EU signals end of ‘free lunches’ on climate finance

EU signals end of ‘free lunches’ on climate finance.

China and India must play their full part in fighting climate change and accept that programmes financed by the West to modernise their industries will only come in return for making genuine efforts at home.

Artur Runge-Metzger, head of international climate change negotiations at the European Commission, said carbon markets are going to play a central role in the transition to a low-carbon economy in the developing world too.

But he stressed that advanced developing countries need to raise their game, as the number of Western-backed projects financed under the UN's Clean Development Mechanism (CDM) will be limited.

"Some have had a very good experience with the CDM, and they benefited a lot from it, like China, India and Brazil," said Runge-Metzger. "They would certainly like to keep that instrument."

Western countries, he argued, should request the most advanced developing nations to make commitments in exchange for much-needed technologies such as carbon capture and storage. "Of course, if there is a free lunch, why should you not ask for three or four free lunches?," asked the EU official.

According to Runge-Metzger, in some sectors, China already has the latest technology and does not need further support. "If you look at the latest steel plant they have built, it is probably one of the cleanest steel plants in the world," he said.

The problem, he stressed, is China's "outdated" energy sector, epitomised by the country's heavy reliance on coal. This is where EU programmes to support the deployment of new technology could prove most useful, he explained. "It is very clear that there will have to be a move towards carbon capture and storage [CCS]. By 2020, if we take the necessary steps in developing large scale demonstration plants, we can really show that this technology is working."

But Runge-Metzger cautioned that such projects will come with strings attached. "It should not be seen as a big Christmas box [that] you can unwrap and find a beautiful power plant inside [...] free of charge," he warned. "It is about working together to improve technologies and put them into place."

Furthermore, he said CDM projects in industrial sectors where China already fiercely competes with the EU will be phased out over time to prevent European companies from relocating their production and CO2 emissions abroad (see EurActiv LinksDossier on 'carbon leakage').

"We propose that to address carbon leakage in some countries, one should phase out CDM projects for those industries that are exposed to international competition," Runge-Metzger said.

To replace CDM projects in those sectors, he suggests putting in place a "sectoral accrediting mechanism," whereby projects would receive support only after initial upgrades have been made to the oldest and most polluting installations.

"If you get to that point, then above that, if you get better, there might be a possibility and room for a CDM accrediting mechanism as a kind of new CDM," said the EU official. But he conceded that this "would require a certain amount of your own investment, your own capital [and] your own domestic effort to reach a certain level".

Runge-Metzger noted that if all parties, and namely China, make responsible choices in restructuring their economies and reforming their environmental regulations to push clean technologies onto the market, then "the EU might be a bit more open for the development of mechanism projects".

The Union, he recalled, has unilaterally committed to reducing its own emissions by 20% by 2020. However, he was quick to underline that this percentage may be raised to 30% were all other major emitting countries to commit to reductions, a move that would also leave more room to boost CDM projects.

Runge-Metzger declined to say exactly how much extra funding could be reserved for new CDM projects in such a scenario. "I am not going to say what the figure is going to be, because that is a subject within the negotiations. We have some room for manoeuvre, so that gives us some playing ground for the negotiations," he said.

As for creative ways of finding money to boost energy efficiency, Runge-Metzger stressed that only a small amount of public money is needed to leverage the sums required. "It's not like if we are waiting for a grant or a present here […] but it is about setting aside loan and risk guarantees […] to intelligently put together financial packages" that could unleash billions for green investments, he stressed.

At the March European Council, EU leaders will adopt a common position which will become a blueprint for final negotiations over a post-Kyoto climate agreement in Copenhagen next December.