Opportunities for Transatlantic Cooperation

It is becoming increasingly clear that, despite the best efforts of the Europe-an Union to the contrary, a comprehensive global agreement for the reduction of greenhouse gases is unlikely in the next decade. This is primarily due to the stance of both the United States and China who, due to a number of political, so-cial and economic conditions, have not committed to binding and verifiable emis-sions reductions targets and, in doing so, create disincentives for other states to commit as well. Exacerbating the situation, the ongoing financial crisis has led

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to environments of austerity in the EU and the U.S. and trade-offs have relegat-ed climate policy to the back burner, particularly in the U.S..

Despite these challenges, opportunities exist for a wide spectrum of meaningful transatlantic initiatives. These range from top-down cooperation on governance challenges at the global level, bilateral cooperation on research and development and best practice sharing for transitioning to low-carbon economies through the short- to medium-term replacement of coal with cleaner-burning natural gas, to bottom-up initiatives at the sub-national level for promoting sustainable growth.

Finally, while all approaches will be necessary to achieve broad-based progress on emissions reductions in the EU and the U.S., strategies for engaging China on reducing emissions should represent a key priority for the transatlantic alliance.

2.3.1 Multilateral Cooperation

Despite the failure of the multilateral process in creating a global regime for le-gally binding carbon emissions reductions, there is plenty of space for transat-lantic cooperation at the global level. First, with the commitments made at the 2010 United Nations Climate Change Conference in Cancún, Mexico for setting up a US$ 100 billion per year green climate fund by 2020, new international in-stitutions and mechanisms are needed to manage the flows of future climate fi-nance and to set key priorities. Yet. such discussions would not necessarily take place within the Transitional Committee of the UNFCCC. Rather, as past ex-perience shows, outlets such as the G20 or the Major Economies Forum become major fora for addressing issues of global concern. Crucially, they include emerg-ing powers, notably China but also India. Moreover, they lend legitimacy to these talks as they give voice to developing countries in the process. Finally, they op-erate through top level summits, where key negotiations and agreements tend to take place anyway. Channeling carbon emission issues through the G20 and MEF means that emerging economies, particularly China, will need to have a bigger role in decision-making and thus take on more responsibility, something which China currently avoids.

Second, massive commitments of public money will be necessary to ensure that investments are made for transitioning to low-carbon economies, in addition to funding the commitment as agreed upon in Cancún. The EU and the U.S. must develop a shared vision on how to move forward in order to make a strong polit-ical case to constituent populations, as well as the private sector and investors, of why and how energy investments need to be made, particularly in light of the current economic and financial turmoil. Such discussions could occur within the context of the EU-U.S. Energy Council, a high-level forum launched in 2009 with the aim of providing a new framework for tightening transatlantic dialogue on energy issues, particularly with respect to economic growth and speeding up the low-carbon transition through cooperation on research programs and regu-latory regimes.(Council of the European Union, 2010).

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2.3.2 Bilateral/Trilateral Cooperation

Multilateral outlets and efforts will not be sufficient to avoid climate change and considerable opportunities exist for bilateral cooperation between the EU and the U.S., as well as together with emerging economies such as China. In particular, cooperation is needed in the areas of research and development and strategies for bridging the fossil fuel age with the low carbon age. First, in order to push to-wards a low carbon economy, the world needs a substantial investment into re-search and development of promising new technologies, including renewables, smart grids and, of particular importance, carbon capture and storage and ener-gy efficiency technologies, without which the achievement emissions reductions targets are impossible. For example, a new initiative between the United States Department of Energy and the Joint Research Centre of the European Commis-sion aims to facilitate global standardization of electric vehicles and the charg-ing infrastructure (smart grids) which would allow seamless operation of vehi-cles and EVSEs across borders and service areas of different utilities.(Argonne National Laboratory, 2011).

While public money will play a key role in contributing the needed capital for financing a global green transition, commitments by national governments will not be enough. In order to fill this gap, the role of the private sector is crucial and governments in the EU and the U.S. must commit political backing to this agen-da by setting the right incentives for R&D, by creating clear and reliable regula-tory frameworks, including, if appropriate, subsidy schemes in clean energy, and design frameworks that allows for corporate-level cooperation.

Second, soaring unconventional (shale) gas production in the United States, to-gether with the widespread discovery of shale formations in key demand centers such as OECD countries and China, has led many to make the case for natural gas as a transition fuel towards a low-carbon age. Due to new technologies de-veloped and tested in the U.S., there is now the possibility of accessing huge re-serves of unconventional natural gas at a relatively low cost. Taken together, there is a legitimate possibility for a large-scale replacement of coal-fired power plants with natural gas plants – a move which many believe could achieve more than a 50 percent reduction in greenhouse gas emissions.

This development opens up new opportunities for the transatlantic alliance. As a global leader in the effort to stop climate change, shale gas is attractive for the European Union with respect to driving the efforts of the world’s largest pollut-ers, namely the United States and China. In the case of the U.S. where shale is already competitive against coal, this could lead to huge reductions without the need for implementing politically unpopular cap-and-trade or carbon tax policies.

In China, there is also a compelling argument for domestic shale production.

While coal represents roughly 66 percent of total primary energy demand and is growing (IEA, 2010), there are natural limits of growth in Chinese coal

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tion to cover this demand. At present, half of the country’s railroad system is ded-icated only to the transportation of coal as reserves tend to be located consider-ably far away from major Chinese demand centers; pollution levels in major cities have reached maximum peaks, exerting negative effects on health and the envi-ronment and hence creating costs elsewhere. Thus, China would be well-served to increase the share of gas for meeting energy demand, particularly through do-mestic shale gas sources, of which there are plenty, as well as through LNG im-ports or imim-ports from Russia.

Despite these optimistic prospects, a number of challenges remain which, at the same time, represent key opportunities for transatlantic cooperation. First and foremost, concerns regarding the need for large volumes of water for hydraulic fracturing and the potential risk of groundwater contamination are a huge po-tential sticking point. A study by the U.S. Environmental Protection Agency on the impact of hydraulic fracturing on drinking water is due in 2014, with prelim-inary results to be made public by 2012. However, additional research on the en-vironmental implications of unconventional gas production is needed.

Second, as opposed to the United States, in Europe logistical and administrative hurdles regarding land access may halt widespread production of unconvention-al reserves (IEA, 2010). Whereas U.S. citizens own resources located under their property, and can thus reap considerable financial benefits if gas is produced on their land, this is not the case in the European Union. As resources in Europe in most cases belong to the government, there is considerable opposition to shale gas due to disruptive exploration and production methods, especially in areas of high population density.

To assist in framing the debate in Europe, the EU should continue to learn from the U.S. by sharing information and lessons learned, especially on environmental issues. The U.S. Global Shale Gas Initiative (GSGI), which helps countries iden-tify and develop their shale resources safely and economically, already has part-nerships with China, India and Poland, among others and is one potential forum for the transfer of technological, regulatory and environmental best practices.

2.3.3 Sub-National Cooperation

Despite popular support among a majority of Americans for policies to both pre-vent climate change as well as develop innovative new energy technologies, it is highly unlikely that the United States Congress will adopt a federal policy for mitigating carbon emissions any time soon. Because of this stalemate, efforts by the European Union and the UNFCCC to reach a global agreement on carbon emissions are likely bound to fail.

However, national policy measures and the top-down UNFCCC discussions and are not the only game in town. In the absence of a global climate deal, the best

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opportunity for EU-U.S. cooperation is to identify those actors with an overlap-ping interest in mitigating greenhouse gas emissions. The most promising ave-nues in this respect are numerous bottom-up initiatives designed to encourage emissions reductions, the most interesting and potentially constructive of which is cooperation between municipalities, regions and industry sectors in the EU and the U.S., as well as with third parties such as China.

In fact, expertise in this type of cooperation has been built up for years, with the European Union participating and providing expertise in numerous municipal, state and regional initiatives in the U.S. which aim overcome the federal stale-mate on clistale-mate legislation. For example, the mayors of 1054 U.S. cities signed a Climate Protection Agreement which aims to meet or exceed the obligations of the Kyoto protocol. The state of California and many northeastern states have ad-opted aggressive policies for reducing greenhouse gas emissions, promoting en-ergy efficiency and establishing renewable portfolio standards. Various regional cap-and-trade initiatives are also popping up, including the Regional Greenhouse Gas Initiative (RGGI), a collection of ten northeastern and mid-Atlantic states and the Western Climate Initiative (WCI), a collection of six U.S. states and four Canadian provinces. In addition, hundreds of corporate, non-profit and govern-ment entities have signed on to The Climate Registry, a non-profit organization that establishes standards throughout North America for businesses and govern-ments to calculate, verify and publicly report their carbon footprints in a single, unified registry.

In addition, U.S. municipalities and states cooperate with their European counter-parts in a number of global initiatives. The International Carbon Action Partner-ship, for example, shares best practices in designing and implementing cap-and-trade systems and includes member states from the European Union and states participating in the RGGI and WCI, among others. The C40 Cities Climate Lead-ership Group, together with the Clinton Climate Initiative, is a network of large cities from around the world committed to implementing climate policies, while the Cities for Climate Protection, an association of over 1220 local government members and from over 70 countries committed to sustainable development, co-operate to implement sustainable development policies

These cooperative networks, among numerous others, represent the most prom-ising opportunity for the European Union and the United States to both jointly mitigate carbon emissions as well as engage with other crucial actors in China.

They are sub-state levels and hence less politically charged. There is expertise on how to coopt actors from various countries into regional or even global policy networks. And a problem oriented approach – through mayors sharing a clean-air agenda or businesses caring about the carbon image of their products – pro-vides for natural ‘allies’ as Chinese, European and American policy makers or businesses are exposed to similar issues.

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2.3.4 Engaging China on Global Carbon Emissions

While all of the above represent crucial opportunities for EU-U.S. cooperation on mitigating greenhouse gas emissions, it will not be enough to slow the onset of potentially catastrophic global warming. It is crucial that China, as the world largest emitter of carbon dioxide, be brought on board. Between the established channels of institutional cooperation between the EU and China on many cli-mate-related issues and commitments for more bilateral cooperation between the U.S. and China, a promising starting point exists for the creation of a coher-ent and comprehensive transatlantic agenda vis-à-vis China and climate change.

The first step on the way to a transatlantic agenda will be the definition of a set of common goals that strikes the right balance between an effective reduction of GHG emissions and high feasibility in light of the Chinese political reality. Sim-ilar to the EU’s engagement with the U.S., this means parallel processes of high-politics for hashing out an international agreement with China on board, bilat-eral cooperative measures at the national level, as well as sub-national initiatives among actors in the EU, the U.S. and China with common interests, for example, municipalities, business sectors or researchers. Only through more depoliticized, sub-national initiatives, flanked by international processes such as the UNFCCC and bilateral cooperation measures, can China be engaged on a level which is both politically possible and allows for the credible delivery of emissions reductions.

2.3.4.1 Multilateral Cooperation

Moving towards a transatlantic agreement on goals and objectives starts with a debate about the most fundamental aspect of governing global carbon emissions, namely the fair distribution of the burden associated with emissions mitigation.

Support for carbon reduction hinges upon a distribution of costs that is perceived as acceptably fair by all parties. Reaching such a common understanding with China is inconceivable without first creating a stable agreement between the trans-atlantic partners regarding an appropriate framework for global burden-sharing.

In the past, the most prominent instrument used by the EU for emissions reduc-tions in China has been the Clean Development Mechanism (CDM) under the Kyoto Protocol. However, the CDM is a mechanism that is most suitable for har-vesting low-hanging-fruits such as energy efficiency and the potential of the CDM in China in this respect is approaching exhaustion. While the overall effectiveness of the CDM is subject to much debate, it has succeeded in building local aware-ness of carbon reduction as a tradable good. China’s experiences with the CDM therefore might be a promising starting point for the promotion of a nation-wide market-based emissions trading system (ETS) and thus becomes an interesting avenue to explore for an emerging transatlantic agenda.

While binding commitments towards absolute and quantifiable emissions

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tions certainly represent the key objective, China will continue to perceive ab-solute reduction goals as effectively creating a ceiling for China’s economic de-velopment, rendering such demands unfeasible in the mid-term. An alternative approach to this could rather include measurements of GHG intensity – primar-ily the amount of GHG emissions per unit of GDP – which is a measuring unit more in line with the Chinese domestic climate change efforts and perhaps a more appropriate target value for an emerging economy.

2.3.4.2 Bilateral or Trilateral Cooperation

Another instrument that is being prominently promoted in China by the EU is the development of Carbon Capture and Storage (CCS) facilities. Initially, making cost-intensive and experimental CCS technology a primary focus of EU climate change policy vis-a-vis China was highly contested among EU member states.

Eventually, the proponents of CCS under the leadership of the United Kingdom prevailed and CCS has since become the flagship of EU climate change efforts in China. While it is still too soon to evaluate the ultimate success of the EU’s efforts in this field, the introduction of CCS technology has already become an instructive example for the diversity of interests and the intricate setup of actors on the Chinese side that will also influence the success of a future transatlantic agenda. While CCS has met intense resistance from powerful Chinese govern-ment entities, and thus putting the future of the EU’s efforts at constant risk, it has also found an internal champion with the Chinese Ministry of Science and Technology.

A further avenue for potential cooperation is through supporting China’s legislative and regulatory efforts by sharing experiences and best-practices. Administrative support initiatives represent a way to improve the formulation and implementa-tion of domestic climate change policies in China. The EU has gathered exten-sive experiences with these kinds of initiatives in the past, for example, through the EU-China Energy and Environment Programme (EEP) or more specific ini-tiatives such as the CDM facilitation project or the EU’s Support to Regulatory Activities for CCS (STRACO2). These EU initiatives have encountered signifi-cant constraints due to China’s concerns regarding any sort of foreign meddling in domestic policy issues as well as by inflexible and bureaucratically convoluted processes on the EU side. The lessons learned from past EU administrative sup-port initiatives can provide a head-start for comparable transatlantic measures to be implemented in the future.

In addition to prominently discussed instruments of emissions reduction such as carbon markets, there exists a whole spectrum of innovative measures worthy of exploring which could represent the pieces of a joint transatlantic agenda. The de-velopment of China’s market for natural gas through the utilization of abundant Chinese coalbed methane (CBM) or the creation of low-carbon Economic Zones (LCZs) modeled after China’s Special Economic Zones of the early 1980s

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sent two of many options. But as the example of CCS promotion vividly shows, all of these approaches have something in common. They will have to be pursued with great awareness and sensitivity for the interests of different Chinese actors, expectations and political context.

Other thinkable strategies to facilitate the implementation of emissions reduction instruments through burden-sharing include major EU and U.S. investments in China’s energy infrastructure. These large-scale infrastructure deals, as argued by scholars such as David Victor, could significantly increase leverage on carbon emissions in China. For example, investments into natural gas infrastructure that make it more feasible for China to implement a shift from coal-fired to gas-fired power plants appear to be a promising option to be considered within the frame-work of a transatlantic agenda.

2.3.4.3 Sub-National Cooperation

A joint transatlantic agenda, combining U.S. and EU influence and resources, would be the ideal prerequisite for successfully engaging China in a multilateral framework for carbon reduction. However, in the absence of this strong transat-lantic lever, the multilateral process must be flanked by a more fragmented and depoliticized approach involving actors with common interests and common chal-lenges, for example, at the level of business sectors and municipalities.

A joint transatlantic agenda, combining U.S. and EU influence and resources, would be the ideal prerequisite for successfully engaging China in a multilateral framework for carbon reduction. However, in the absence of this strong transat-lantic lever, the multilateral process must be flanked by a more fragmented and depoliticized approach involving actors with common interests and common chal-lenges, for example, at the level of business sectors and municipalities.