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Europe’s experience suggests that decarbonising the electricity sector first, while protecting industry against higher costs, may generate modest progress in reducing greenhouse gas emissions. But achieving the more ambitious goals ahead will require more difficult choices.

BRUSSELS – US President Joe Biden recently brought together 40 world leaders for a Mountain peak on the fight against climate change, a welcome sign of progress in the development of a global strategy. But fighting global warming is a marathon, not a sprint. And while the recent increase in the climate ambition of the United States and the European Union is welcome, more difficult choices lie ahead.

In 2009, for example, the United States led the global effort to achieve the Copenhagen Accord at the COP15 climate change summit, attended by over 100 world leaders. But hopes of a meaningful US contribution were subsequently dashed by bipartisan opposition in Congress, which recoiled at the perceived cost of reducing emissions.

Biden, then vice president, now faces a similar problem: how to keep his promises while knowing Congress will not approve any serious climate action. So he chose the path of least political resistance, which is why Biden climate plan Carefully avoids notions such as a “carbon tax” or an emissions cap-and-trade system, both of which are politically toxic in the United States.

Biden’s goal of halving U.S. emissions by 2030 sounds ambitious, but the substance is actually much less demanding. Governments invariably choose the benchmark year that wins the headlines. The United States chose 2005 because it represents the record for American emissions. Since then, emissions have already decreased about 25%, thanks to the substitution of shale gas for coal. Reducing emissions by 50% from 2005 levels requires a further reduction of around 30%.

The EU has also chosen a practical baseline, namely its own peak of emissions year 1990. But its goal of reducing emissions by 55% by 2030 implies an additional reduction of more than 40% from the current level.

Given that the US per capita emissions are currently about twice the EU level, fulfilling Biden’s commitment would only reduce them to today’s EU level by 2030. By this year, the US’s per capita emissions would be even more than double that of the EU.

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The key to the Biden administration meeting its 2030 target is its pledge to make America’s electricity sector emissions-free by 2035. But that could be difficult to achieve, given that fossil fuels currently account for around 60% of American electricity (compared to about 34% in the EU). In addition, making a sector completely emission-free while taking little action in other areas increases the cost of achieving the overall goal. This is a mistake that the EU has already tried to avoid when establishing its Emissions trading system (ETS), which covers both industry and the energy sector.

The Biden Plan boldly affirms that the decarbonisation of the electricity sector “can be achieved through multiple profitable routes”. It’s hard to believe. For starters, it took more than a decade of subsidies before renewables made a significant contribution to the overall energy mix in Europe. The cost of renewables has fallen dramatically over the past decade, in many cases by a factor of five, in part due to these subsidies which have set in motion a process of cutting costs as demand for solar panels and of batteries increased.

The Biden administration also claims that carbon capture and storage can make a potentially significant contribution. But CCS remains a expensive technology, with much less cost reduction potential.

US climate policy therefore makes little economic sense. Rather, Biden’s approach is best understood as a political strategy aimed at so-called battlefield states such as Pennsylvania, where coal remains economically and politically important. A carbon price will only become possible in the United States when the last coal mine is closed.

The European approach – with the ETS and its emission allowances which can be traded between sectors and countries – seems much more reasonable at first glance. But a closer look reveals similarities to Biden’s plan. When establishing the ETS, industrial companies argued that sectors subject to international competition should receive their allowances free of charge. avoid so-called “carbon leaks”. As might be expected, the risk of carbon leakage existed in almost every industry. EU industry has thus obtained most allowances for free. The ETS only worked because the EU electricity sector was treated differently, as there is no international competition in this sector.

The implicit agreement underpinning the ETS was therefore that industry would be spared the pain of emission reductions. The entire burden of adjustment has fallen on power generation, where a growing supply of renewable energy has reduced emissions by around a quarter over the past decade. EU industrial emissions have not decreased significantly. But that could change now that the price of emission certificates, which for many years had remained in single digits, has almost reached 50 € (60 $) per ton.

The free allocation of emission allowances also meant that the EU had little reason to introduce a carbon tax at the border. Such a measure would only be justified (and would have to be approved by the World Trade Organization) if the free quotas were removed at the same time – but it was vehemently. countered by industry.

The underlying political agreement is therefore similar on both sides of the Atlantic: to decarbonise the electricity sector first, while protecting the industry from higher costs. Europe’s experience suggests that this may generate modest progress in reducing emissions, but meeting the more ambitious goals ahead will require more difficult choices. The United States will not be able to rely on renewables to provide all of its energy, and the EU will have to start putting pressure on its own industry.

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