14 January 2010: Is the EU good for business?

Today, I attended a conference organised by Business for a New Europe and the Centre for European Reform on Is the EU good for business?. The general answers was (unsurprisingly, given the organisers), ‘Yes, generally, but could be better’. There were introductory speeches by Foreign Secretary, David Miliband, and Business Secretary, Peter Mandelson, then a panel discussion on open markets and one on green growth and innovation.

David Miliband said that the EU has the potential to lead on clean energy, including CCS. He is right that it has the potential. However, that potential is not being realised on CCS. Both China and the US are ahead on this aspect. The EU is good at setting targets, but less good on delivery. It has been effective at getting very dirty power plants and factories to clean up or close down, but less good at getting clean replacements constructed. The EU did provide €1 billion for CCS in its economic recovery package and has selected six projects to share this. However, the Obama administration allocated $2.4 billion (€1.6 billion) to CCS under the American Recovery and Reinvestment Act (ARRA) and also announced $2.3bn in new tax credits to manufacturers of clean energy equipment, including CCS. The American government has also made progress in selecting specific CCS schemes – the ARRA money has been awarded to a 275Mw pre-combustion coal plant in Illinois, a 250Mw pre-combustion plant in California and a 120Mw post-combustion project retrofitted to an existing coal power station in North Dakota, which is due for completion in 2011. In China, a group including the US coal company Peabody Energy, five of China’s largest power companies, two Chinese coal companies and the Chinese government, is constructing a 250Mw pre-combustion plant that is due for completion in 2011. There are also plans to expand this to 650Mw by 2016. This is good news for the climate, but not such good news for European business, which is in danger of being left behind. EU governments have a crucial meeting on 2 February 2009 at which they are due to agree how to allocate substantial extra funds, and if Europe isn’t to miss out on this growing market it is essential that they do so. (I am writing a report for the Centre for European Reform on this, which will be available on Climate Answers as soon as it is published.)

Mandelson spoke little about climate, though he did say how important it is to make progress. He was previously the EU’s Trade Commissioner and, in that role, he helped set up the EU-South Korea Free Trade Agreement, which is the second largest free trade agreement ever (after NAFTA – the North American Free Trade Agreement). South Korea is leading the world in the proportion of its recovery funds going on energy measures (in their case primarily energy efficiency).  The issue of trade is also highly relevant to climate.  In the open market panel discussion, Lord Kerr (Deputy Chairman of Shell) said that climate protectionism in the form of border carbon tariffs should be rejected. This is an important debate for 2010. Adair Turner, Chairman of the UK Climate Change Committee and previously head of the British business group the CBI, has said that he now supports this option.

The first speaker in the green growth session was Richard Branson, chairman of Virgin. He predicted that 75% of UK energy will be from clean sources within ten years and said that it is a great business investment opportunity. He then said that most coal power stations should be closed by 2020. He also predicted that, within ten years, all cars will be hybrid or electric. And he called for high carbon taxes on energy intensive industries (and he explicitly included aviation in this, despite running an airline), with the money going to clean energy investments.

Another speaker in the green growth session was Tom Delay, head of the Carbon Trust, the government-funded advisory group on climate. He said that it is essential, after Copenhagen, to have a stronger carbon price (which has fallen significantly in the EU since the conference). He also said that the best means to meet the cost of the low-carbon transition must be identified and he too spoke out against climate protectionism. He recommended increasing returns on low-carbon investments by harmonising incentives (which may be desirable, but is unlikely to happen any time soon as it would require all the governments to agree), and setting clean energy targets in terms of cost reductions, not just increased capacity. He said that California’s targets, being only about capacity, have led to costs remaining high.

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