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UNCLAS SECTION 01 OF 04 BRUSSELS 001686 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR ECON EIND ENRG EUN EWWT KGHG SENV TPHY
TRGY, TSPL 
SUBJECT: STATE OF PLAY OF EU'S CLIMATE AND ENERGY PACKAGE 
 
REF: A. BRUSSELS 1629 
     ¶B. BRUSSELS 1439 
 
¶1. (SBU) Summary:  The European Union, headed by the French 
Presidency, is trying to finalize a Climate and Energy 
Package before the end of the year. The Package includes 
directives on Europe's cap and trade system and the methods 
to meet Europe's "20-20-20 in 2020 goals" (20% emissions cut 
as compared to 1990, 20% use of renewable energy, and a 20% 
improvement in energy efficiency by 2020).  However, 
divisions among the Member States, led by Italy and Poland, 
and a gap between the European Parliament and Council 
threaten to derail this effort.  At this moment, it is 
unlikely the EU will be able to overcome the divisions to 
complete the Package in December, but we cannot rule out a 
last minute deal, something for which the EU is well known. 
The EU places a high priority on the passage of the Package, 
because it will be used as the EU position in UN climate 
negotiations in Poznan and Copenhagen.  While the climate 
negotiation aspects will have the most potential to influence 
U.S. policy, EU decisions to develop a carbon border tax and 
to develop strict biofuels sustainability requirements will 
also affect U.S. interests and global industry.  End Summary. 
 
 
¶2. (SBU) The European Union is in the final stages of 
negotiating the so-called "Climate and Energy (C&E) Package." 
 The European Commission on January 23, 2008, headed by the 
Directorates General for Environment (DG ENV) and Energy and 
Transport (DG TREN), submitted the C&E Package, consisting of 
three separate legislative proposals, described below.  The 
C&E Package is separate but parallel to the EU's 3rd Energy 
Package, released in September, 2007, which focuses on energy 
security and the internal electricity and gas markets of the 
EU.  France, current holder of the rotating EU Presidency, 
has made the C&E Package a priority and is pressing to 
complete negotiations by year-end, before the Presidency 
shifts to the Czech Republic in January, 2009.  The 
legislative status of the package is described in paragraph 5 
below. 
 
¶3. (SBU) The C&E Package comprises the four elements 
described below.  Note that the first element is a draft 
"Decision", which, once adopted, will be directly applicable 
and binding to the  Member States.  As the Decision will have 
direct applicability, it will supersede member state law and 
will not have to be transposed by member states into national 
legislation.  The other three elements, all Directives, 
require Member States to enact national laws that accomplish 
the goals set out in the Directives.  Member States are 
free--in principle--to adopt the national measures they see 
fit to fulfill the requirements of the Directive. 
 
-- The Burden Sharing Decision, penned by DG ENV, lays out 
the amounts Member States will have to reduce their 
greenhouse gas (GHG) emissions to meet the EU's 20% emission 
reduction commitments by 2020.  The proposal dictates by what 
percentage each Member State must reduce, or in some cases, 
is allowed to increase, its emissions by 2020 as compared to 
¶2005. 
 
-- The Emissions Trading System (ETS) Revision Directive, 
also drafted by DG ENV, is intended to improve and extend the 
EU's GHG cap and trade system for reducing GHG emissions. 
The ETS Revision Directive would take effect on January 1, 
2013, the end of the current iteration of the ETS, and seeks 
to correct excessive allowances allotted to some Member 
States and some sectors, which took place based on 
projections and lack of verified emissions data. 
 
-- The Renewables Directive, written by DG TREN, promotes the 
use of energy from renewable sources and addresses the EU's 
 
BRUSSELS 00001686  002 OF 004 
 
 
goal to achieve a 20% share of renewable energy sources by 
¶2020.  This Directive dictates the percentage of renewable 
energy each Member State must have in its energy mix and a 
10% binding minimum target for alternative fuels in transport 
(biofuels, electric cars, hydrogen fuel cells, etc) by 2020. 
 
-- The Carbon Capture and Storage (CCS) Directive was also 
led by DG TREN and supports the early demonstration of CCS to 
help reduce emissions from coal-generated electricity.  The 
Commission, recognizing that coal will continue to play an 
important role in European and global energy production, is 
seeking to establish the regulatory framework for the 
implementation of up to 12 CCS demonstration projects. 
 
¶4. (SBU) The standard timeline for such a legislative package 
is 18-24 months from the time of submission.  The legislative 
process typically follows this pattern: 1) the Commission 
begins the process by proposing legislation; 2) the 
Parliament then adopts amendments in a first reading; 3) 
Member States vote on a 'Common Position' in the Council; 4) 
Parliament subsequently amends the Council Common Position in 
a second reading; and finally 5) Parliament and Council 
negotiate a compromise during a conciliation round.  At any 
point after the Parliament or the Council make changes to the 
original Commission text, the Commission then has the right 
to accept or reject those amendments and then can put forward 
a revised proposal to the Parliament.  The decision-making 
process can be shortened to as much as a single Parliamentary 
reading, if Council and Parliament agree beforehand on a set 
of compromise amendments.  As France targeted the C&E Package 
as a Presidency priority, it intended to make use of this 
possibility to fast-track adoption of the legislation, with a 
goal of completion (at least informally) in December 2008, 
less than 12 months after the Commission proposal.  By 
comparison, the 3rd Energy Package, submitted in September, 
2007, and considered to be less contentious, is not set for 
adoption before April, 2009.  The French C&E Package timeline 
is exceptionally ambitious, and the disagreements among 
Member States, as well as between Member States and the 
Parliament, are such that agreement by December could be very 
difficult. 
 
¶5. (SBU) Most aspects of the C&E Package are contentious, 
exposing differences among the Commission, Council and 
European Parliament, and in all cases, within these EU 
institutions.  Currently, the balance of power is teetering 
between the Parliament and the Council.  Parliamentary 
Committees finished amending the drafts in October with a 
more strongly worded text, particularly as applied to the ETS 
Revisions and the Renewables Directive (see reftels for 
details on the amendments).  Many of these changes are 
opposed by the Commission and are unlikely to be acceptable 
to several Member States. 
 
-- The Parliament, having already approved its amendments in 
the Environment (ENVI) and Industry (ITRE) Committees, has 
set forth its negotiating position.  In almost all cases, the 
Parliament added more stringent requirements to the 
Commission proposals, including tightening regulations on 
biofuels sustainability and working to expand further the 
reach of sectors covered under ETS.  However, these 
amendments were not unanimously supported, with the 
center-right EPP-ED party voting against the ETS amendments 
because of worries that the European economy will be damaged. 
 
-- The Council is taking a more moderate stance, but internal 
divisions are wide-reaching.  Environmentally-focused 
countries such as Sweden prefer the more stringent 
requirements.  Meanwhile, Italy and Poland are leading a 
group of 11 countries in an effort to reduce the strength of 
the legislation--claiming damage to their economies if forced 
to undertake these commitments. The 11 countries-including 
 
BRUSSELS 00001686  003 OF 004 
 
 
the three Baltic States, Slovakia, Hungary, Romania, 
Bulgaria, Cyprus and the Czech Republic--have more than 
enough votes to form a blocking minority.  USEU EconOffs also 
have heard from various sources that Germany may be included 
in this group, but that Chancellor Merkel does not want to 
oppose President Sarkozy publicly.  Most of their complaints 
target the magnitude of the emissions cuts and the allocation 
of ETS credits, though there are country-specific concerns 
with pieces of each of the four proposals. 
 
-- The Commission is standing behind its original proposals 
while remaining open to compromise.  Some contacts indicate 
that at this point everything is out of their hands. 
Commission officials continue to press in Parliament and 
Council the merits of the original proposals, but do not seem 
to be having an impact.  The Commission has used several 
arguments, including current technological realities, 
financial implications of decisions, and possible breaches of 
WTO rules, to try to convince MEPs and Member States. 
 
¶6. (SBU) The European Council (heads of state and government 
of the 27 EU Member States) will meet on December 11-12, the 
date by which the French Presidency is looking for a 
political agreement among the member states.  France 
originally hoped to use this meeting to develop a text to 
submit to the full Parliament for a vote, with the belief 
that Parliament would not have much recourse after the 27 
Member States came to a unanimous agreement.  However, 
Parliament, fearing just this eventuality, made a tactical 
move and advanced its Plenary vote on the proposal from the 
week after the Council, ahead to December 3-4.  This will 
allow the full Parliament to vote on its text, which it will 
then pass to the Council.  In this new timing, the Council 
will be required to consider the text as passed by 
Parliament, which likely will look similar to the texts as 
passed by the Parliamentary Committees.  Member States such 
as Italy and Poland oppose the text from Parliament, and 
Parliament's decision to move forward its Plenary vote thus 
makes the possibility of a 1st Reading agreement much less 
likely. 
 
¶7. (SBU) While most of the decisions taken by the EU on the 
C&E Package are internally focused, the entire package is 
expected to form the basis for the EU's negotiating position 
in the UN climate negotiations in Poznan in December this 
year and Copenhagen in December 2009.  Across the board, the 
EU has inserted language referring to the existence or 
absence of a global climate agreement.   Though no concrete 
decision has been taken on how to address carbon leakage (the 
departure of carbon intensive industries to countries with 
less stringent environmental laws), the EU has not eliminated 
the idea of a carbon border tax (an import tariff applied to 
products developed in countries with weaker environmental 
laws).  At this point, cooler heads appear to have prevailed, 
calling on the EU to wait until after UN climate negotiations 
have concluded to determine if a border tax is necessary. 
Specifically on ETS, the EU seeks a global network of cap and 
trade systems, with ETS as the cornerstone.  Additionally, 
both Council and Parliament have asked that all developed 
countries undertake a similar commitment, which include 
25-40% GHG reductions by 2020 and anywhere from 60-95% 
reductions by 2050. 
 
¶8. (SBU) Comment:  What takes place over the next few months 
has the potential to influence directly the United States. 
Beyond developing what will be the negotiating position for 
Poznan and Copenhagen, efforts to limit the effects of carbon 
leakage and to develop biofuels sustainability criteria are 
decisions that could adversely affect companies from the 
United States and the rest of the world.  Here in Brussels, 
the next few months are considered crucial, and many have 
argued that if the EU fails to pass the C&E Package this 
 
BRUSSELS 00001686  004 OF 004 
 
 
year, the EU will be in a weaker position heading toward 
Copenhagen.  Given the political differences and gaps among 
the Member States and between the Council and the Parliament, 
there is a strong possibility that an agreement will fall to 
¶2009.  That said, we cannot eliminate the possibility of a 
last-minute deal--the EU is well known for just that--but at 
this moment, the prospects look better for a resolution 
sometime in 2009.  The EU has the legal authority to pass 
individual pieces of the legislation without passing all of 
them, but the French Presidency has made clear it considers 
the four a single package and that they either all pass 
together or none of them pass.  Looking forward to 
Copenhagen, it is likely the EU's goal of 20% emissions cuts 
will remain, but many of the supporting details the EU plans 
to bring to the table could change dependent on the outcome 
of the upcoming discussions.  End Comment. 
 
SILVERBERG 
.