial coordination and that this was already under way. She noted that Minister of Economy and Treasury Pedro Solbes, the holder of the Government's purse strings, was strongly behind the effort. Rivera did stress, however, that Government's efforts could not succeed without the cooperation of Spain's autonomous regions and that efforts to get them on board were only now getting underway. ¶4. (U) Rivera said the goal of the above strategies was to reduce CO2 emissions from the current 40 percent over 1990 levels to 24 percent over 1990 levels by 2012. The remaining nine percent required to meet the 15 percent over 1990 target would be obtained via domestic carbon sink credits (two percent) and credits obtained on the international market (seven percent). Rivera said Spain would not limit itself to credits obtained on the soon-to-be-born European CO2 credits market, but would also look further afield. She said the September Spain-Uruguay greenhouse gas emissions reduction MOU (Ref B) would be replicated with other nations and would provide Spain with significant credits. Rivera also noted that Russia's October decision to ratify Kyoto should serve to depress the price of emissions credits, thus facilitating Spain's efforts to acquire credits on global markets. ¶5. (U) Rivera stressed that Spain recognizes that any serious/successful effort to address the problem would require attention to the 60 percent of traditional Spanish C02 emissions not covered under the National Emissions Compliance Allocation Plan. Her office was working on a new plan for these non-covered sectors as well. She concluded by asserting that the many voices in the private sector had exaggerated the economic costs to Spain entailed by Kyoto Compliance. Rather than focusing on purely business costs, the new government believes a serious effort to comply with Kyoto could actually help induce a "technological revolution" in Spain, particularly in electricity generation. This could in turn have a long-term positive impact on the economy. ¶6. (SBU) COMMENT: Rivera, while quite friendly and open, is clearly a "true believer" in Kyoto. We think she provided an accurate snapshot of Zapatero's intentions vis-a-vis Kyoto. But this government is young and inexperienced and still faces tough tradeoffs further down the road. Opposition from within and outside the government will certainly grow once the economic costs of Kyoto compliance become more apparent. That said, we believe that Zapatero will endeavor to prevent Spain from continuing as an EU "outlier" with respect to Kyoto compliance. He takes this "return to Europe" stuff seriously and likely believes that Kyoto is one litmus test of his Government's Europeaness (sic). ARGYROS