BRUSSELS--Agreeing on mechanisms to include in a package of climate and energy legislative proposals that would ensure the continued competitiveness of European industry is proving the most difficult part of negotiations between EU member states, French Environment Minister Jean-Louis Borloo said July 15.

In particular, member states have yet to form a view on the idea of a “frontier tax,” or equivalent measures to ensure European industry is not penalized by the costs of complying with environmental legislation relative to international competitors who may not otherwise be subject to similar climate legislation, Borloo said.

“We have to find the best mechanism, but we have not yet found it,” the French minister said, speaking in Brussels to reporters following a hearing of the European Parliament’s Environment Committee. France presently holds the rotating Presidency of the European Union, meaning it sets agendas and chairs meetings of EU countries.

Despite the lack of agreement on a set of proposals put forward by the European Commission, Borloo said that member states represented in the EU Council still hope to complete their discussions on the plans by the end of the year, after which the Council and the European Parliament must finalize the legislation.

“It’s tough, but all we can do is try and get this package through by the end of December,” he said.

Parliament and the EU Council are discussing the detailed legislative proposals put forward by the European Commission in January outlining how the European Union should meet its goal to cut greenhouse gas emissions 20 percent compared to 1990 levels.

The emissions reduction target will increase to 30 percent if other developed nations take on similar commitments as part of international negotiations on a climate framework to replace the Kyoto Protocol.

Emissions Restrictions.

The centerpiece of the Commission’s proposals is a plan to revise the European Union’s Emission Trading Scheme (ETS) after 2012, placing tougher restrictions on market participants.

The ETS imposes costs on large-scale polluters such as steelmakers and power plants by requiring them to buy emissions allowances, either through auctions or on the European Climate Exchange.

Industry, however, has emphasized the potential for “carbon leakage,” meaning that sectors vulnerable to international competition may decide to relocate outside the European Union if they judge the costs of emissions trading to be too onerous, and if there is no international agreement that imposes similar restrictions on their non-EU competitors.

In its ETS review proposals, the Commission said it would “identify by June 30, 2010, which energy-intensive sectors or subsectors are likely to be subject to carbon leakage” and would put forward “appropriate proposals” by June 2011.

Borloo said EU countries are united in the belief that the Commission should bring these dates forward. “We have to start off with some criteria [on which sectors are vulnerable] being put forward in 2009,” he said.

No Common View.

But the French minister said EU countries have yet to form a common opinion on the measures that should be taken to protect vulnerable sectors if there is no post-Kyoto international agreement.

Should an agreement fail, the most likely option for policymakers will be to extend the current practice of providing ETS participants emissions allowances free of charge, rather than--as envisaged by the Commission proposal--switching to a general principle of allocation through auctioning.

Borloo said this option is being considered by member states alongside possible border adjustment measures, such as requiring importers into the European Union of carbon-intensive products to participate in emissions trading. Such measures might, however, provoke international trade disputes.

Borloo said that member states also have yet to decide on what would constitute “success” in forging an international climate framework after 2012.

“We want to find a solution [to carbon leakage] without being naive,” he said.

Borloo denied that member states had taken “national positions” over the proposals because of a desire to protect their industrial bases. Instead, he said, “there is a very positive attitude” in negotiations.

The French minister, however, went on to make a veiled criticism of Germany’s position on another EU initiative to combat climate change: a plan to force mandatory reductions in vehicle carbon dioxide emissions.

Under the Commission's plan, vehicle emissions would be cut to an average of 130 g/km (7.4 ounces per mile) by 2012, with an overall goal to reduce vehicle carbon dioxide emissions to 120 g/km (6.8 ounces per mile). But Germany has resisted the Commission proposal on the basis that it would damage its car industry, which is known for producing larger, less energy efficient cars.

By Stephen Gardner

Copyright 2008, The Bureau of National Affairs, Inc.