Economic Cost of Higher EU Climate Ambition Comes Under Scrutiny

(Bloomberg) --

The world’s biggest trading bloc shouldn’t rush into more ambitious climate targets this decade without assessing how lower emissions could impact the economy, according to a top European Union lawmaker.

With the EU preparing to forge its flagship Green Deal into law later this month, European People’s Party Parliamentarian Peter Liese said his party wants to see how the climate strategy will affect output before intermediary emission targets are set for 2030.

“We need to go step by step,” said the German lawmaker, who’s the environmental spokesman for the parliament’s biggest party. “For many colleagues an impact assessment is crucial to see what the consequences are.”

His comments underscore the complexity of turning the EU into the first carbon neutral continent by mid century. The unprecedented shift will affect everything from power production to agriculture and transport. The EU’s plan includes revamping energy taxes, agriculture and state aid policies while also considering border levies that account for carbon emissions.

Stepping up the EU effort to cut greenhouse gases is at the heart of the political agenda of European Commission President Ursula von der Leyen. She pledged to deepen the 2030 target to lower emissions to 50% or even 55% from 1990 levels. The current goal is a cut of at least 40% and a change needs approval by the EU Parliament and national governments.

The first stage of implementing the Green Deal begins Feb. 26, when the EU Commission plans to present a law to enshrine the climate neutrality objective into existing legislation, making the 2050 target to zero-out emissions irreversible. The next step will follow in the summer when the commission unveils a so-called impact assessment that analyzes how it plans to reach the mid-century goal.

“If the analysis shows that it’s responsible, easy and the dynamic on the international level is there, possibly I think we can talk about 55%,” Liese said. “But I doubt a serious analysis will come to that conclusion.”

Liese’s call for caution could put him at odds with the chairman of the EU Parliament’s environment committee, French liberal lawmaker Pascal Canfin, who supports including the higher 55% target in this month’s climate legislation. The German lawmaker supports a separate regulatory proposal for any changes to the 2030 targets.

Setting the trajectory may become even more complicated if the U.K. decides it doesn’t want to pursue a joint climate strategy after exiting the EU, a factor that should be considered in the impact assessment, Liese said.

In its Green Deal timeline, the commission plans to revise laws on climate and energy targets in 2021. That will also mean updating the rules in the EU Emissions Trading System, the world’s biggest cap-and-trade program. It imposes shrinking limits on greenhouse gas discharges by around 12,000 facilities owned by utilities and manufacturers. The cap in the system will decrease 2.2% each year starting in 2021, compared with 1.74% in the eight years through 2020.

Further tightening of the carbon market should start with the cancellation of permits covering coal emissions from countries that stop burning the fuel, Liese said. Boosting the pace of emission reductions under the so-called Linear Reduction Factor, or LRF, along with other ETS adjustments should be considered in the commission’s analysis.

“Increasing the LRF is a serious exercise and we need to really carefully analyze the consequence on the competitiveness and the feasibility of carbon border adjustment,” Liese said.

©2020 Bloomberg L.P.

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