Christian Egenhofer is a senior fellow (energy and climate change) at the Centre for European Policy Studies (CEPS) in Brussels.
What is your assessment of the US strategy to fight climate change which is based on reducing the energy intensity of the economy? How does this compare with what the EU is currently doing - the emissions trading scheme?
From the very beginning, the big unresolved issue about the future climate change regime is what kind of commitment to be set. The EU was more comfortable with setting absolute targets while the US has been less comfortable. The question is to what extent the [energy intensity approach] is serious.
An analysis by the World Resources Institute (WRI) said that the 18% [energy intensity reduction] target was considered as business as usual. I would not personally agree, but it is not terribly demanding. It might not be business as usual for the simple fact that a lot of the reduction the US has had in the past were actually due to structural changes in industry and the move towards a service industry. So these are one-off reductions. In the future, an 18% reduction might actually be more demanding than in the nineties.
What the US is claiming is that they have experienced continued growth in recent years without an increase in overall emissions…
This is fair. Also you have to take into account that the US population is growing by 1% per year. If you compare emission per capita, the EU and US are about the same. But the US are not on track to reducing overall emissions.
So what is the main difference between the two approaches, is it the targets?
In the EU, it is acknowledged and accepted that we live in a 'carbon constrained world' and that carbon has to be reduced while this is not accepted in the US. It is neither within the industry nor the government system. Some US states do reduce their emissions according to caps, others do not, the government does something. But that's really the big difference: In the EU, we all agree that we have to reduce GHG while in the US that kind of clear view is not yet there and will take several years, if ever…
What is your opinion on the United States' energy intensity approach?
Energy intensity reduction will not lead to decreases in emissions. It can be an interesting first step but the targets have at some stage to become more serious. I would not buy Dr Harlan Watson's [US senior climate negotiator] argument when he says that the US is doing something. To some extent, they try within the limits, but this is not going to get us where we need to go in 2050-2100.
On the other hand, the EU, despite the targets they have set, is not getting there either. The question is not - are our targets better or are their targets better. I think we all have to go back to the drawing board and understand better where we want to go.
So the EU is not a champion either in reducing emissions, is this what you are saying?
They are actually bringing emissions down but they their targets were the easiest. The US is definitely not a champion in reducing greenhouse gases (GHGs), they do what is politically feasible. You could say that the US did a very bad job at negotiating [in Kyoto] while the EU did a good job.
What do you think about what's being done at state level in the US? Some are adopting Kyoto-like GHG reduction targets.
Historically, US environment policy has been developed at sub-federal level. Then you typically arrive at a fragmented situation and very often the federal level steps in and delivers a uniform regulatory environment. We might be seeing something similar at the moment but it will still be a couple of years off since the business community is really split about this and the current government will almost certainly not overrule the business community. The industries which are against include the car industry, the coal industry plus part of the utility industry which relies on coal and of course the oil industry. Certainly, they oppose an international agreement.
Those states adopting the targets are predominantly coastal areas and led by the democrats. As you know from the McCain-Lieberman draft bill on the carbon trade scheme that was voted down by 54%, you have a split country and some of that split appears at the state level. As long as the federal level does not undertake a carbon policy, the competence remains with the states.
What about the clean air pollution cutting programme at federal level and the cap-and-trade system for mercury? How does this link to climate change?
There are co-benefits or ancillary benefits from other pollution reduction programmes, this is very clear.
But when you look at the US, energy and climate policy are really framed in a security of supply context. In Europe, it is framed in an environmental context. In the end, whatever [actions] increase energy security will be undertaken by the US. Some have possibly positive climate change effect. But others do not because they want to save their coal and 50% of the power [electricity] generation is coal. Any climate policy would of course undermine that coal and they do not have the gas resources that we have in Europe. Europe has about 80% of the world's gas reserves. So if you look at it from a security of supply perspective, the US will not accept anything which undermines its coal in the power generation sector.
What are you views on the bilateral and regional technology deals the US is pushing for?
Because of this lack of consensus on whether to do something about climate change, there has been a lot of focus on technology. A lot of this was badly received in Europe for the wrong reasons. It was seen as trying to postpone the issue for the long term and wait 50 years. Some of this may have been the case but I think there is merit in developing technologies.
If you look at the targets that need to be achieved under the UNFCCC, then you will need breakthrough technologies by 2050. And you don't get these without putting money into research and collaboration projects, they do not develop on their own. You get a lot of improvement of existing technologies the EU way by increasing the price of carbon which pushes technology improvements, but you do not get the breakthrough technologies in this way.
So I think the US has got something right there. In the EU, they got it wrong by having too low a carbon constraint which does not give enough incentives to improve energy efficiency. The EU is the opposite - it says the technologies can get running because we have the carbon constraint but then the technologies come at a high cost. So why not do something on developing these technologies and hope that they come in 2050. Basically, you need the equivalent of an Apollo programme. I think the EU is gradually waking up to this.
The energy efficiency improvements will help a lot. But this will largely be offset by increased demand. In that sense, it does not get you there, you really need breakthrough technologies. They are of course renewables, carbon capture and storage, hydrogen plus nuclear. And the EU has not really been thinking about this other than in terms of renewable in Germany but this is not going to deliver in the next 50 years. In the next 20 to 30 years, renewables will not play a major role. They are important but you have to bring the costs down and the only way of doing this is by getting them onto the market with support but they are not yet a massive source of reduction.
Are the EU targets on renewables not ambitious enough?
According to the IEA, with each doubling of renewable energy production capacity, the cost reduction is about 15 to 18%. That is a typical historic learning curve for any technology. So renewable sources of energy - all of them including photovoltaic [solar energy] - will eventually become competitive.
But obviously, if you put subsidies into coal, renewables will only become competitive later. If you have a carbon constraint, you increase the costs of existing technologies and bring the renewables quicker into the market. The targets are very important of course, nobody would deny this, the question is when do we reach them. Then it becomes very political of course. EU countries are still subsidising coal to the tune of 20 billion euros a year. In the US, this is not an issue, they are exporting.
Any other major difference between the EU and US strategies that you want to highlight?
The big difference is that in the US, the carbon constraint is not accepted and in Europe it is. The second is that Europe is more at ease in international agreements, especially when they are legally binding. Third, the EU is relatively at ease with absolute targets (eg: single market, common currency, Lisbon agenda and stability pact - although they have failed) while the US is not because it has domestic legal implications. Fourth is technology and how much you drive technology independently of policy.
While the EU tends to drive technology through policy [EU-ETS], the US wants to drive it by a separate package of R&D policy. I think that will prevail over time, the international regime will have a separate technology chapter, be it the Kyoto protocol or whatever. That is getting clear.
The last point is the impact of serious carbon constraint on the security of supply issue. And the US would have a big problem with its coal generation, and so would have India and so would have China. In Europe, the coal is being phased out in any case and we have all the gas around the world. But the security of supply conditions are very different between the EU and the US and plays very much to the advantage of Europe.
So you are saying that the EU is in a comfortable position to be a climate change champion?
It is true that there is a lot of rhetoric in Europe on the issue of climate change issue. The EU-ETS has had some impact but so far very modest. Europe should come to grips with the carbon constraint with some [research] policies. Just waiting for the technology to fall from heaven is just not good enough. But you have to be fair in the sense that the EU and the US integrate climate or at least environment into their development policies. But again, the US export credit agency favours the sales of advanced technologies and not the old technologies as is the case in most European countries.
So if you just look at climate change, then of course, the US is not willing to move. But if you look at the overall sustainable development or environmental agenda, then the situation is somewhat different.
One last point, perhaps surprising, is that the opinion polls between the EU and the US are basically similar. There is a difference when you look at the political elites. There are more climate sceptics in the US. But the general public opinion, including on the Kyoto Protocol, is basically similar. This comes out of a review of opinion polls run since 1989 and 2002. A lot of environmental innovative programme started in the US. The car efficiency standards for example were higher than ours, but they have not changed since the seventies if I am correct. They are as green as we are, if not more, but of course they have a different government.
