UPDATE 2-Cost of 30 pct EU carbon cut less than thought-draft

Wed Jan 18, 2012 11:37am EST

Related Topics

* Poor EU states would pay greater share of bill, analysis shows

* Commission sets out options for spreading cost more evenly

* Study could reignite EU debate on raising climate ambitions (Adds analyst comment in paragraph 18)

By Charlie Dunmore

BRUSSELS, Jan 18 (Reuters) - Raising the European Union's 2020 emission reduction target to 30 percent would be considerably less costly than originally thought and the effort could be shared fairly among EU governments, according to a draft EU document.

The analysis by the European Commission could reignite the debate over whether the EU should boost its climate ambitions, after the economic downturn made emission cuts easier to achieve, but also reduced the ability of governments and companies to make the necessary investments.

The EU currently has a binding target to reduce emissions 20 percent from 1990 levels by 2020. The EU has been debating pushing the level to 30 percent but no formal proposal has been made.

The financial crisis has virtually guaranteed that the bloc will meet the 20 percent target, said the document seen by Reuters on Wednesday, and ensured that "the 30 percent reduction scenario has also become considerably less costly."

However, the additional cost of going to 30 percent, previously estimated by the Commission at 33 billion euros ($42 billion), would hit the bloc's poorer member states in central and Eastern Europe proportionally harder than richer EU countries, the analysis showed. That creates a political obstacle, with opposition strongest in newer EU states such as Poland.

In response, the Commission analysis sets out ways in which the costs of going to 30 percent could be spread more evenly across the bloc.

One way would be to adjust the bloc's Emissions Trading Scheme (ETS), under which member states are allocated carbon allowances, which they can sell on to their industries.

The analysis suggests reducing the number of carbon allowances rich countries can sell to their industries by 38 percent, equivalent to removing 341 million allowances from the ETS in 2020, while leaving unchanged the number for poorer countries.

"The analysis suggests that if only the higher income member states were to set aside allowances earmarked for auctioning, the lower income member states would see auctioning revenues rise by as much as 80 percent in 2020," due to the expected rise in carbon allowance prices, the Commission said.

Benchmark EU carbon prices CFI2Zc1 are currently trading at near record lows of about 7 euros per tonne.

Moving to a reduction target of 30 percent would also require an extra 6.5 percent cut in emissions from sectors not included in the EU ETS, such as ground transport and buildings, the analysis showed.

POLITICAL DEBATE

Emissions last year were already down 17 percent on 1990, and expected increases in energy efficiency mean the EU is on course to achieve a 25 percent reduction by 2020, the Commission has said.

The bloc has offered to go to 30 percent if other countries commit to deeper cuts as part of a global climate deal. But some EU governments such as Britain and Denmark believe Europe should raise its target unilaterally to create green jobs and boost growth.

Green campaigners agree, adding that raising the EU target would help revive Europe's struggling carbon allowance market.

"The carbon market is flat on its face and fuel prices are hurting the economy," Greenpeace's EU climate campaigner Joris den Blanken told Reuters. "Strengthening Europe's climate action will help diffuse both these problems, benefit the climate and unlock investment and jobs."

But support for increasing the target among EU governments has been eroded by the bloc's ongoing debt crisis, while industry groups vehemently oppose the idea.

Carbon market analysts said a unilateral move by the EU to toughen the target could help flagging carbon prices, but they questioned the political will by all member states.

"Yes a 30 percent target would help of course, but chances this passes in the short term are very low, given the economic context," said Emmanuel Fages, an analyst at Societe Generale.

In November, a senior Commission official said talk of the EU unilaterally going to 30 percent was "politically not on the cards at this point in time", but predicted that the debate would resurface in 2012.

As current holders of the EU's rotating presidency, Denmark has more influence over the EU's political agenda over the first half of 2012. A Danish presidency spokesman said the country would include the Commission's analysis in planned discussions on the EU's climate policies.

A Commission spokesman declined to comment on the draft, which is expected to be finalised later this month. ($1 = 0.785 Euros) (Reporting by Charlie Dunmore, additional reporting by Jeff Coelho in London; editing by Keiron Henderson and Alison Birrane)

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