The UN-backed IPCC report again urged world leaders to tackle global warming. Do you think that we have the global governance structures in place to really address this world problem? Can the G8 deliver better than the UN process has done so far?
I think that we should use all the possibilities that we have: the United Nations convention in November, but also whatever comes before it, like the next G8 meeting in June. This will be very important because it will also include the big Asian countries - China and India, but also Mexico, South Africa and Brazil.
Of course, at the same time, French President Chirac's suggestions for the creation of a UN environmental organisation could be very useful by upgrading UNEP [the United Nations Environment Programme].
So you support the Paris call for action on global ecological governance?
Yes, the EU supports this proposal because it will enable us better to co-ordinate the environmental activities of various international environmental agencies and organisations. It will help the better implementation of the international environmental agreements. It will provide a stronger voice for environmental issues, especially global issues such as climate change and biodiversity. And it will put this organisation on an equal footing with international economic bodies such as the World Trade Organisation. It will also hopefully have more financing, so it will contribute to the advancement of environmental issues in a more effective way.
Do you think that this idea of creating an international environmental agency actually stands a chance of coming into existence - the US could oppose it…
There are some countries that have their concerns regarding the cost of setting up an organisation like this. But right now there is a momentum internationally, which could help. And in any case, it is not going to be created tomorrow. What we propose is only to upgrade the existing UN programme.
There are many different initiatives on climate change - at the G8 level, in the UNFCCC framework with the US and in the Kyoto framework. Is there not a risk that they become too scattered?
We do co-ordinate! By coincidence, we have Germany chairing the EU and the G8 at the same time. This is positive because it will carry on the discussion in a better way. And of course, there is also coordination between the Kyoto track and the convention track and this is where we are headed to at the moment - merging the discussions between these two.
They were suggestions recently by France that the EU should impose a border adjustment tax on goods imported from countries which have not ratified the Kyoto protocol - Do you support this idea?
This was a suggestion that was discussed at the high level group on energy, competitiveness and the environment. And in the conclusions we stated that further study should be undertaken. So there it is.
Is there a deadline for that study?
I don't think so. Of course there are various voices like the French Prime Minister and President Chirac that have asked for it but this is what we have decided.
So the EU is studying this option seriously - the idea of a carbon tax?
There is going to be a study and a study undertaking issues…
Turning to business attitudes to climate change policies, big companies are now taking the lead in the US, whereas here in Europe, it seems to be the opposite with business organisations obsessed with the effect of climate policies on competitiveness. Do you think that there is enough awareness of the challenges and opportunities offered by climate change policies?
Of course there are businesses in the US which are taking the lead but here in the EU, we are leading the world's efforts and businesses, to an even greater extent, are following our lead.
European businesses understand they need to go ahead with policies and to adjust their behaviour. And especially, we know in the EU that the businesses which have reacted to the issue before regulators are at a comparative advantage. And those businesses that are actively pursuing the innovations and opportunities that have been raised as a result of climate change - they will get a profit. And they know this.
But we heard business organisation BUSINESSEUROPE urging the EU not to go it alone on climate change. What is your response to their call?
What they are saying is that big emitting countries like the United States, India and China should come on board and have the same obligations as ours, with developing nations following the "common but differentiated" principle of the United Nations convention.
But this is not different from what we are saying! What we are saying is that the participation of other countries is very important, especially that of the United States. This is why we propose a target of 30% [reduction of greenhouse gases by 2020], provided that there is an international agreement.
But we have gone further than this and proposed a unilateral commitment of 20% for the European Union because in this way we show our commitment and have a better argument to persuade other countries to follow our lead.
We also do this because a longer-term target is needed for the carbon market - not only here in Europe but also globally. The EU emissions trading scheme needs this long-term certainty and, in this way, we make sure that it continues after 2012.
But the EU only accounts for 14% of worldwide greenhouse gas emissions, so what's the point? Prime Minister Tony Blair recently said that, if the UK economy was to shut off completely and produce zero emissions, China would compensate for that in about two years… Is that not the best proof that unilateral action is ineffective? Some say that you are sacrificing European business on the altar of morality…
I would like to underline two things that were addressed at the last World Economic Forum in Davos. First, there was a poll which showed that 57% of business leaders thought climate change was the number one problem, ahead of Doha [international trade negotiations], the Middle East, and Iraq.
This is very important because business leaders know that, if their products are not considered sustainable, then they will not have the same chance of promoting them. The public is growing aware of the environmental problems and consumers will behave in a way that rewards sustainable products and sustainable businesses.
European businesses are very eager to show that they are respecting environmental objectives, especially regarding the emissions of carbon dioxide.
Now, concerning the second part of your question, no, we are not only fighting climate change purely on moral grounds. It is also very important from a practical point of view to show that the European Union is practicing what it is preaching. And to do this, we should first of all reach our Kyoto target - it's an imperative.
And second, if the EU commits itself to a 20% reduction in greenhouse gases by 2020 (which of course will not solve climate change alone), it will be much easier to persuade other countries to come on board, by showing that we are determined to go ahead.
Also, a 2020 target is necessary for the continuation of the Emissions Trading Scheme after 2012. So there is a practical reason too: a unilateral commitment is crucial for the EU-ETS and in helping to build up a global emissions trading system, which is the most credible way forward in international negotiations on emissions reduction.
But, if after 2012 you see that the others - China and the US especially, are not following, how are you going to react then?
The EU will then be better prepared for the low carbon future and this will provide European business with a competitive advantage.
US businesses seem to have understood this but not in Europe. Why, for example, is the German car industry not seeing advantages in reducing its emissions?
The car industry is undertaking a voluntary agreement to reduce emissions of carbon dioxide to a certain level - they have not delivered it yet so we are going ahead with legislation. And I am sure that this will provide the necessary innovation incentive which will make Europe produce cleaner cars.
The future is for cleaner cars, so we are going to give this incentive to European car manufacturers. And I am sure that they will have cleaner, more competitive and affordable cars for Europe and for the world.
So what is the situation now? Will the upcoming proposal take into account the different size of cars as requested by German Chancellor Merkel? Or is it going to be a target for the whole car industrys as is currently the case with the voluntary agreement?
The modalities of the legislation will be set up later on, and of course we will have a detailed impact assessment. But what is important is that it will treat all the manufacturers in the European Union in a fair and equal way without creating competitive advantages or disadvantages.
So we keep the idea of a general cap on the whole industry without differentiation according to manufacturers?
There are various ways that you can do this. All I can say is that we are going to be fair and that we are going to have consultation on this.
So you will put different options on the table and the member states will choose, is that right?
There are various options that you can follow and which have the environmental result that we expect. We want cars to contribute to the achievement of our Kyoto targets and this should be done in a fair way for all European car manufacturers.
So this means the end of the voluntary agreement?
Of course - it is going to be a binding, legislative framework.
Going back to business aspects: in the first stage of the EU-ETS, the energy sector made substantial windfall profits because it was able to pass on the price of CO2 to its industrial customers. Was this something that was actually foreseen by the Commission? What was the Commission's intention in doing this?
The intention of the Commission was not to enable companies to have windfall profits but the fact is that some energy producing companies had windfall profits and this is why we want liberalisation of the energy sector, which will help take care of it.
We also want more auctioning of allowances and this is what we shall discuss in more detail in the coming review of the Emissions Trading system. It seems that we are heading towards an agreement to have more allowances auctioned. Let me remind you that, currently, there is a ceiling for voluntary auction of up to 10% of total allowances. Now, we are thinking the other way around - requiring a minimum level of auctioning.
On the windfall profits again - was the Commission expecting that companies would reinvest them in cleaner generation capacity?
The way that we are doing this is via the emissions-trading system. And the objective was to have a scarcity on the market which would lead companies to make investments in lower-emission plants. But as you know, during the first trading period, we had an over-allocation of CO2 emissions allowances and this did not provide the incentive to invest, especially for long-term investments.
However, for the second trading period, we are careful to apply the criteria that are prescribed in the legislation and to take into account the country's growth perspective, carbon intensity, and actual emissions for 2005. Accordingly, we have asked for the National Allocation Plans to be prepared in a way that will take into account the guidelines that we published in December 2005. Most of the submitted plans went above what we expected and so we had to make the relevant adjustments.
Not all countries have agreed to your reassessment though, Germany in particular…
Most of the countries make their own calculations and they have their reasons for doing it - they have the information directly from the companies. There is a dialogue taking place before the preparation with the various installations participating in the ETS. We discuss with them, we explain the methodology that we use and our effort is to be fair with everybody and apply the same principles to all countries.
If you disagree with a country on a particular emissions target, at the end of the day what can you do? What sanction possibility do you have?
It is the same with big and small countries: we assess the plan and we approve or reject it. We may approve it and ask for amendments. If the amendments are accepted by the country concerned, we go ahead with it. Otherwise, they will not be able to participate in the Emissions Trading Scheme and they will have a problem.
Of course there are deadlines and there are specific procedures. But it is our duty to give explanations to the countries. I am very optimistic that we are going to have agreement with all the member states in the right time.
In your view, has the ETS been successful in encouraging investments into cleaner energy generation? Since it was launched in 2005, there has been more investment into more CO2-polluting coal-fired power plants, mainly due to the fact that gas prices have increased in the meantime…
First of all, higher prices of oil and gas play a great role and are important for investment decisions in the energy sector. Second, the emissions-trading scheme for the first period 2005-2007, which as we said was a learning period, did not provide real incentives because we had an over-allocation.
So companies did not feel the need to invest unless they had foreseen that they were going to do it in due time in order to have advantages in the future. So I hope that during the second period we will have the scarcity needed in order for companies to make investments in their own installations or that, by purchasing allowances, they will make investments to reduce emissions in Europe, or in other parts of the world with CDM credits.
But is the timeframe appropriate? These kinds of investments typically take place over a decade at least and the timeframe for ETS phase I and ETS phase II is much shorter than this (2005-07 and 2008-12)…
The second phase of the ETS was designed to coincide with the commitment period of the Kyoto protocol (2008-2012). The timeframe is one of the issues that will be discussed for the third trading period of the emissions-trading system, after 2012. Here, there are two views. One is that the five-year period is enough and the other is that it is not enough because investments in the energy sector take a long time. We shall see.
After 2012, the ETS is going to be expanded to include the aviation sector. Do you feel that there are other sectors that should also be included? There are even suggestions from your colleague, Industry Commissioner Verheugen, that the car sector should be included. What is your view on this?
There were suggestion to include cars in the emissions-trading scheme but there was no discussion about this for the second period of the scheme. This could be looked at in the future although there are many difficulties with the car sector. This would especially be the case if we include car owners in the scheme - the administration of it will be very difficult and will create a lot of problems. If you want the car industry included, then you need to make a difference between those who emit the carbon dioxide - the drivers - and those who will be included in the emissions trading scheme - the manufacturers.
So there are a lot of practical difficulties in getting this right. But of course, you can always imagine that, in the future, every driver will own an individual carbon card. But this would only happen if we are not able to fight climate change in other ways.
The individual carbon card is something that is currently being studied in the UK. Is the Commission also studying it?
In the UK, there are discussions about a personal card but not only for drivers. It is one of the options for the future although if we have the right policies and international agreements, we can fight climate change effectively in other ways. But this could be an option for the future. I know it is being discussed in the UK but it is not a new idea.
In fact, the personal carbon-card idea would also take care of some social issues. Pensioners, for example, who do not drive a car, will have an advantage because they will be able to sell their allowances and gain an additional income. And those who are richer and drive bigger cars will pay extra, so yes, it is socially correct.
Coming back to emissions trading, Germany has asked for a 14-year exemption of the ETS for newly-built coal-fired power stations in order to enable long-term investments in cleaner coal. It asked this on the grounds that it would help its energy supply security situation. Is this not an illustration that the ETS creates a trade-off between security of supply and environmental objectives?
We have already dealt with this question, it was even discussed during the first trading period. And we already said that such an exemption are not possible because it would create competition problems. And so this has already been settled. We are not able to accept this because of the competition-problems it creates. But of course everybody can understand that investments in the energy sector need long-term planning and certainty.
Thank you very much.