EU Involvement

The European Community (after 1992, styled the EU) became deeply interested in global warming in 1988 following the conference in Toronto. The Commission's environmental staff prepared a report for the Council meeting that November that suggested the EC take a leadership role. It seemed important to move forward without waiting endlessly for more scientific evidence. It was a "no regrets strategy," that is, at a minimum doing enough to prevent a permanent problem. The plan was to put a tax on carbon, which was very similar to a tax on energy. This met strong internal opposition from the Commission's Energy Directorate, which wanted low cost fuels and an assured supply. The Continent had remained vulnerable after the oil boycott of 1973. The bureaucratic compromise at the time did little to move beyond the status quo. Nevertheless, the environmental staff continued to advocate a position of leadership on the warming issue. Within a few years, the Commission moved to a position that the EC should lead the world in reducing carbon emissions. It developed more detailed plans for a tax on carbon, with the revenue going to the national governments to be spent on environmental projects. There remained the obvious task of getting economic competitors like the U.S. and Japan to adopt a similar carbon tax; otherwise, Europe would be at a disadvantage in exporting products. In order to make the tax less onerous for exports, the Commission gave exemptions to six industrial sectors that were highly energy intensive; however, these were concessions that gave away much of the benefit sought. In 1991, the Council adopted a policy of stabilization at 1990 levels by 2000 and toyed with the idea of carbon reductions.

In preparation for the Rio Summit, the EC Commission developed a proposal to tax carbon in energy. This fit the aim of European leadership, which was a goal of the Environmental Directorate General, under the leadership of its head, Carlo Ripa di Meana, and of the entire commission, led by Jacques Delors. The Energy Directorate General objected that it would skew energy policy. Yet, both sides could see possible commonalities. The energy team was concerned with limited supplies and recognized that taxing BTUs would conserve them. Moreover, both sides came to believe that energy efficiency would yield benefits in greater overall efficiency and lower costs. Thus, a compromise emerged. The tax would be based half on the energy value of fuels and half on their carbon content, and it would eventually be set at $10 a barrel of oil. Nuclear energy would be liable only for the Btu portion since it did not emit carbon, and renewable fuels would be completely exempt. The new tax would replace other taxes such as sales and income, so the net effect on consumers would be neutral. If not offset, the carbon Btu tax would produce excessive revenues for national governments. The tax proposal won support elsewhere in the Commission in Brussels; for example, the Economic Directorate General liked the idea of a tax rather than old fashioned command and control regulations.

The immediate reaction of heavy industry toward the proposed tax was hostile. Several oil and chemical companies like Shell and Dow, with extensive facilities in the Netherlands, threatened the Dutch government with a move to Kazakhstan in central Asia. Because the EC lacked authority to impose taxes, all it could do was suggest that the member states impose the carbon tax in their own countries.

Although heavy industry opposed this carbon—energy tax proposal, on many environmental issues big business supports EU action. The most influential interest group is the European Round Table of Industrialists, organized in 1983 by the head of the Volvo Corporation. He organized the heads of fifteen other corporations, including ICI, Unilever, Nestle, Philips and Fiat. Members are the chief executive officers personally, not their corporations. The roster has now grown to forty-five members. The Round Table has sought to harmonize government policies and regulations on trade throughout the Continent. This would enable the big companies to take advantage of economies of scale in their manufacturing and sales. Over the years the group has advocated the construction of the tunnel under the English Channel, the bridge from Denmark to Sweden, high speed trains and more highways, all of which it got. Next, it advocated a common currency: the Euro. Still later when the Eastern countries sought to join the EU, the Round Table pushed for guarantees that they would reduce their taxes, facilitate privatization, permit foreign investors to buy land, and not give special privileges to local companies. Although the Round Table wants to avoid environmental restrictions in general, it is agreeable if the burden is uniform, and competing American and Japanese companies will not have an advantage.

As the EU began to develop its unified bargaining position on global warming, it had to face the conflicting interests of its various members. The Netherlands had a lot of natural gas, and its people were very pro-environmental. Denmark was in a similar situation. France, with a large nuclear industry, saw benefits. Germany, Britain and Spain, all with coal reserves, worried that a carbon tax would make their mines uncompetitive. Portugal and Greece, each with weak economies, believed that the short term effects would be crippling. Furthermore, if the U.S. and Japan did not establish a carbon tax at the same time, they would enjoy a competitive advantage over Europe. Indeed, it would be important for big developing countries like China to do so also. Within weeks the Commission Directorate General Environment watered down its proposal due to pressure from industry. Its stance when it got to Rio was merely that a carbon tax was a good idea, one that deserved study. The concept was kicked around for a few years, until it eventually faded away. The defeat of President Clinton's similar proposal for an American Btu tax further damaged its prospects.

For the next decade, the European view dominated world policy on global warming. The Berlin Mandate, issued by the first Conference of the Parties in 1995, accomplished most of the European objectives, even though the Americans were strongly opposed. At the second Conference of the Parties, the Europeans pressed for making the deadlines sooner, and were accommodating to the desires of the developing countries not to have to meet any targets. To support the effort, the Conference of the Parties established a secretariat located in Bonn. Since the 1980s, technical support had come from the Intergovernmental Panel on Climate Change (IPCC).

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