The EU's big carbon ally

Big business will prove an unexpected ally of the European Commission in pushing for firm policy to cut carbon after existing 2020 targets expire, as companies draw up their own plans for a future of greener power.

Many business leaders, independent of official European Union policy, take the view that locking into fossil fuels creates the danger of stranded assets when a low-carbon grid looks more and more likely.

"We are starting to see corporates take longer-term decisions and drive ambitious policies around energy. It's getting to a stage where we can forget what the policy says, it can almost become irrelevant. Corporates will drive change for the long term," Ben Warren, energy and environmental finance leader at Ernst & Young, said.

With its visceral resistance to regulation, business has classically been the problem, not the solution.

Last week, for example, the powerful Polish coal lobby was blamed for Warsaw's refusal to endorse an EU low carbon road-map that outlined policy direction after 2020.

But Poland was alone in the 27-member bloc in its veto of milestones for emission cuts beyond 2020.

Most businesses in the bloc, especially in the energy sector, want clear direction beyond 2020 because of the length of time that major utility and other industrial projects typically require.

The EU took around six years to finalize its current set of 2020 green energy goals.

"We should have a clear line of sight through to 2030 now, not in three or four years. There is a hazy line of sight to 2030 now, it's not a clear line of sight," David Hone, climate change adviser at Royal Dutch Shell, said.

"A big power station can take anywhere between four and seven years, so decisions for the 2020s are starting to be formulated now," he added.

To help provide some of the answers, the Commission has drawn up a set of road-maps, including the one Poland refused to sign, to indicate its expected policy direction as the bloc aspires to 80 percent emissions reduction by 2050 from 1990 levels.

Part of the business craving for certainty is reflected in support from many big firms for a higher carbon price as the level of the EU's Emissions Trading Scheme (ETS) has sunk far below that needed to inspire green investment.

The carbon intervention debate erupted in part because of EU efforts to pass a tougher law on the one 2020 goal it officially is not meeting – a 20 per cent energy-saving target.

If it manages to finalize its draft energy efficiency rules, the surplus of emissions allowances already flooding the carbon market would grow.

An alliance of oil majors, including Shell, and green energy firms has written to the Commission urging action to support the ETS.

Shell's particular interest is in a carbon price sufficient to justify carbon capture and storage technology, which oil and gas firms are counting on to support long-term fossil fuel use.

The broad alliance of support is reflected in the European Parliament by backing from across the political divide for the EU's executive arm to intervene to support carbon prices.

German Christian Democrat Member of the European Parliament Peter Liese did not go as far as Green politicians, who put a number on the amount of allowances the market needs to lose.

But although less specific, he argued for a price able to spur green investment and give business a framework. Otherwise the risk is that nations will set a range of floor prices.

"If every member state introduces different national measures, there will be no level playing field in the European market, so we should try to solve the problem at EU level," he said.

Analysts say the carbon market has factored in the idea of intervention and would otherwise be even weaker than its current level of around 8 euros.

Business is still far from agreed on how much direction it wants, but a majority supported some kind of target in a preliminary stakeholder low-carbon consultation for the Commission, seen by Reuters.

It showed 38 per cent from industry supported mandatory EU-wide targets and 20 per cent favored non-binding goals.

Some in business complain that binding targets are too prescriptive, while the Commission says they are shown to work.

Part of the reason the energy savings target was not binding in the first place was the resistance from big utilities in past years.

But many energy firms and utilities are today backing the Commission on the need for more green goals.

In a letter late last month, eight big energy firms, including Britain's SSE, Acciona of Spain, Dong Energy of Denmark and Greece's Public Power Corporation, wrote to the Commission and EU national governments urging the EU to hurry up and deliver binding 2030 goals to help industry plan ahead.

This story was originally published by Reuters. Reproduced with permission.