Climate change and the EU’s response
European Commission - MEMO/06/406 06/11/2006
Other available languages: none
Brussels, 6 November 2006
What is the problem?
Climate change is already happening and its impacts are expected to become progressively more severe as temperatures rise further. Over the 20th century the global average temperature rose by about 0.6°C and the mean temperature in Europe increased by more than 0.9°C. Globally, the 1990s were the warmest decade since 1861 when temperatures started to be measured, and the 10 warmest years on record have all occurred since 1991. According to NASA, 2005 was the hottest year recorded, followed by 1998, 2002, 2003 and 2004.
There is an overwhelming consensus among the world’s leading climate scientists that much of this warming is being caused by carbon dioxide and other so-called ‘greenhouse gases’ emitted by human activities, chiefly the combustion of fossil fuels and deforestation. These gases remain in the atmosphere for many years and trap heat from the sun in the same way as the glass of a greenhouse. The Intergovernmental Panel on Climate Change (IPCC), which brings together the world's leading experts, projected in its Third Assessment Report in 2001 that the globally averaged surface temperature will increase by between 1.4 and 5.8°C from 1990 to 2100 under business-as-usual. Sea levels will rise by between 9 and 88 centimetres over the same period. If nothing is done to prevent or limit these changes, they will have major and possibly catastrophic environmental, economic and social consequences.
These impacts are forecast to include the following:
Europe is warming faster than the global average. The temperature in Europe is projected to climb by a further 2.0-6.3 °C this century as emissions of greenhouse gases continue building up. A 2004 report by the European Environment Agency identifies a broad range of current and future impacts of climate change in Europe, including the following:
The economic costs of climate change and the economic advantages of taking early and ambitious further action to combat it have been underlined by the Stern Review of the economics of climate change, commissioned by the UK government and published in October 2006.
The Review finds that the benefits of prompt, strong action to reduce emissions far outweigh the costs, and that the earlier action is taken the less costly it will be. The report estimates that without further action to limit emissions, the damage caused by climate change would eventually educe global GDP by between 5% and 20% a year. Unabated climate change could create risks of major disruption to economic and social activity, later this century or early next, on a scale similar to the upheavals caused by the two world wars and the 1930s economic depression, it warns. By contrast, taking early action to stabilise greenhouse gas emissions at a level that limits climate change to tolerable levels would cost around 1% of GDP.
"Tackling climate change is the pro-growth strategy for the longer term, and it can be done in a way that does not cap the aspirations for growth of rich or poor countries," the Review states.
International agreements to combat climate change
The United Nations Framework Convention on Climate Change (UNFCCC) and its Kyoto Protocol provide the international framework for combating climate change.
The UNFCCC, the first international measure to address climate change, was adopted in May 1992 and came into force in March 1994. So far 189 governments - almost all governments in the world - have ratified it.
The Convention's goal is to stabilise greenhouse gas emissions at a level that prevents dangerous human interference with the climate system. It obliges Parties to establish national programmes for reducing greenhouse gas emissions and to submit regular reports.
It also encouraged industrialised countries to stabilise their greenhouse gas emissions at 1990 levels by the year 2000. The EU comfortably met this target.
By differentiating between industrialised and developing countries, the UNFCCC recognises that industrialised countries are responsible for most of the current build-up of greenhouse gases in the atmosphere and should therefore lead in reducing emissions. The UNFCCC Parties meet annually to review progress and discuss further measures. A number of global monitoring and reporting mechanisms are in place to keep track of greenhouse gas emissions.
When they adopted the UNFCCC, governments knew that the commitments would not be sufficient to seriously tackle climate change. In December 1997, they took a further step by adopting a protocol to the UNFCCC in the Japanese city of Kyoto: the Kyoto Protocol. Building on the UNFCCC framework, the Protocol sets legally binding limits on greenhouse gas emissions from originally 38 industrialised countries and the European Community (the EU-15). It also introduces innovative market-based implementation mechanisms - the so-called Kyoto flexible mechanisms - aimed at keeping the cost of curbing emissions low.
Under the Protocol, industrialised countries are required to limit or reduce their emissions of six greenhouse gases: carbon dioxide (CO2), the most important and common gas, methane, nitrous oxide, and the industrial gases hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride. The overall reduction required amounts to a cut of around 5% below the level in the chosen base year (often 1990), and is to be achieved during the first Kyoto Protocol “commitment period” from 2008 to 2012. A five-year commitment period was chosen rather than a single target year to smooth out annual fluctuations in emissions due to uncontrollable factors such as weather. There are no emission targets for developing countries.
The EU-15 (the 15 countries that were Members of the EU at the time of ratification of the Protocol) took on a commitment to reduce their combined greenhouse gases emissions to 8% below base year levels (1990 in most cases). Under the EU Decision to ratify the Protocol, this collective target has been translated into differentiated, legally-binding national targets for each EU-15 Member State, ranging from a reduction of 28% by Luxembourg to an increase of 27% for Portugal. Of the ten Member States that acceded in May 2004, eight have individual reduction targets of 6 or 8% under the Protocol. Only Cyprus and Malta do not have Kyoto targets.
The Kyoto Protocol entered into force on 16 February 2005 after Russia's ratification took it to the requisite number of ratifications (at least 55 Parties to the UNFCCC including industrialised countries accounting for at least 55% of industrialised countries' CO2 emissions in 1990). Its entry into force means that the commitments taken on by its Parties are now legally binding.
As of 28 September 2006, 166 countries and the European Community had ratified the Protocol. Two countries that originally signed the treaty have not ratified: the US has rejected the Protocol, whereas Australia has decided not to ratify it. This means there are 36 developed countries and the European Community that are obliged to reach their Kyoto targets.
Following its entry into force, the Parties to the Kyoto Protocol held their first meeting (COP/MOP-1) simultaneously with the 11th Conference of Parties to the UNFCCC (COP-11), on 28 November-9 December 2005 in Montreal.
With some 10,000 participants, it was the largest intergovernmental climate conference since the Protocol was adopted, and a historic event. Governments took more than 40 decisions to strengthen global climate change efforts.
This package of decisions, known as the “Montreal Action Plan,” reinforced the Kyoto Protocol. It finalised the Protocol’s rules and compliance regime.
The latter will not only deal with non-compliant countries, but also provide assistance to countries that have difficulties to meet their obligations and decide on the eligibility of countries to participate in the Kyoto flexible mechanisms.The Montreal agreement also launched discussions on a new international framework to tackle climate change after the Protocol’s first commitment period ends in 2012.
Kyoto’s market-based mechanisms
The Kyoto Protocol envisages three market-based mechanisms, known as the Kyoto flexible mechanisms: emissions trading between governments with Kyoto targets, the Clean Development Mechanism and Joint Implementation. These will allow industrialised countries to meet their targets cost-effectively by trading emission allowances between themselves and gaining credits for emission-curbing projects abroad. The rationale behind these three mechanisms is that greenhouse gas emissions are a global problem and that the place where reductions are achieved is irrelevant in scientific terms. In this way, reductions can be made where costs are lowest.
Detailed rules and supervisory structures have been set up to ensure that these mechanisms are not abused.
Emissions trading can take place between countries with Kyoto targets, ie industrialised nations. Reflecting the emission targets agreed in Kyoto and under the EU ‘burden sharing’ agreement, each country will be assigned a fixed maximum amount of emissions that it may emit over the commitment period (2008-2012). Countries that emit less can sell the unused quota to others that emit more. This will allow reductions to take place where they are cheapest, reducing compliance costs.
Inspired by this model, the EU has developed and implemented its own emissions trading scheme, which operates at company level. This ‘cap and trade’ system, which started on 1 January 2005, covers all 25 EU Member States and is the first international emissions trading scheme in the world. It has developed rapidly and is now driving the fast-expanding global carbon market.
Under the EU Emissions Trading Scheme (EU ETS), Member States set a national ‘cap’ on CO2 emissions from over 10,000 energy-intensive plants (power plants, steel factories, oil refineries, paper mills, and glass and cement installations). Together these installations account for almost half of the EU's CO2 emissions. Within the limits of their national cap, governments issuetradable allowances to the companies to emit a certain level of CO2 each year.
Companies that emit less than the number of allowances they receive can sell the surplus to companies that have problems staying within their limits, or for which emissions reduction measures are more expensive than buying allowances on the market. Any company may also increase its emissions above the level of its allowances by acquiring more allowances from the market. By putting a price on emissions and a value on emissions saved, the scheme has made climate change a boardroom issue for the companies involved and given them a strong incentive to fully integrate the costs of CO2 emissions into their decision making. It induces them to make emission cuts where they are cheapest, thereby ensuring that reductions are made at the lowest possible cost to the economy. It also fosters innovation - companies have an incentive to improve their energy efficiency and invest in climate-friendly technologies.
The EU ETS is being closely watched by businesses and governments around the world and serving as an important reference point for others developing their own schemes, eg seven north-eastern US states, California, and states and territories in Australia. The EU has indicated its willingness to link the EU ETS to other similar schemes.
Clean Development Mechanism and Joint Implementation
The Clean Development Mechanism (CDM) and Joint Implementation (JI) allow industrialised countries to achieve part of their emission reduction commitments by investing in emission-saving projects abroad and counting the reductions achieved toward their own commitments. JI covers projects in other industrialised countries with Kyoto targets, while CDM projects are carried out in developing countries. The two mechanisms will lower compliance costs, transfer advanced technologies to developing countries and economies in transition, and foster cooperation between countries with Kyoto targets.
CDM credits can be generated retroactively, from 2000 onward, while JI credits must be generated during the 2008-2012 period. CDM is therefore already operational. A condition for the issue of credits in respect of the reductions achieved is that the projects result in real, measurable and long-term climate change benefits that are additional to what would have happened without the projects. Several EU Member States intend to buy CDM and JI credits to help them meet their Kyoto targets. Collectively they have budgetted more than E3 billion to do so.
The EU Emissions Trading Scheme is linked to CDM and JI. Companies covered by the EU emissions trading system can use emission credits from most types of CDM projects and from JI projects (from 1 January 2008) to offset their emissions, in the same way as emission allowances. This link is encouraging investment in CDM and JI credits by European companies, in addition to the purchases planned by governments.
What will happen if a country misses its target?
The compliance regime for the Kyoto Protocol is among the most comprehensive and rigorous in the international arena. If a Party fails to meet its emissions target, the Protocol requires it to make up the difference in the second commitment period (after 2012), with an additional 30% penalty. It must also develop a compliance action plan, setting out the actions that it will take to meet the target and the timetable for doing so. In addition, its eligibility to “sell” under the Protocol’s international emissions trading system will be suspended.
However, for the EU-15 Member States, the Kyoto Protocol compliance procedures will only apply if the EU-15 as a whole misses its 8% reduction target. Should this occur, each Member State will be held to the target set out in the Decision to ratify the Protocol and the Community will be held to be in non-compliance.
The remaining eight Member States with Kyoto targets (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia) are bound to their individual targets as set out in the Protocol, both under the Protocol’s non-compliance procedures and under EC law.
Member States are committed in EC law to meet their commitments, which are enforceable through infringement procedures by the European Commission.
EU action to combat climate change
The fight against climate change is one of the priorities of the European Commission. It is one of the main commitments under the EU’s sustainable development strategy, and the first of four priority policy areas under the 6th Environmental Action Programme (2002-2012).
The backbone of the Commission’s effort to implement the Protocol is the European Climate Change Programme (ECCP), launched in 2000. Under this umbrella, the European Commission and a wide range of experts and stakeholders have developed cost-effective measures that will help the EU meet its 8% emissions reduction target. So far, some 35 such measures have been implemented. They include the EU Emissions Trading Scheme, legislation to promote renewable energy sources for electricity production and bio-fuels in road transport, as well as legislation to improve the energy efficiency of buildings, to promote combined heat and power generation and to control the powerful fluorinated gases. The Commission has also negotiated agreements with European, Japanese and Korean carmakers to cut CO2 emissions from new cars by an average of 25% below 1995 levels by 2008/2009.
A second phase of the ECCP was launched in October 2005 to identify further cost-effective measures to reduce emissions post-2012. The focus is on reviewing and strengthening the implementation of the ECCP I measures, on carbon capture and geological storage, emissions from road vehicles, aviation and strategies to adapt to the unavoidable effects of climate change.
EU progress towards the Kyoto targets
Helped by the EU-level policies and measures developed under the ECCP, as well as by national initiatives, the EU has succeeded in ‘decoupling’ its greenhouse gas emissions from economic growth. Between the base year (1990 in most cases) and 2004, the EU-15 reduced their collective emissions by 0.9% while the economy grew by 32%. EU-25 emissions were down by 7.3%. Projections show that the EU-15’s 8% reduction target can be achieved in 2010 provided that all actions planned by Member States are fully implemented and deliver the emission savings anticipated. However, seven EU-15 Member States project that they will exceed their emission limits: Austria, Belgium, Denmark, Ireland, Italy, Portugal and Spain (see Annex for details). This indicates that they need to step up efforts to meet their targets. All of the new Member States were on track to achieve their individual targets. If all actions planned are taken, the total EU-25 emissions reduction would reach 10.8% in 2010.
What is the European Commission’s position on future action against climate change?
At the Montreal world climate conference in December 2005, the Commission and EU Member States pressed for, and successfully obtained, a decision that international talks should start on future action to combat climate change after 2012, when the Kyoto Protocol commitments expire. These talks were launched in Bonn in May 2006 and are taking place on two parallel tracks. On one track, the Parties to the Kyoto Protocol are discussing new emission targets for industrialised countries post-2012. In parallel, the UNFCCC Parties, including those that are outside Kyoto such as the US, are conducting a dialogue on long-term cooperative action against climate change. This dialogue is scheduled to take two years, until the end of 2007.
The EU sees these two sets of talks as preparing the ground for a further international framework to tackle climate change. The EU believes the overriding objective of this future pact must be to limit the increase in global average temperature to no more than 2°C above the pre-industrial level. This will require deep cuts in global emissions in the next few decades. Climate experts project that a rise of more than 2°C could lead to irreversible catastrophic changes. aThe key principles to underpin the EU position on future action were outlined in a policy paper published by the Commission in February 2005, Winning the Battle against Global Climate Change. They include five elements:
The EU Summit in Brussels in March 2005 affirmed these principles and initiated an intensive outreach effort, engaging the EU in dialogues with a range of countries on further action to combat climate change. It also invited other countries to jointly explore strategies for achieving the necessary emission reductions. These including emission reduction pathways for the group of developed countries in the order of 15-30% by 2020, compared to 1990 emissions, as well as emission reductions for beyond 2020.
What are the EU’s priorities for the Nairobi climate conference?
This year’s annual United Nations ministerial conference on climate change will take place in Nairobi from 6-17 November. As last year, two meetings will be held simultaneously: the 12th Conference of Parties to the UNFCCC (COP-12) and the 2nd Meeting of Parties to the Kyoto Protocol (COP/MOP-2). Each is supported by subsidiary bodies meeting at official level.
The Nairobi meeting is the first world climate change conference to be held in sub-Saharan Africa and accordingly it will have a special focus on the needs of African and other developing countries. Developing countries are the most vulnerable to climate change. They also lack the financial resources and human or institutional capacities to adapt to climate change and thus to reduce its adverse impacts.
To assist developing countries, the EU wants to see final agreement reached in Nairobi on the details of a five-year programme of work on adaptation activities. Agreement is also needed on the management and governance arrangements for a new Adaptation Fund so that concrete adaptation projects can be implemented as soon as possible. This fund could be worth more than €350 million between 2008 and 2012. It will be financed mainly by a 2% levy on credits from projects carried out under the Clean Development Mechanism (CDM).
The EU also wants to see political initiatives taken in Nairobi to encourage a more equitable global distribution of CDM projects. The CDM is proving enormously successful at promoting the transfer of clean technologies to developing countries, with more than 1000 projects estimated to be under development at present. However, only nine of the almost 400 CDM projects so far registered under the UNFCCC are in Africa – four in South Africa, three in Morocco and one each in Egypt and Tunisia.
Discussions on post-2012 action to combat climate change, and the review of the Kyoto Protocol, form the other major area of the Nairobi agenda. The second round of talks on post-2012 action under the parallel Kyoto Protocol and Convention ‘tracks’ will be held. The EU is hoping for progress on both tracks but the talks, which started in May, will need time to build consensus and it is too early to expect breakthroughs in Nairobi. The discussions among Kyoto Parties will take place at expert level, while the Convention dialogue workshop will be held during the high-level segment of the conference on 15 and 16 November. Reports on the results of the discussions under each track will be submitted to the conference’s closing plenary session for approval. The Convention workshop will focus on two topics: sustainable development and market-based mechanisms. The EU will use the discussion to underline the benefits and opportunities offered by company-based emission trading schemes like the EU ETS.
The conference will also carry out a review of the Kyoto Protocol. Though this could become linked to the discussions on future action, the EU wants the review to focus on considering technical improvements to the Protocol such as optimising functioning of the CDM and other market-based mechanisms, and including emissions from sources that are currently not covered, particularly shipping and aviation.
The Commission's Nairobi web site is at
about future action against climate change can be found in MEMO/05/42
and about emissions trading in MEMO/06/2
 “Impacts of Europe's changing climate”, EEA Report No 2/2004, available through: http://reports.eea.europa.eu/climate_report_2_2004/en/.