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R 211601Z OCT 08
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMUC/EU CANDIDATE STATES COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 03 BRUSSELS 001629 
 
SENSITIVE 
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EUR/ERA FOR BEH/ROCKWELL 
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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 
.