CLIMATE AND ENERGY PACKAGE PASSES COMMITTEE IN

UNCLAS SECTION 01 OF 03 BRUSSELS 001629

SENSITIVE
SIPDIS

EUR/ERA FOR BEH/ROCKWELL
EUR/PGI FOR TESSLER
OES/EGC FOR NELSON/FENDLEY
EEB/TRA FOR MILLER/WALKLET-TIGHE

E.O. 12958: N/A
TAGS: EAIR ECON ENRG EU EUN EWWT KGHG SENV TRGY
TSPL
SUBJECT: CLIMATE AND ENERGY PACKAGE PASSES COMMITTEE IN
EUROPEAN PARLIAMENT


1. (SBU) Summary: The European Parliament's Environment
Committee (ENVI) on October 7 passed legislation on the
revisions to the Emissions Trading Scheme (ETS),Member State
burdens to meet the EU's emissions reduction goals, and the
implementation of carbon capture and storage (CCS). These
three proposals, combined with the Renewables Directive
passed by the Industry Committee (ITRE) in September, make up
the European Commission's Climate and Energy Package released
on January 23, 2008. The decisions taken by the Committees
on each of the pieces of legislation do not represent the
final text of any of the legislation, but rather the
negotiating position the Parliament will take in its
discussions with the Council of Member States. Although both
the burden sharing and CCS directives passed smoothly without
contention, the ETS revisions faced substantial opposition
from the EPP-ED group, from which several MEPs fundamentally
disagreed with the entire suite of compromise amendments,
much the same as with the Renewables Directive. The
Parliament continues to remain committed to completing the
Package by the end of the year, as wished by the French
Presidency of the EU. Both the Transport/Energy and
Environment Councils in October reaffirmed the French
commitment, but neither provided details as to how to resolve
divisions within the EU. End summary.

-------------- -
ETS Revisions pass, but not without opposition
-------------- -


2. (SBU) As expected, the ENVI Committee made several changes
to the revisions to the Emissions Trading Scheme (ETS),many
of which focused on whether or not an international climate
agreement will be reached. Under ETS, emissions allowances
will either be given for free or auctioned off, with the
ratio between the two changing over time. The Commission
originally proposed that beginning in 2013, 80% of the
available allowances will be given for free, with that value
decreasing annually until 2020, when no free allocation will
be permitted. The ENVI Committee increased this starting
value to 85%. The EU's position for such a system is that
eventually, all major economies will develop comparable cap
and trade systems, at which point a global network of
interlinked systems can be created. Therefore, the ENVI
Committee added wording that when countries ratify an
international agreement on climate change; their allowances
should be acceptable for all emissions trading systems.
However, in the absence of an international agreement, in
order to protect the industries within the EU from
competitors operating in less strict regulatory environments,
the Parliamnt dictated that the Commission will examine both
the possibility of allowing those affectd sectors to
continue to receive free allowances or to include importers
of products in thos sectors in the ETS. (Note: This concept
of a border carbon tax is one of the most contentious in the
debates over the ETS. However, it was ultimately decided not
to set forth rules until after the post-2012 agreement
negotiations conclude. The hope in Europe is that all
countries will accede to an international agreement,
obviating the need for any carbon tax. End note.)


3. (SBU) The ENVI Committee modified the previously agreed
allocation for the aviation sector from 85% free-of-charge
and 15% to be auctioned, reducing it to 80% free and 20%
auctioned. In addition to including aviation in the EU-ETS,
the committee also passed amendments calling for shipping to
be included in the scheme no later than 2015 and requiring
Member States to include emissions from shipping in efforts
to meet Community reduction commitments in the meantime.
During the Transport and Energy Council in Luxembourg on
October 9, the Council added its support; issuing a
conclusion on the aviation sector in the EU-ETS and
underlining that the directive passed by Parliament on July 8
applies to all aircraft operators of all States providing
services to, from and within the EU, but omitted any mention
of shipping. It is not yet clear if non-EU carriers will be
eligible for free credits. DG Environment is responsible for
developing the details behind the policy and currently is in
that process.


4. (SBU) Several in Parliament see the work on the Climate
and Energy Package as the EU's negotiating position for a
post-2012 agreement and they were quick to add wording which

BRUSSELS 00001629 002 OF 003


is directly dependent on the success or failure of the
international community. Several Parliamentarians, including
Avril Doyle (Ire, EPP-ED),the Rapporteur for the ETS
Revisions, believe that in order to bring developing
countries on board in Copenhagen, the developed world will
need to finance the development and deployment of green
technologies and adaptation methods. To that end, ENVI
proposed that 50% of the proceeds from the ETS auctions go to
a dedicated international fund to assist developing countries
that have ratified an international agreement. This fund
will be further broken down, with one quarter to combat
deforestation, one quarter to reduce emissions in and to
transfer technology to developing countries, and one half to
facilitate adaptation to the effects of climate change.
Domestically, the remainder of the funds will be allocated to
developing renewable technologies, increasing energy
efficiency, and developing carbon capture and storage (CCS)
capabilities in the EU. 30% emissions cuts for the EU with
an international agreement


5. (SBU) The ENVI Committee left largely intact the
Commission's proposals on Member States GHG emissions
reductions, but went one step further, proposing additional
reductions if an international agreement is reached.
Specifically, if an agreement is reached under the UNFCCC
negotiations, the EU's 2020 emissions reduction target would
increase from 20% of 1990 levels to 30%, and the Parliament
has instructed Member States to develop action plans in
preparation for this eventuality. (Note: unlike previous
statements and proposals, this increase does not require a
similar commitment from other developed countries, but did
note that developed countries need to undertake commitments
of 25-40% reductions in 2020. End note.) Additionally, in
looking beyond 2020, the Parliament added a provision for an
EU wide reduction of at least 50% by 2035 and 60-80% by 2050
as compared to 1990 levels; the Environment Council took this
even farther, calling for reductions of 80-95% by 2050. The
Parliament provided an opportunity for collaboration by
allowing Member States exceeding their targets to sell the
excess emissions reductions to Member States falling short.
However, the Commission must approve any transaction, and the
proceeds from the transaction must be applied to investments
in energy efficiency, renewable energy development, or
climate-friendly transport by the selling Member State.

-------------- -
Coal plants targeted to be CCS capable in 2015
-------------- -


6. (SBU) As with the burden sharing proposals, the ENVI
Committee made few large changes to the text of the
Commission's directive on the use of CCS, always considered
the least contentious of the four Climate and Energy Package
directives. The Parliament reinforced the Commission's
proposal of 12 CCS pilot plants to be built around Europe.
Additionally, the Parliament reinforced its commitment to
limit the use of coal to cleaner applications by requiring
all electricity-generating plants with a capacity greater
than 300 MW to limit emissions to 500 grams CO2 per kWh
beginning in 2015. This is often referred to as the
"Schwarzenegger Amendment," having gained inspiration from a
similar measure introduced by Governor Schwarzenegger for the
use of CCS on coal power plants in California. ENVI MEP
Chris Davies (UK, ALDE),Rapporteur for the CCS directive,
worked closely with MEP Doyle to connect CCS and ETS. Under
the ETS revisions, the Parliament passed Amendment 500, which
provides for revenues of up to 500 million allowances to be
applied to CCS development. Experts assess this to be valued
at up to 10 billion Euros. (Note: MEP Davies' assistant
responsible for the Climate and Energy Package explained to
industry and USEU EconOffs that this money will not be
available without a valid demonstration of capture and
storage, effectively acting as a rebate. Some industry
officials do not believe this is sufficient incentive to
invest in the technology. End note.)

--------------
Negotiation with Council still to come
--------------


7. (SBU) These decisions taken by Parliament do not represent
the final text on any pieces of legislation, rather they will

BRUSSELS 00001629 003 OF 003


serve as Parliament's negotiating position in discussions
with the Council through the end of the year. The French
Presidency continues to press for completion in December, but
as more divisions present themselves, success becomes less
and less likely. Members of the Parliament's Industry
Committee Secretariat expressed skepticism at the possibility
of completion by year end; particularly that the text of the
ETS revisions as adopted by Parliament was too far apart from
the council's position. As we expected, the CCS directive
was the least contentious, and it would not be surprising if
it continues to proceed smoothly through negotiations.
However, negotiations on the other three proposals, Emissions
Trading Scheme, Burden Sharing, and Renewables, are poised to
be very contentious and potentially impossible to complete by
December. The stance taken by the EPP-ED just before the ETS
vote reinforced the internal disagreements in Parliament,
which were also raised during the debates over the Renewables
Directive. Specifically, the EPP-ED contends Parliament's
decisions would impose a competitive disadvantage on European
industry compared to U.S. and Chinese firms, resulting in
carbon leakage and job losses.


8. (SBU) The conclusions reached by both the Transport/Energy
Council on October 9 and the Environment Council on October
20 reaffirmed the French Presidency's target adoption date of
December, 2008. However, neither addressed the current
divisions amongst the Member States and the prospects for
coming to an agreement. Several Member States, including
Poland, Italy, Austria, and the UK, have threatened to derail
the discussions, claiming they will be unable to meet the
goals set forth by the Commission. Poland claims that
undertaking these efforts will harm its economy, and it wants
to reconsider the specific proposals. More recently, Italy's
Environment Minister stated after the Environment Council
that the current package is "untenable" and that "significant
changes are needed," elaborating on Prime Minister
Berlusconi's earlier statement that Italy would seek to veto
the legislation if its concerns about Italian industry and
economy were not addressed.


9. (SBU) The financial crisis brought a new angle to the
debate, with many claiming that the current global economic
state brings the viability of many of these climate efforts
into question. Czech MEP Miroslav Ouzky, the Chairman of the
ENVI Committee, publicly stated on October 8 that he believes
that the Council and the Parliament are too far apart and
that the EU is heading for a deal at the end of 2009, not

2008. Climate, he claims, is quickly becoming a casualty of
the global financial problems.

SILVERBERG
.