The CO2 smokescreen

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European environment ministers declared in December that a global rise in temperature by more than two degrees Celsius is unacceptable. At the same time, they stressed that industrialized nations must lead the world in reducing greenhouse gasses, and of these, mainly carbon dioxide (CO2) emissions. This month, the European Commission will present its proposal for a European climate strategy. Next month, Europe's environment ministers will meet again, after which the state leaders will meet to decide on the EU's coming climate targets.

In this backdrop of idealism that should be good news to the wind industry, the focus could hardly be more timely. EU countries are responsible for 16% of global CO2 emissions, and a new quota enforcement system is off to a bad start. While the official fine for exceeding individual CO2 limits was raised to EUR 40/tonne, emission permits were for sale on the free market for EUR 6-8/tonne. The big emitting industrial and power sectors expect even cheaper permits. This has lead to some absurd situations. In Denmark, for instance, utility Energi E2 -- which markets itself as a progressive power company, is the main owner of the 165 MW Nysted offshore wind farm and bid on Nysted's extension -- has sold 100,000 of its own CO2 quotas to Shell on the carbon finance market. E2 needs its quotas this year to fulfil its requirements, but it is just waiting for the market price to fall so they can be bought back cheaper -- thereby earning the company more money.

To add (fossil) fuel to the fire, heavy energy users -- which are also the biggest CO2 emitters -- are considering relocating to countries that have not obligated themselves to CO2 restrictions. With such a move, the companies would actually be able to increase their emissions. Industrial trade organisations estimate that around 20% of Kyoto's CO2 commitments will be "reduced" in practice by such expatriations.

Within the EU, there are other means for avoiding the carbon reduction demands. The Danish power industry's trade organisation has suggested to its members that up until 2007 Danish utilities will have a clear incentive for establishing electricity production in Germany instead of Denmark, because the German CO2 reduction quotas for electricity companies are gentler than the Danish ones. The CO2 quota systems vary in all 21 EU countries that were part of the emissions trading scheme market in January. Ingenuity is thus thriving, first and foremost in how to avoid the demands of CO2 reduction. So far, the European carbon quota system has acted as a smokescreen, hiding the fact that there is no visible reduction of the EU emissions.

Next month the EU Commission must also present an analysis of future costs in reducing greenhouse gasses and what the EU and the rest of the world is winning or saving with the effort. Here is the prime chance for the EU leaders to use the commission's own July 2001 report, "ExternE -- Externalities of Energy." This paper sums up the background of ten years' research in all the then-EU countries, including the real social costs of energy production.

Since 2001, ExternE's results have been confirmed by other research projects. The newest calculations, from Danish ECO Consult, conclude that a shift from fossil fuels to renewable energy not only benefits health, environment and energy resources, but it also has a favourable effect on the economy. The environmental and social expenses come in the form of global warming, acid rain, smog, work- and health related damages. These are the result of any fossil fuel-related energy production. Everybody knows that these problems cost money, but the real price does not show up on electricity bills. The hidden costs are instead paid by taxpayers or by society in general.

If consumers paid the real costs, then fossil fuel generated electricity would cost twice what it does today, the EU report says. Electricity production from natural gas would be 30% more than the market price. In comparison, the environmental expenses with wind generated electricity would only raise the electricity price by only EUR 0.001/kWh, if they were included.


These are the actual expenses, which only a few experts or politicians doubt, and which EU's policy makers can use as the foundation for their decisions. The potential savings explain recent conclusions that if all societal expenses are put in the equation, it is cheaper to switch from fossil fuels to renewable energy than to not do so. In fact, the latest ECO Consult studies show that the social savings are so great that in the long run they alone will finance the switch. The conclusion holds even with a price of oil under the current high level.

Will the ineffective European CO2 quota system continue to be regarded as an excuse to avoid political action? Or will policy makers turn it into a real eye opener, showing that the straight road to a sustainable energy policy is to set a concrete price on pollution's real expenses, and then to make the real polluters pay?

Stay tuned for the conclusion.

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