http://online.wsj.com/article/SB10001424052970203893404577100220208173542.html

 

BRUSSELS-Efforts to cut greenhouse-gas emissions in the European Union will pay off over the next four decades as they will reduce the fossil fuel bill, but such a scenario hinges on where oil prices are headed, the European Commission said Thursday.

 

The commission released a strategy paper on how the 27 EU countries could achieve their goal of cutting carbon-dioxide emissions by at least 80% in 2050 compared with 1990 levels, analyzing different scenarios. It said that if the union continues with current policies, it could reduce the costs of investing in infrastructure. However, it noted that "we may not have to invest as heavily in infrastructure ... but we face higher fossil-fuel costs as gas and petrol prices are estimated to rise due to an increase in worldwide demand."

According to the commission, the average cost of investments and operational costs, including fuel, related to energy could represent roughly 14% of gross domestic product if the current policies continue unchanged: an increase on the 10.5% recorded in 2005. That is broadly in line with the scenarios envisaged for the 2050 goal.

These numbers, however, hinge on two highly different assumptions for oil prices. The commission used a price of $127 per barrel to develop the scenario that simply projects current policies to 2050. However, it used a price of $70 a barrel in its scenarios that see green policies being developed for the 2050 target. This is because the commission assumes that the EU will implement further, aggressive climate policies if there is a global agreement to do so and that other industrialized countries will aim for similar cardon dioxide cuts.

The so-called business-as-usual scenario doesn't include that eventuality, officials explained.

"The results of the scenarios depend notably on finalizing a global climate deal, which would also lead to lower global fossil fuel demand and prices," the strategy paper reads. The commission believes prices will be lower if there is a global deal to cut carbon-dioxide emissions, which will reduce global demand for fossil fuels.

The document comes just days after an agreement to continue the global fight against climate change was reached at an international summit in Durban, South Africa. But it also comes at a critical moment for the EU, as the sovereign-debt crisis and the economy in general bumped climate issues down governments' agendas.

The commission continued to be cautious over the developments in the international climate negotiations, even though it softened language that in an early draft indicated the 2050 goal could be reconsidered in case of failure at the global talks.

"The EU will need to consider progress, and concrete action, in other countries. Its policy should not develop in isolation but take account of international developments," the strategy paper read. The overall cost of investment depends strongly on the policy, regulatory and socio-economic framework and the economic situation globally," it said.

According to the agreement reached Sunday in Durban, most industrial nations that are internationally bound to reduce emissions under the so-called Kyoto Protocol will extend their commitments beyond 2012, while the U.S., China and India-the three largest emitters of greenhouse gases-pledged to join them in a pact that will take effect in 2020.

In an October draft, the commission's energy department, which wrote the paper, said that "if coordinated action on climate among the main global players fails to strengthen in the next few years, the question arises how far the EU should continue with an energy-system transition oriented to decarbonization."