A carbon tax might be better for China than emission trading


“I was responsible for milk quotas in my previous Commission position. Emission trading for carbon dioxide is not something I believe in.”

The director in DG Environment was sceptical when a guest asked about emission trading as a policy option back in 1992. Later, the successful Swedish green tax reform was one of the inspiration sources behind the Commission proposal for a European energy and carbon tax. The first choice for the climate experts in Brussels was a tax, not emission trading.

However, it was not possible to achieve consensus around the European Commission proposal due to objections from in particular the United Kingdom. The European emission trading system (ETS) emerged as an alternative. Now, the ETS is well established, but still has problems after many years of low prices for the certificates.

Against this backdrop, the enthusiastic statements from Brussels policy-makers on the new Chinese emissions trading system seem oversimplified.

During recent years, there has been problems in the Chinese pilot markets with inter alia too many emission permits issued and a lack of tough sanctions towards companies not paying for emission certificates.

The national system will to start with only cover power production. Experts have questioned the lack of a ”hard cap” for total carbon dioxide emissions from the sector. Instead, emission certificates will be allocated to power plants according to their electricity production.

There are a number of other question marks. In addition to the lack of a cap for total emissions, the crucial issue of effective verification is not convincingly addressed and it is unclear how transparent the system will be to the public.

An upstream carbon tax on coal and oil has been identified by the OECD and others as easier to implement than emission trading permits. Even when China has now decided to try a national ETS, there is still the opportunity to apply a carbon tax in the non-ETS sectors. Such proposals have been developed, and even if there are recent negative statements from Chinese policy-makers regarding a carbon tax, the idea should not be abandoned.

The European Commission is investing heavily in promoting emission trading in China. A few weeks ago, ICF was awarded a ten-million-euro contract to support cooperation between the European Union and China in this area.

To help China avoid the mistakes in Europe is certainly a worthy task. However, the Commission’s approach is unbalanced, strongly promoting one of the possible economic instruments. Maybe one reason is perceived economic benefits from a future linking between the European and the Chinese ETS systems, but such a linking is unlikely to happen.

A strategy to promote effective policies against climate change in other countries should take a wider view and for example devote more resources to advise on the introduction of carbon taxes. In the case of China, such a broader approach seems well-motivated.

The Swedish Presidency: Effective but not Exciting



It is too early yet to make a final assessment of the Swedish EU Presidency. Negotiating a climate treaty in Copenhagen is the most important goal for Fredrik Reinfeldt and his colleagues. At the end of the week we will know if this aim was achieved.

However, it is possible to summarize progress so far in other fields.

As others have noted, it has been a low-profile but effective Presidency. Sweden moved issues forward that were already on the agenda. One contributing factor has been the many skilled civil servants and diplomats in the Swedish administration.

After Ireland´s yes-vote, Fredrik Reinfeldt was successful in convincing Vaclav Klaus to sign the Lisbon Treaty. That was an important achievement, allowing the new Treaty to enter into force on 1 December. It paved the way for the appointment of Herman Van Rompuy and Catherine Ashton to the two new top positions in the EU.

Fredrik Reinfeldt´s leadership has been compared to a Volvo diesel, running at an even speed in a reliable way. In some areas, however, it would have been better with a modern eco-car with more acceleration.

It is hard to find many areas where Sweden really pushed the European agenda forward during these six months. Yes, an EU presidency should act in the interest of the whole Union, but it had been possible to take more initiatives during 2007 and 2008 that had been mature for decisions this autumn.

Environment is a case in point. The Swedish government was late in its proposals regarding the EU Sustainability Strategy review, and has taken few initiatives in areas such as chemicals, waste and biological diversity. The talk about `eco-efficiency´ did not lead to concrete decisions.

In some areas the reasons are ideological.

The centre-right government in Stockholm did not want to review the controversial directive on posting of workers, after a heated debate in Sweden regarding the Laval case. The conclusions at the December Summit on the post-Lisbon strategy do not contain much on good working conditions, gender equality or anti-discrimination, but these issues were never a real political priority for Reinfeldt´s Presidency.  

It is harder to understand the lack of initiative in areas such as environment or consumer protection where political parties in Sweden´s coalition government have traditionally had strong views.

Of course, there are exceptions.

Enlargement is perhaps the most important success story of the Presidency. Carl Bildt and his skilled collaborators played an important role behind the scenes to break the impasse in Croatia´s membership negotiations. There was also progress for Serbia and other parts of ex-Yugoslavia. Iceland started its route towards membership.

Carl Bildt also secured agreement on the European External Action Service. The Swedish Foreign Ministry did more to prevent a new Georgia crisis this summer than is publicly known, and managed (at least so far) to hold the EU together on Iran.

Justice Minister Beatrice Ask convinced her colleagues about a new Stockholm Programme with more focus on fundamental rights than before (her colleague Tobias Billström, however, was not able to change the repressive character of migration policy in Europe).

Health Minister Maria Larsson tried to hold the EU together in its response to swine flu and moved the issue of better antibiotics forward – an underestimated policy area.

But more often than not, Sweden followed the will of the big EU countries, for example on the appointment of Herman Van Rompuy and Catherine Ashton.

At a remarkable event, France met with 21 other countries to discuss the future of agricultural policy, excluding Britain and Sweden – a clear provocation to the EU Presidency. The deal on financial supervision allowed the UK to retain national control over its financial sector, while the Swedish government watered down proposals on the regulation of alternative investment funds.

The Swedish Presidency was much better than the Czech, but it was in some ways also an opportunity lost.

Now in Copenhagen, the EU position is to abandon the Kyoto protocol without having a new binding treaty to put in its place.

That is not very promising for the final assessment of the Presidency.

[UPDATE Sweden´s first EU Presidency took place in 2001. A detailed description is now available in my book “Anna Lindh och det nya Europa”. More information at www.annalindheuropa.se.]

Ashton and Van Rompuy will have a tough start



The time for celebration is over. Now Herman Van Rompuy and Catherine Ashton must start preparing for their new jobs.

Catherine Ashton has a delicate balancing act to perform. The High Representative should take up her new responsibilities on 1 December, according to the Lisbon Treaty. But Ashton is facing European Parliament hearings before she is confirmed as Vice-President of the Commission.

She cannot wait for the vote. A number of urgent dossiers are already piling up on her new desk. One of them is the European External Action Service, EEAS.

When EU governments agreed guidelines for the EEAS, they left a number of controversial questions unanswered. Catherine Ashton must move quickly to gain control.

Herman Van Rompuy and Catherine Ashton face big challenges. Photo Gunnar Seijbold/Government Offices

The relationship between foreign and development policy is one such issue. During the European Development Days in October, many speakers were eager not to subordinate EU development aid programmes to short-term foreign policy priorities. Poverty reduction should remain the aim for EU financial assistance and the Commissioner for Development should be in control over programming (over the money, to put it more frankly). This view is shared by many Ministers for Development.

However, the guidelines for the EEAS state that the geographical desks should `play a leading role in the strategic decision-making´ about programming and implementation. Proposals to the College of Commissioners will be prepared jointly by the High Representative and the Commissioner for Development.

How this should work in practice must be decided before the end of the year, according to the guidelines. Catherine Ashton must move quickly to find a solution to the internal conflicts that remain. The European Parliament and many others will closely monitor the organizational structure for development programmes in the new Commission. Similar issues arise for EU Neighbourhood Policy programs.

Before April 2010, Catherine Ashton must submit her proposal for a Council decision on the organisation and functioning of the EEAS. Other difficult issues include the role of special representatives, and of EU delegations around the world. This goes especially for EU Delegations at the UN and other multilateral institutions.

At the same time, Ashton must quickly become a key player in foreign policy. Her first statement on Iran, for example, will be scrutinized in detail. To have any chance of success, she must delegate a number of tasks related to organization without losing overall control.

Hopefully, she will still have time to use the Lisbon Treaty to advance EU policy on horizontal issues such as human rights, conflict prevention, and green diplomacy. It is a tall order for someone with little experience in foreign and security policy, but Ashton should have the benefit of the doubt.

Herman Van Rompuy has a somewhat easier task. The Swedish Presidency will chair meetings until the end of the year, and Van Rompuy will be able to ease the transition of power in Belgium before taking up his new post.

However, the new President of the European Council must quickly agree a division of tasks with the upcoming Spanish Presidency. That might not be so easy. Zapatero is likely to fight for a strong Spanish role for example in the preparation of a post-Lisbon strategy.

Herman Van Rompuy must, like Ashton, devote much energy to the new organizational structure. What will be the relation between the President and the rest of the Council Secretariat, led by Pierre de Boissieu? Who will, in practice, prepare the work program of the Council and negotiate with the rotating Presidencies? My bet is on Pierre de Boissieu.

Many have asked whether Ashton and Van Rompuy were really the best two candidates Europe could muster. That is a good question.

But now, the choice has been made. Europe needs leaders who work well together and who make the European Union more than the sum of its individual parts. Ashton, Barroso and Van Rompuy deserve a fair chance.

Progress on Enlargement



The final approval of the Lisbon Treaty opens the door to the European Union again. Many obstacles to further enlargement remain, but there has been significant progress during the Swedish Presidency.

Signature of arbitration agreement Croatia-Slovenia.  Photo: André Mkandawire/Swedish Government Offices

Signature of arbitration agreement Croatia-Slovenia. Photo: André Mkandawire/Swedish Government Offices

At a ceremony in Stockholm this week, the Croatian and Slovenian Prime Ministers signed an arbitration agreement on the border dispute between the two countries. Slovenia lifted its blockage of Croatia´s accession negotiations at the end of September. As a consequence, enlargement negotiations with Croatia now move forward at full speed.

The Presidency is careful not to take credit for the breakthrough, instead praising the political leadership of Croatia and Slovenia. However, behind the scenes there have been intense efforts to solve the border issue both by enlargement Commissioner Olli Rehn and by the Swedish Presidency. Carl Bildt´s statement on the eve of the Presidency was carefully crafted to put pressure on both sides. Croatia´s ambassador to France acknowledged the role of the EU and the US recently in an interview with Euractiv.

This week´s border agreement is not the end of the story. While Croatia´s Prime Minister Jadranka Kosor is saying that she will send the agreement to Parliament next week, her Slovenian colleague Borut Pahor is advocating an advisory referendum before ratification. But there will be significant progress in negotiations during the coming weeks. Sweden will be able to close a large number of negotiation chapters before the end of the year.

Iceland might well accede at the same time as Croatia. The Swedish Presidency skillfully achieved an agreement already at the Foreign Ministers´ meeting in end July to ask the Commission to prepare the opinion on Iceland´s membership. Another country at the helm might not have been as motivated to navigate the difficult waters of the economic compensation from Iceland to bank customers in the UK and the Netherlands. Sweden was able to prevent this question from delaying Iceland´s accession process.

Now the European Council in December is likely to agree that Iceland should be able to start accession negotiations early next year. Whether the Icelanders in the end will vote yes to membership is another story.

There has also been progress on the membership bids of Macedonia and Serbia, while Turkey remains a difficult issue and Cyprus is a cause of big concerns for the Swedes. The `big bang´ breakthrough of the first Swedish Presidency in 2001 will not be repeated.

Ratification of the accession treaties might become more difficult next time, with all the add-ons to the Lisbon Treaty that are supposed to be annexed to the treaties, and with a possible conservative government in the UK (Tony Barber writes well about the opt-outs on his FT Brussels Blog). Friends of enlargement should try to decouple the opt-outs from the ratification of the accession treaties.

Still, enlargement could be the success story Fredrik Reinfeldt badly needs, with failure on climate approaching.

But most of the credit should go to Carl Bildt and Olli Rehn.


A short note on the new posts in the Lisbon Treaty: I played a small role once during discussions on a Swedish Commissioner. My experience is that nothing is decided until very late in the process. I guess this is true for the two new posts as well. While it is fun to speculate, and others might have better sources when making their assessments, personally I will wait until more first-hand information is available. Maybe we will know more by tomorrow evening, after talks at the celebrations in Berlin.

One question, though. Is Michel Barnier really going to get the internal market portfolio in the new Commission? Earlier, I thought it would be too provocative to give this post to a Frenchman (don´t get me wrong, Barnier is very skilled, but politically it seems difficult). However, Barroso´s recent appointment of Mario Monti as an independent expert on the development of the internal market looks like a compensatory measure to fence off criticism when Barnier is appointed.

Reinfeldt´s Big Test



Preparing a European Council is never easy, but this time it seems extremely difficult. Few will envy Fredrik Reinfeldt, the Swedish Prime Minister. After Ireland voted yes to the Lisbon Treaty, the prospects for the EU Summit 29-30 October looked bright. Then Vaclav Klaus put forward his demands for concluding the Czech ratification process.

Yesterday, Vaclav Klaus made clear that he will not block the ratification until after the UK elections. He also backed down from demanding legal guarantees already now. However, Klaus is asking for a declaration that such guarantees will be included in the future – probably in connection with the accession treaty of Croatia.

This will be difficult for other governments to accept. Many would prefer a simple and strong message to Klaus: `F*ck off´. That is not how the EU works, however. There has been so many cases before when people making a lot of noise get a fig leaf to cover their retreat in the end. The most likely solution seems to be a declaration stating that the Charter of Fundamental Rights applies to EU institutions only, and not to issues within the competence of the Member States. Without any specific mentioning of issues related to the Second World War.

Will that be enough for Vaclav Klaus? Only the Czech President himself knows. But it is also an issue about what Member States such as Austria, Hungary and Slovakia can accept, and about the responsibility for EU leaders not to reignite old sensitive controversies. Vaclav Klaus should follow the advice John Cleese is giving to himself in Faulty Towers: `Don´t mention the war´.

Vaclav Klaus is a difficult obstacle, but there is also a positive scenario for the European Council.

If the Czech constitutional court already 27 October decides against the complaints about the Lisbon Treaty, and Klaus backs off, it might even be possible to keep to the original plan and fill the new posts at the Summit. This is very optimistic, but should not be ruled out entirely. Otherwise, the positions might be filled at an extra Summit in November, as foreseen by the Financial Times. Why not bet a euro on Dutch Prime Minister Jan Peter Balkenende as President of the European Council?

Climate is another nightmare for Fredrik Reinfeldt. It seems extremely complicated to reach a legally binding agreement in Copenhagen. On Tuesday, EU finance ministers will try to agree on financing, with environment ministers meeting the following day to negotiate the full EU position for Copenhagen.

Although there was progress in COREPER last Friday, sensitive issues remain, including the burden sharing of  additional financing and the future of the Clean Development Mechanism. Environment ministers will also have difficulties agreeing on how to handle the `hot air´  in the Kyoto protocol, the emission allowances not used by the participating countries.

On another issue, Reinfeldt can be more optimistic. The Swedish Presidency has been very active on the principles for the External Action Service, which will be established by the Lisbon Treaty. Although there has been differing views on inter alia the competence of the EU Commission, a compromise solution now seems close.

According to a text to be discussed by COREPER tomorrow, the controversial issue about development assistance would be solved by emphasizing the High Representative´s role as Vice-President of the EU Commission. Strategies and similar decisions of principle would be submitted to the College by the Commissioner for Development Aid, in agreement with the Vice-President, but detailed programming would be the sole responsibility of the Commissioner for Development Aid. Should this compromise satisfy Member States, the Swedish Presidency will have at least one positive result to show at the European Council.

If Reinfeldt also can overcome the resistance of Vaclav Klaus, he will be able to claim success at the Summit. But climate negotiations remain a dark cloud over the Swedish Presidency.

Iran looms over Gymnich meeting



What line should the EU take on economic sanctions towards Iran?

This is one of the crucial questions at the informal meeting with EU Foreign Ministers, starting tomorrow.

Angela Merkel´s statement last week on Iran has been interpreted as a shift towards a tougher German position (excellently described by Judy Dempsey in today´s IHT).

Merkel mentioned sanctions “in the energy, financial and other important sectors” if Iran does not change its nuclear policy. It is not clear whether this view is shared by the entire government, including Foreign Minister Frank-Walter Steinmeier.

Swedish Foreign Minister Carl Bildt                                                                    (Photo:Pawel Flato/Government Offices

Swedish Foreign Minister Carl Bildt (Photo:Pawel Flato/Government Offices

So far, the issue of economic sanctions has been controversial within the EU. Sweden is one of the countries with reservations about their effectiveness, and the consequences should the EU take such a decision without agreement in the UN Security Council. Carl Bildt has earlier spoken out against sanctions, warning that “to isolate Iran even more is to lock them in among the dark forces”.

Most likely the E3 (France, Germany, and the UK) will tomorrow inform other EU governments about consultations with the US, Russia and China yesterday. Maybe the big three will seek support for stricter economic sanctions as the next step.

Since the Italian Presidency in 2003, the E3 (and to some extent, Javier Solana), has had a mandate to conduct negotiations on the nuclear issue with Iran on the EU´s behalf. No EU Presidency from other member states has played a significant role in these negotiations.

Economic sanctions are something else, however. The Swedish EU Presidency will be keen not to be sidestepped in such discussions. This is perhaps the most sensitive issue at the Gymnich meeting.

My qualified guess is that the Swedish government will play down the Iran issue when talking to the media during the informal Stockholm meeting, maybe stating that it is not yet mature. A conclusive discussion on sanctions will be relevant only later this autumn, the message might be, after consultations in connection with the UN General Assembly on Iran´s response.

Instead, the media spin on Gymnich will probably be based on Carl Bildt´s recent visit to Afghanistan and Javier Solana´s report on the Israeli-Palestinian conflict.

Important issues.

Still, Sweden´s ability to keep the EU together on the issue of sanctions towards Iran will be a decisive test for Carl Bildt.

Wanted: a better EU policy on Latvia



My editorial in Aftonbladet deals with the crisis in Latvia and ECOFIN discussions about this subject today.

A Fistful of Euros has described the situation excellently. The dogmatic refusal to devaluate the Latvian currency is worsening the situation. IMF seems to be getting cold feet.

The conditions imposed by the EU and the IMF are causing a dramatic drop in domestic consumption. In the editorial, we urge the Swedish government to listen more to trade unions and independent experts in Latvia, not only to Swedish banks and to the Latvian Ministry of Finance.

My earlier posts on Latvia are here, here, here, here, and here.