TCS Daily

The European Commission's Emissions

By Carlo Stagnaro - July 26, 2004 12:00 AM

Anyone concerned about the future of freedom and wealth in Europe should worry anytime Environment Commissioner Margot Wallström opens her mouth.

On Wednesday 7 July, the European Commission approved five national plans for trading emissions for energy-intensive industrial plants. Denmark, Ireland, the Netherlands, Slovenia, and Sweden can now enjoy the not-so-enviable status of the most advanced countries heading towards economic suicide. Plans are in the works for Austria, Great Britain and Germany to join them.

"The decision," said Wallström, "shows that we are serious about our climate change policy and that we can start the emission trading the first of January next year, as planned."

What this means is that 2005 might be the year when energy production, consumption, and distribution in Europe are put under a sort of soft socialism, with all the important decisions made by the Commission. The institution's outgoing president, Romano Prodi, is well aware of this. In fact, in a presentation at the San Rossore International Meeting on Global Warming in Italy, he went so far as to threaten the US and Russia, suggesting that if they don't ratify the Kyoto Protocol, there would be consequences. He didn't elaborate, perhaps realizing that little can be done to force US and Russia to implement a climate policy which is contrary to their national interests - and the EU has no right to force them in any case. Prodi blamed "a lack of political will and the division between the industrialized countries" for the failure of consensus on Kyoto.

Even among EU member states, Prodi and Wallström have a couple of thorns in their sides when it comes to the future of Kyoto. First, as the implementation of the European Trading Scheme gets closer and more concrete, Europeans are starting to realize that the Kyoto Protocol doesn't withstand a cost-benefit analysis. You don't need to be a free market extremist to understand that it doesn't make much sense to invest lots of resources today to address a threat that might appear 100 years from now -- and which might not even turn out to be a real threat after all.

UNICE, the body representing European businesses, proved to be one of those thorns when it recently expressed clear criticism of European climate policy. "Unilateral action by the EU in order to achieve the Kyoto objectives could reduce global emissions of greenhouse gases by no more than 1 percent to the horizon of 2012," UNICE President Jürgen Strube said. At the same time, European competitiveness would be dramatically reduced, and a number of companies might be forced to relocate to other countries with wiser environmental regulations and lower tax pressures just in order to survive. Fabrizio D'Adda, chairman of the UNICE Industrial Affairs Committee (which issued an action plan on EU climate policies), suggested that the EU not go on with an unilateral effort to comply with Kyoto targets. The economic loss would be inversely proportional to the environmental benefit - and the latter would be zero.

Another thorn, one especially irksome to Prodi, is his own country. Italy is far from its Kyoto targets: so far, it has not been even able to submit a national allocation plan to the Commission. Italy, together with Greece, has been sent a written warning - which Environment Minister Altero Matteoli and Productive Activities Minister Antonio Marzano apparently took seriously, having declared that "next week" a plan would be sent. But Kyoto is not on the list of Italy's political priorities. Silvio Berlusconi's government is having perhaps its toughest moment since 2001: Forza Italia (Berlusconi's party) fell from almost 30 percent to more than 20 percent in the recent European elections; Economy Minister Giulio Tremonti's head was thrown to Berlusconi's so-called "allies", the National Alliance and the Christian Democrat Union; and the planned tax code reform is unlikely to ever materialize. If Berlusconi fails to cut taxes and reduce the number of tax breaks, his political death would be the logic consequence - and Kyoto implies more taxes, more regulation, and higher energy costs (including both electricity and gasoline) by its very nature.

As a leader of the Italian left, Prodi may profit from Berlusconi's troubles to a certain extent. But there are two key things that he well knows. First, that the left, which was in power from 1996 to 2001, was not able to do anything to cut Italian emissions (the Protocol was only formally ratified in 2002). Furthermore, should the left take the 2006 elections, all else being equal, it would once again not be able to do anything to cut emissions. This is because the Italian economy is so weak that the country simply can't afford further increases in bureaucratic costs, including the costs of trading emission quotas.

What is true for Italy is true for the European Union as a whole: economic growth in 2003 was only 0.4 percent in the euro area. What the EU needs is more of a market, more growth, and more prosperity: not more market socialism.

Carlo Stagnaro is Free Market Environmentalism Director of Istituto Bruno Leoni (, and a fellow of International Council for Capital Formation (


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