OXFAM INTERNATIONAL MEDIA BRIEFING 21 November 2010 Ref: 07/2010

Crying Wolf: Industry lobbying and climate change in Europe

1. Introduction
In the run-up to the UN Climate Change Conference in Cancun (COP16), a small but vociferous group of carbon-intensive industries are helping to block stronger EU climate regulation. This report shows how these industries have lobbied largely successfully arguing that Europe cannot afford stronger climate action in the face of the current economic downturn, despite the need for stronger targets to drive investment in the low-carbon goods and services sector which is worth 3.4 trillion globally. More cynically, many of the industries blocking stronger policy are substantially benefiting from the EU Emissions Trading Scheme (EU ETS). Companies in sectors such as steel and cement have amassed great quantities of valuable allowances under the EU ETS, potentially worth billions of Euros. Several major European companies, however, take a different stance. Over the past year and in the run-up to Cancun, companies such as Centrica, Johnson Matthey, Lloyds, Nestl, Philips, Tesco, Unilever, and Vodafone have distanced themselves from this negative business lobbying, and argued that it is in Europe's interests to be more ambitious.1
Moving to a 30 per cent emissions reduction target is a win-win-win for Europe. As well as the numerous economic and social benefits of cutting greenhouse gas emissions, it will spur innovation and investment thus creating millions of new jobs in a low carbon economy, with the global low carbon goods and services sector estimated to be worth over 3.4 trillion and growing rapidly. Joint Business Declaration 2 13 October 2010

Oxfam's experience is that climate change is pushing the poorest and most marginalised people beyond their capacity to respond. Temperature changes, erratic rainfall, and changing seasons are causing crop failures, leaving many struggling to feed their families. Water- and insect-borne diseases are reaching new areas, affecting hundreds of millions of people, and climate-driven migration is destroying livelihoods, communities, and cultures. Europe, which played a major role in creating climate change, needs to do much more to help put the world on a safe climate path. The high-level political interest in climate change in European capitals in 2009 has ebbed away. More ambitious EU action, including stronger unilateral emissions reduction targets, would allow Europe to regain its diplomatic and economic leadership, and could be crucial in helping to unblock the current deadlock in climate negotiations, creating positive momentum towards a global deal.

2. Lobbying against tough climate action while profiting handsomely

Who is lobbying against stronger action and why? The most intense lobbying comes from companies in carbon-intensive sectors, including steel, cement, oil and gas, chemicals, and paper, and the associations that speak on their behalf. These include bodies based in Brussels, such as EUROFER, the steel sector association, or CEMBUREAU, the cement association. They also include wider umbrella groups such as the European Alliance of Energy Intensive Industries, the Alliance for a Competitive European Industry (ACEI), and BusinessEurope. On the one hand, it is not surprising that these carbon-intensive industries should take a narrow, short-term view based on their own interests and oppose stronger action, given that they are amongst Europe's largest emitters of greenhouse gases, with profits tied to business models that depend on them continuing to pollute. Some of them are also making substantial additional profits as a result of Europe's current ineffectual approach to climate regulation (see Section 3). However, to defend their own interests, they are creating a false impression of overarching negative impacts that stronger climate policy could have right across Europe's economy, including suggestions that business will be driven overseas. And by blocking timely action, they are bolstering their own short-term profits at the risk both of further intensifying global warming and of raising the overall cost of the shift to a low-carbon economy, which must inevitably come. The main argument: loss of competitiveness and 'carbon leakage' Groups lobbying on behalf of carbon-intensive industry are putting pressure on the EU not to increase its target of reducing emissions by 20 per cent by 2020 compared with 1990 levels, with a constant refrain of very real business risks,3 an exodus of EU industry,4 and the enormous risk of de-industrialisation in Europe.5 They have also called for the maximum amount of free allowances.6 Their argument is that it is impossible for manufacturing industry to achieve a -30 per cent target by 2020 without cuts in production and significant losses of jobs7 though little evidence is brought to back up these claims. These groups often refer to this supposed loss of competitiveness as 'carbon leakage'. In their analysis, industries facing higher costs in the EU as a result of emissions reduction targets will lose market share to producers in regions without carbon constraints. Carbonintensive inputs will increasingly be sourced from these unregulated regions and/or carbonintensive businesses will relocate there, they argue. Their claim is that global CO2 emissions will not be cut by EU regulation: instead, carbon will simply 'leak' to unregulated parts of the world, with global emissions continuing to rise, while carbon-constrained areas face job losses and a loss of competitiveness. Lobbying was particularly intense in May 2010 in the run-up to the launch of an EU study exploring the feasibility and affordability of unilaterally raising emission reduction targets in Europe to 30 per cent by 2020, compared with 1990 levels.8 As one Commission insider noted, We have had a very hard time getting this one through opposition from industry and some EU Member States has been staggering.9 French Green MEP Yannick Jadot also accused EU industry of building up an exaggerated threat as a smokescreen against tougher emissions mitigation.10 BusinessEurope 'Worst Lobby Award' nominee 2010
Business lobby group BusinessEurope was nominated in the climate category of the Worst Lobby Awards, based on its aggressive lobbying to block effective climate action in the EU while claiming to support action to protect the climate. Oxfam is a supporter of 11 the Awards. BusinessEurope claims to support the need to stop man-made climate change, yet has

effectively undermined EU plans to cut CO2 emissions. Claiming to represent the interest of the European business community to the European institutions, it has lobbied in the interest of the most energy-intensive industries, such as oil, steel, and chemicals, blocking effective climate policies at the EU level. The real power in Europe isn't wielded by MEPs or by unelected officials, but by maledominated corporations, a reporter wrote last year. Click on the website of BusinessEurope, the umbrella group for major companies, and read a few of their policy papers. Then check the European Commission's statements on the same subjects; if you can spot any substantial difference, you deserve a higher reward than I can afford 12 to give you. BusinessEurope has worked with sister organisation the Alliance for a Competitive European Industry (ACEI) to defend the energy-intensive sectors that need to do most to adapt to a 30 per cent cut such as the chemical sector (represented by CEFIC), the iron and steel industries (EUROFER), and the cement industry (CEMBUREAU). BusinessEuropes position contrasts with those of some major European companies such as Vodafone and Deutsche Telekom, which support a 30 per cent cut. It also contradicts the call for stronger emissions cuts from the EU Corporate Leaders Group on Climate Change, which includes companies such as Philips, Unilever, and Tesco. BusinessEurope has 40 member federations in 34 countries. These include groups such as the Fdration des Entreprises de Belgique-Verbond van Belgische Ondernemingen (FEB-VBO); Bundesverband der Deutschen Industrie (BDI); Bundesvereinigung der Deutschen Arbeitgeberverbnde (BDA); Confederacin Espaola de Organizaciones Empresariales (CEOE); Mouvement des Entreprises de France (MEDEF); Irish Business and Employers Confederation (IBEC); Confederazione Generale dell'Industria Italiana (CONFINDUSTRIA); Confederation of Netherlands Industry and Employers (VNO- NCW); and the Confederation of British Industry (CBI).

Carbon leakage and competitiveness: the evidence Despite the constantly repeated claims about the risks of carbon leakage and competitiveness, the majority of available evidence points in the opposite direction. Several specific studies on the issue have been published, by the EU, the Organisation for Economic Cooperation and Development (OECD), the International Energy Agency (IEA), the Carbon Trust, the Cambridge-based think-tank Climate Strategies, and the Climate Group. Their key conclusions are broadly similar: that the effects with regard to carbon leakage and competitiveness are minimal. The evidence suggests that: Historically, EU climate action has not led to carbon leakage. For example, the IEA's analysis of the steel, cement, aluminium and refinery sectors found that there were no significant changes in trade flows or production patterns, which would be indicators of carbon leakage, during the first phase of the EU ETS (200507);13 Currently, companies are not experiencing losses in competitiveness. A 2009 survey of companies accounting for 5 per cent of emissions covered by the EU ETS found no major impact on competitiveness, market share, or jobs. None of the companies relocated their operations;14 In future the impacts are likely to remain limited. Modelling by the Carbon Trust finds that even without any counter-measures, less than 2 per cent of total EU emissions are likely to leak by 2016 (midway through Phase III of the EU ETS).15 An increase in the EU target to a 30 per cent emissions reduction would affect a small number of business sub-sectors, but the impacts are likely to be specific, limited, and manageable through targeted policies. The European Commission (EC) analysis finds that a 30 per cent reduction would entail production losses of around 1 per cent for ferrous and non-ferrous metals, chemical products, and other energy-intensive industries, compared to the 20 per cent target.16

An overview of the EU ETS The European Union Emissions Trading Scheme (EU ETS) began in January 2005, with the aim of limiting emissions from energy and industrial sectors. The first phase of the scheme ran for three years, up to 2007. Phase II, the current phase, runs from 2008 to 2012. Phase III will begin in 2013, and will run until 2020. Participating companies have limits on the amount of greenhouse gases they can produce, represented by allowances. One allowance represents one tonne of CO2 or the equivalent of another greenhouse gas. The total number of allowances, i.e. the cap, determines the maximum amount of emissions possible under the EU ETS. At the end of each year, participants must be able to produce allowances equal to their emissions for that year. Companies that keep their emissions below the level of their allowances can sell their excess allowances. Those facing difficulty in keeping their emissions in line with their allowances must either take measures to reduce their emissions, buy extra allowances on the market, or buy carbon offset credits under the UN Clean Development Mechanism (CDM), or a combination of all three. During the first two phases of the EU ETS, almost all of the allowances have been given to companies for free, with a very limited number auctioned to companies. For Phase III, the aim was that auctioning would be the rule rather than the exception. However, while there will be no free allowances given for power production, 164 sectors and sub-sectors, representing 77 per cent of total manufacturing emissions under the EU ETS, will still receive the vast majority of their permits for free in Phase III.

In the words of Lord Stern, former chief economist to the World Bank: Claims that emissions regulations will prompt many companies to flee across borders are unsupported by evidence and are little more than slogans without numbers.17 Competitiveness and investment decisions are driven by a combination of factors, with access to markets, raw materials, skills, technologies, and infrastructure, for example, usually being more important than environmental policies. Lord Sterns perspective is also backed by Nobel Prize-winning economist Paul Krugman who, writing in April 2010, put it succinctly: The truth is that there is no credible research suggesting that taking strong action on climate change is beyond the economy's capacity ... history and logic both suggest that the models are overestimating, not underestimating, the costs of climate action.18 With respect to jobs, at a time when the recession is driving high levels of unemployment, the transition to a low-carbon economy could be a real boon. Renewable energy tends to be more labour-intensive than traditional energy sectors, particularly in the initial construction, manufacture, and installation phases. New employment created by the low-carbon transition would contribute to net job creation,19 adding to the 3.4 million direct and indirect jobs that already depend on the European environmental sector and which account for 2.2 per cent of GDP.20 In Germany, for example, more workers are already employed in renewable energy than in conventional energy. With the right incentives, Germany could have 400,000 jobs in the renewable energy sector by 2020, compared with 294,000 today.21 The development of resource-efficient and green technologies can thus be an important driver of growth but only if we keep innovating. The European Trade Union Confederation (ETUC), with its clear interest in protecting jobs in Europe, has called on the EU to reconsider without delay its current position of not increasing emissions reduction commitments to 30 per cent until other countries also do so. The Confederation concludes the EU should reconsider its position with due regard to the IPCC scenario pointing to the need for an 85 per cent reduction in greenhouse gas emissions by 2050, which implies a corresponding reduction by 2020 of at least 25 to 40 per cent in industrialised countries, from 1990 emissions levels.22 The point is not that there would be no economic effects. There will be winners and losers from stronger climate action, but the short-term costs need to be understood as investments in future success. A transition to a low-carbon economy that safeguards quality jobs needs

to be made as soon as possible, both if we are to keep damaging global warming below 1.5C and if the EU is to ensure that it can compete globally and effectively in the new industries. The more time passes, the more challenging it becomes to divert from a highcarbon path if investments continue in high-carbon infrastructure, such as inefficient buildings and coal-fired power stations that will be with us for many years to come. For those sectors that are affected there is a need for a transition strategy, but business lobbying that exploits economic fears should not be allowed to undermine EU climate ambition. Windfall profits from the EU ETS for carbon-intensive companies When the EU ETS was first introduced, almost all of the allowances under the scheme were given to companies for free. Carbon-intensive industries had been lobbying, claiming that the scheme would undermine EU competitiveness, and so to ease the transition industry was granted free allowances compensation for the burden of the new regulation. Having been granted free allowances in the first phase of the scheme, companies have also lobbied to ensure that this subsidy continues. For example, ArcelorMittal, the worlds largest private steel company, argued against any reduction in free allowances in Phase II of the EU ETS, claiming: By cutting the allocation of CO2 quotas, the European Commission will limit our growth possibilities in Europe and encourage a surge of imports from countries unaffected by such controls.23 And BusinessEurope is calling for maximum allocation of free allowances in Phase III, and has argued that, In the short term, energy-intensive industries must be compensated for their increased energy costs to reduce the risks to competitiveness due to the cumulative impact of energy policies.24
ArcelorMittal 'Worst Lobby Award' nominee 2010 ArcelorMittal was nominated in the climate category of the Worst Lobby Awards based 25 on its lobbying on CO2 cuts under the EU ETS. Oxfam is a supporter of the Awards. ArcelorMittal is the worlds largest private steel company and makes 10 per cent of the worlds steel. It is also one of Europes bigger CO2 polluters. The steel giant, whose chief executive is Lakshmi Mittal, Britains richest man, lobbied the European Commission (EC) and European member state governments to avoid paying for permits under the EU ETS, opposing the proposal for the auctioning of permits as opposed to their free supply. Directors of ArcelorMittal Bremen claimed to the Commission in 2008 that the steel industry would be compelled to move production out of Europe. The company also tried to challenge the rules governing the EU ETS in the European Court and to claim financial damages, although this claim was rejected. The worlds biggest steel producer has profited nicely from its lobbying efforts. In 2008 09 ArcelorMittal held more than 50m surplus EU allowances which it received free of charge all of which it can sell to other companies or bank for future use. Described as the number one carbon fat cat, the firm has the potential to make profits of over 1bn from the scheme by 2012. ArcelorMittal would be able to use its Phase II surplus possibly in excess of 100m allowances not only to avoid emission cuts but also to 26 increase its emissions (by 1.8 per cent a year during Phase III). After the blatant over-allocation of permits for the manufacturing sectors in Phases I and II of the EU ETS, the proposals for Phase III (201320) envisioned auctioning permits. But ArcelorMittal and industry body EUROFER persuaded European governments to continue subsidising Europes worst polluters under the 2008 EU Climate and Energy Package, and continue to lobby the EC to ensure that they will receive the maximum free permits possible under that legislation until 2020 at least.

However, the result has been an over-allocation of allowances depressing the price of carbon, and so removing the incentives for innovation that the carbon market was designed to provide. In 2009, 93m surplus allowances were allocated to companies compared with the emissions produced.27 Even the EC has admitted that the supply of allowances far exceeds demand. The European Commissioner for Climate Action, Connie Hedegaard, has warned that so many permits are unused in the EU ETS and so many cheap credits available on the carbon market that firms can continue with business as usual for the foreseeable future.28

This risks leaving Europe on a high-carbon trajectory, facing either catastrophic climate change or extremely costly actions for a radical economic transformation in future years. And the lobbying has delivered more than just compensation. Some carbon-intensive companies stand to profit handsomely from the stockpiles of CO2 allowances they have been able to accumulate. The ten largest beneficiaries can expect to have a collective stockpile likely to be worth over 3bn at the end of the current phase of the EU ETS in 2012.29 The biggest carbon fat cat, as these companies have been dubbed, is ArcelorMittal; the company is likely to have a surplus of 100m allowances worth an estimated 1.4bn in 2012. These allowances can be sold for a profit since 2007 ArcelorMittal has earned 108m by selling permits or carried over to the next phase of the EU ETS and used to avoid making emissions cuts.30 Carbon fat cats: potential emission surpluses and windfall profits
Company Sector Country Net surplus permits 200809 50,365,245 15,505,854 12,726,650 8,097,132 6,913,073 6,838,069 5,579,820 5,071,633 4,634,495 3,390,293 119,122,264 Value (millions) 705 217 178 113 97 96 78 71 65 47 1,668 Estimated surplus Phase II 102,104,390 31,515,921 25,220,095 17,677,527 13,899,614 13,725,134 12,309,646 11,274,280 9,038,136 7,740,434 244,505,177 Value (millions) 1,429 441 353 247 195 192 172 158 127 108 3,423
31

ArcelorMittal Lafarge Corus Cemex CEZ HeidelbergCement Salzgitter US Steel SSAB Slovenske Total

Iron & steel Cement & lime Iron & steel Cement & lime Power & heat Cement & lime Iron & steel Iron & steel Iron & steel Power & heat

Luxembourg France UK Mexico Czech Republic Germany Germany USA Sweden Slovakia

Adapted from Sandbag (2010)

To put these numbers into perspective, the 3bn that these ten EU companies can expect to gain dwarfs the combined GDP of the Maldives, Tuvalu, and Kiribati island states that risk disappearing partly as a result of the continued emissions of these EU companies. If this money was redeployed to support adaptation to climate change in developing countries, it could more than pay for the cost of all climate adaptation projects currently identified as urgent by the least developed countries (LDCs) costing roughly $2bn.32 Perhaps most shockingly, it is also more than the 2.4bn of 'fast-start' climate finance the EU pledged under the Copenhagen Accord for this year to fund urgent adaptation and mitigation measures in developing countries. If EU governments resolved to auction these permits, rather than give them away for free, they would stand to gain hundreds of millions of euros in new resources, which could be used to tackle climate change, without the need to take from already squeezed national budgets, increase taxes, or recycle past promises of development aid still needed for schools and hospitals in poor countries. The steel industry association EUROFER, for its part, denies that there has been any overallocation to the steel industry in Phase II, claiming that the question of surplus allowances is being used to support the ideological approach adopted by the Directorate General for Climate Action of the European Commission towards energy-intensive industries, designed to undermine the viability of these industries in Europe. The association goes on to say, It is

time in our view that the Commission states clearly whether it is truly prepared to support industry in Europe. Failing that, it should honestly state that it sees de-industrialisation as the future for Europe. We believe the policy being pursued by DG CLIMA aims at deindustrialisation whether this is stated openly or not.33

3. Europe would benefit from a stronger emissions reduction target

European companies in support of stronger climate action BusinessEurope, which strongly opposes any unilateral increase in EU targets, claims to represent the interests of the European business community to the European institutions, and speaks of views unanimously shared by its member federations.34 The impression it creates is misleading, however, as many major European companies take the opposite view, understanding that strong climate policy is about investing in Europes future. During last years Copenhagen Climate Conference, for example, when BusinessEurope was opposing a 30 per cent commitment by the EU, business groups including the Prince of Waless EU Corporate Leaders Group,35 the Climate Group,36 and WWFs Climate Savers,37 which have members from sectors as diverse as power, cement, food, and airlines, stated that the positions taken by many traditional trade associations, including BusinessEurope, do not necessarily reflect a consensus in the business community. They continued: The EU should raise its unilateral emissions reduction target to 30 per cent, showing real leadership ahead of the Copenhagen Summit. This would boost confidence in the international carbon market and encourage the investment needed to drive transformational change in the power, industry, and transport sectors.38 And when the ACEI sent a letter to EU President Jos Manuel Barroso to lobby against a 30 per cent cut, the Confederation of Food and Drink Manufacturers discreetly added a footnote distancing itself from the ACEI position.39 At the October 2010 EU Environment Ministers meeting, the split in business continued to grow. With BusinessEurope still objecting to stronger climate action, 30 leading companies said that the 30 per cent commitment represented a win-win-win scenario for Europe, and that it would act to spur innovation and investment thus creating millions of new jobs in a low carbon economy.40 BusinessEurope no longer reflects the voice that these companies want to convey on climate change, said Sandrine Dixson-Decleve, director of the Prince of Waless EU Corporate Leaders Group on Climate Change (EU CLG), which supported the statement.41
Corporate Leaders Group on Climate Change The Prince of Wales's Corporate Leaders Group on Climate Change (CLG) brings together business leaders from major UK, EU, and international companies who believe that there is an urgent need to develop new and longer-term policies for tackling climate change. It is a crosssectoral business grouping, encompassing energy producers, manufacturers, banks, retailers, utilities, and others. It has been active since 2005, working with national governments and international forums, and within the business community. It has over 30 core members, and many more companies globally that have signed up to its communiqus calling for stronger climate action. The Copenhagen Communiqu, released in advance of the UN Climate 42 Change Conference in 2009, had nearly 1,000 signatories around the globe. Here's what some of its member companies say on the EU emissions reduction targets. Garrett A.G. Forde, CEO, Philips Lighting: the EU should speed up the transition to a low carbon society, as we firmly believe there is a wide range of benefits for consumers, the environment, and the economy. At Philips we have set the ambitious target to improve the energy efficiency of our entire portfolio by 50 per cent by 2015. We believe we can set even more ambitious targets for beyond 2015 if the EU provides a clear, ambitious and long-term commitment towards a low-carbon economy. Jose Manuel Entrecanales Domecq, Chairman of Acciona: From our company's standpoint, to

review the 20 per cent greenhouse gas reduction target, even in the absence of a strong international agreement, makes economic sense because it will strengthen European leadership. Reaching a target beyond 20 per cent will unlock innovation and financing potential, and will increase European industrys readiness for new growth and development 43 opportunities as the markets for low-carbon, high-efficiency goods and services expand.

Why some companies support stronger action: regulatory opportunities A number of EU companies foresee substantial profits as a result of stronger climate action. The Carbon Disclosure Project (CDP),44 representing institutional investors, asks companies for detailed information about potential risks and opportunities arising for their businesses as a result of climate change. Companies are asked specifically about regulatory requirements, and where they foresee risks or opportunities. When asked about current and/or anticipated significant regulatory opportunities and financial implications associated with the identified opportunities, heres what some European companies reported:45 BT identifies two key ways in which regulatory opportunities affect its value chain: the generation of new smart ICT revenue streams and meeting customer requirements around green ICT services. It anticipates that The potential opportunities for Smart ICT and Green ICT clearly run into many 100m of revenues per year. Henkel identifies the development of new, clean sources of energy such as fuel cells and flexible, lightweight solar cells as opportunities for it to apply its expertise in tailor-made adhesives, sealants, and surface treatments. Munich Re believes that opportunities will arise out of the need for specific insurance and reinsurance solutions that respond to technological developments (e.g. renewable energies and carbon capture and storage, or CCS) and exposures resulting from regulatory changes. National Grid expects regulatory changes to have an impact on electricity and gas transmission networks, requiring significant investment. Our capital expenditure was 3.3bn during 2009/10 As a regulated business, we earn a return on the value of the assets we invest in. Philips Electronic finds that regulations create incentives for consumers, companies and other organisations to reduce energy consumption and related CO2 emissions, both directly from emissions caps and indirectly from increasing energy prices. Sales of Philips Green Products increased in 2009 to 7.1bn, contributing 30.6 per cent of total sales, up from 22.6 per cent in 2008. An analysis of 2010 CDP disclosures from UK companies in the FTSE 350 found that eight out of ten have identified significant new market opportunities as well as reputational advantage from greener operations and products. However, only one in ten is engaging with policy-makers to encourage policy action that drives stronger climate mitigation and adaptation46 which suggests that there may be a 'silent majority' of companies that stand to benefit. Stronger targets are both feasible and desirable Beyond this analysis by specific companies of the opportunities they see from regulatory action, broader evidence suggests that a stronger EU climate target is not only feasible, but that it is in Europe's economic interest. The EU has been an acknowledged leader in the low-carbon economy, accruing expertise and technology and creating significant first mover advantage. However, on current trends Europe risks falling behind. Both China and the USA are making large-scale investments, and stand to reap the rewards of a market for lowcarbon products that is likely to be worth $500bn by 2050.47 Together, these two countries accounted for the top five clean-technology initial public offerings (IPOs) in 2009.48

China, for example, has already:49 Developed the worlds largest green investment programme, valued at $230bn nearly ten times EU levels; Begun shutting down its most inefficient steel factories and coal-burning power plants; Doubled its installed wind capacity in each of the past four years reaching the top of the league for wind power installations; Got three of the top ten wind turbine manufacturers (despite Europe having a tenyear head start); Become the leading producer of solar photovoltaics; and Gained 50 per cent of the world solar and wind power markets. The EU is already very close to the 20 per cent target, with 2009 emissions at 17.3 per cent below its 1990 level,50 partly as a result of the economic downturn. Some data even suggest that the 20 per cent target could be met without any further domestic mitigation taking place in the EU between now and 2020.51 Other countries looking at Europe find it increasingly difficult to accept the notion that a 20 per cent target is 'ambitious', and it seems unlikely to be a strong enough driver for investment. However, if the EU were to raise its ambition to 30 per cent, the additional cost is likely to be manageable just 0.2 per cent of GDP or 33bn in 2020, according to the Commissions analysis.52 This is a relatively small investment that could be more than offset by the additional benefits of a low-carbon economy. Achieving a 30% reduction target could amount to savings from reducing oil and gas imports of some 40bn in 2020,53 fully offsetting the cost. A stronger target is critical to help drive the investment that will spur this shift and avoid the EU being locked into high-emitting technologies such as coal-fired power plants. A survey by the Institutional Investors Group on Climate Change (IIGCC), a group of investors with 60 members managing about 5 trillion of assets, found that fewer than 10 per cent of investors surveyed felt that the EU ETS had provided a strong enough price incentive to change investments away from more polluting technologies. The IIGCC concluded that the EU should decide quickly whether to raise its target for 2020 to 30 per cent below 1990 levels. The EU ETS will only support a shift into low-carbon investment if it provides investors with strong price signals over a significant period of time, it stressed.54 A stronger target would raise the carbon price and help the EU ETS perform its intended role as a driver of change and innovation. Otherwise, it will become more difficult and more expensive to catch up with low-carbon solutions later, with every year of delayed investment in low carbon solutions adding up to $500bn (300-400) per year to the cost of action.55 Raising the EU target to 30 per cent will also have a significant immediate benefit to European governments, which are struggling with budget deficits and are required to find substantial new and additional funds to help tackle climate change in developing countries under the UN climate regime. By lowering the cap in the EU ETS, a higher target would increase the carbon price, thereby increasing the revenues flowing to EU governments through the auctioning of allowances. This would create a new source of government revenue that could be directed to meet the EUs international obligations to provide predictable long-term climate finance, without dipping into strained national budgets or future budgets for development aid. That's a win-win policy for Europes economic competitiveness and for poor people struggling to cope with climate change.

4. Conclusion
This report has examined the impact of lobbying by carbon-intensive industries in the EU, and how this lobbying has held Europe back from more ambitious climate action, blocking attempts to unilaterally raise its emissions reduction target to 30 per cent from 1990 levels by 2020. It shows that the repeated arguments put forward by such industries that stronger climate action will undermine EU competitiveness, causing carbon leakage and driving jobs overseas, is not borne out by the evidence rather, a number of carbon-intensive companies stand to make substantial profits from the EU Emissions Trading Scheme. Finally, it shows that a number of other EU companies have been vocally supporting stronger EU action, including 30 per cent targets, and that potentially many more that have not yet spoken up nevertheless stand to gain. Europe has been a leader in the development of a low-carbon economy, but it is currently jeopardising this first mover advantage through lack of stronger policy action. Europes current target of a 20 per cent reduction in emissions from 1990 levels by 2020 is not in line with what the science tells us is needed i.e. cuts of at least 40 per cent below 1990 levels by 2020 by developed countries in order to avoid the most extreme climate scenarios. It is also not in line with what economists tell us that strong action is needed now to boost innovation and investment and to put us quickly on a low-carbon trajectory, if we are to avoid much higher costs later adding up to $500bn (300400bn) per year of delayed investment to the cost of action by 2030. Oxfams experience is that hundreds of millions of people are already suffering damage from a rapidly changing climate, and that this is frustrating their efforts to escape poverty.56 Oxfam staff have heard farmers observations of how the weather is changing and how they are trying to cope as seasons become less distinct. They are uncertain when best to cultivate, sow, or harvest. Climate change is also bringing water- and insect-borne diseases of the tropics to hundreds of millions of people with no previous knowledge of them, while climatedriven migration is destroying livelihoods, communities, and cultures. All these impacts risk becoming much worse, unless Europe plays its part in reversing the global warming it has historically done so much to create, helping to achieve a fair, ambitious, and binding global deal to tackle climate change. Achieving a global deal will depend on many factors including, for example, commitments of appropriate financing for mitigation and adaptation. Raising the EU target to 30 per cent, with the auctioning of allowances, can help provide a new source of government revenue to meet the EUs international obligations on long-term climate finance. The final deal maker or breaker, however, will be whether developed countries commit to meaningful emissions reductions. Right now, many developing countries are rightly suspicious of Europes level of commitment, knowing that 20 per cent is not an ambitious goal. A stronger EU target could help reverse this, rebuilding trust and momentum in global climate negotiations, while demonstrating to other countries hesitant about cutting their own emissions that a vibrant economy and emissions cuts can go hand in hand. Europe has an opportunity to recapture the initiative and help light the fire that will put the negotiations back on the right track and stop climate change from devastating the lives of millions of people in developing countries. However, it must stop being deterred by the shortsighted lobbying of carbon-intensive industries from taking the decisive action that is needed.

Oxfam International www.oxfam.org

Oxfam International is a confederation of fourteen organizations working together in more than 100 countries: Oxfam America (www.oxfamamerica.org), Oxfam Australia (www.oxfam.org.au), Oxfam-in-Belgium (www.oxfamsol.be), Oxfam Canada (www.oxfam.ca), Oxfam France - Agir ici (www.oxfamfrance.org), Oxfam German (www.oxfam.de), Oxfam GB (www.oxfam.org.uk), Oxfam Hong Kong (www.oxfam.org.hk), Intermon Oxfam (www.intermonoxfam.org), Oxfam Ireland (www.oxfamireland.org), Oxfam Mexico (www.oxfammexico.org) Oxfam New Zealand (www.oxfam.org.nz) Oxfam Novib (www.oxfamnovib.nl), Oxfam Quebec (www.oxfam.qc.ca) The following organizations are currently observer members of Oxfam International, working towards full affiliation: Oxfam India (www.oxfamindia.org),Oxfam Japan (www.oxfam.jp) The following organization is linked to Oxfam International: Ucodep Campaign Office (Italy), email: ucodepoi@oxfaminternational.org

Increasing Europes Climate Ambition Will Be Good for the EU Economy and Jobs, The Climate Group, University of Cambridge Programme for Sustainability Leadership and WWF Climate Savers, 13 October 2010, and Lay foundation for low-carbon growth, letter to the Financial Times, 20 July 2010. www.ft.com/cms/s/0/20993c34-9424-11df-a3fe-00144feab49a.html
2

Increasing Europe's Climate Ambition Will Be Good for the EU Economy and Jobs, The Climate Group, op. cit.

Shell says opposes tougher EU carbon cut, Reuters, 11 October 2010. www.reuters.com/article/idUSTRE69A3EO20101011
4

European Alliance of Energy Intensive Industries Opposes EU Unilateral Move to -30 Per Cent, European Alliance of Energy Intensive Industries, 6 May 2010.

The Alliance of Power-Intensive Industries, quoted in EU Industry and the carbon leakage threat, EurActiv, 5 July 2010. www.euractiv.com/en/climate-change/carbon-leakage-challenge-euindustry/article-176591. Other examples include ACEI: www.cembureau.be/sites/default/files/documents/2010-01-21_ACEI_open_letter_on_-30 per cent25_climate_change_objective.pdf; Enel: www.ft.com/cms/s/0/a9bbfec8-e819-11de-8a0200144feab49a.html; EUROFER: www.eurofer.org/index.php/eng/News-Publications/PressReleases/EU-industry-opposes-proposal-to-increase-EU-climate-change-target-unilaterally-to-30; CBI: http://climatechange.cbi.org.uk/latest_news/00394/.
6

European Business Recommendations on EU Policies for Climate and Energy, BusinessEurope, 7 October 2010.

EU Industry Opposes Proposal to Increase EU Climate Change Target Unilaterally to -30 Per Cent, EUROFER, May 2010. www.eurofer.org/index.php/eng/News-Publications/Press-Releases/EUindustry-opposes-proposal-to-increase-EU-climate-change-target-unilaterally-to-30
8

Analysis of Options to Move Beyond 20 Per Cent Greenhouse Gas Emission Reductions and Assessing the Risk of Carbon Leakage, European Commission, 26 May 2010.
9 10

Personal communication.

Should Carbon Leakage Stifle EU Goals?, ENDS Report, 16 June 2010. www.endsreport.com/23813/should-carbon-leakage-stifle-eu-climate-goals. The Worst Lobby Awards are organised by Friends of the Earth Europe, Corporate Europe Observatory, LobbyControl, and Spinwatch. www.worstlobby.eu
12 13 11

D. Cronin, Captains of industry write EU's script, Guardian, 27 November 2009.

If carbon leakage took place, it would be linked to a change in trade of related products or commodities. Issues Behind Competitiveness and Carbon Leakage: Focus on Heavy Industry, International Energy Agency, October 2008.

14

The Effects of EU Climate Legislation on Business Competitiveness, The Climate Group, September 2009. The companies surveyed were Centrica, Johnson & Johnson, Tesco, and Lafarge, plus a UK-based glass manufacturer, a German-based engineering firm, a global leader in the manufacture of steel, a global aluminium firm, and a global financial services firm that engages in carbon trading. This leakage can be reduced by appropriate counter-measures. Carbon Trust, Tackling Carbon Leakage: Sector specific solutions for a world of unequal carbon prices, 2010.

15

16

Analysis of Options to Move Beyond 20 Per Cent Greenhouse Gas Emission Reductions, European Commission, op. cit. Nicholas Stern: We must create a level playing field for carbon emissions trading, Independent, 10 March 2009. P. Krugman, Building a green economy, New York Times, 7 April 2010. Net meaning that it takes into account both job losses and new jobs created.

17

18 19 20

Tackling Global Warming: An Opportunity for Europe?, European Economy News, July 2010. http://ec.europa.eu/economy_finance/een/018/article_88102_en.htm Thematic Expert Work on Green Jobs for DG EMPL/D1, GHK, 2009; and Gross Employment from Renewable Energy in Germany in 2009 a First Estimate, German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, 2010. Resolution on a Sustainable New Deal for Europe and towards Cancun, European Trade Union Confederation, 1314 October 2010. http://www.etuc.org/a/7743 Mittal says EU emission cap will limit growth, Guardian, 30 July 2007. European Business Recommendations on EU Policies for Climate and Energy, BusinessEurope position paper, 7 October 2010. Worst Lobby Awards, op. cit.

21

22

23 24

25 26

'Cap or Trap? How the EU ETS risks locking-in carbon emissions', Sandbag, 2010. Sandbag is a non-government organisation with a specialised focus on emissions trading.
27 28 29 30

International Offsets and the EU 2009, Sandbag, 2010. R. Harrabin, Europe to examine case for bigger CO2 cuts, Guardian, 11 May 2010. Cap or Trap?, Sandbag, op. cit.

Ibid. See also J. Kanter, Carbon permits said to be in excess in Europe, New York Times, 1 April 2010. Adapted from Cap or Trap, Sandbag, op. cit. The table shows current estimates of the CO2 allowance surpluses that these companies can expect at the end of ETS Phase II in 2012, and the potential value of these surpluses, based on the July 2010 carbon price of 14 per tonne. Steel company surpluses have been adjusted down to account for waste gas transfers

31

Based on the total cost of all projects identified as urgent in 38 NAPA (National Adaptation Programmes of Action) documents of the LDCs. World Bank, World Development Report, 2010.
33

32

Based on a leaked copy of a letter sent by Gordon Moffat, Director General of EUROFER to Antonio Tajani, Vice-President of the European Commission. See: www.sandbag.org.uk/blog/2010/oct/29/come-it-moffat-inside-peek-steel-lobbying-tactics/ Address by Jurgen R. Thumann, President of BusinessEurope, at the Round Table with EU Climate Commissioner Connie Hedegaard and Business Leaders, 17 May 2010.
35 34

Members are: Acciona, Alstom, Axa, Barilla, Cemex, Deutsche Telekom, Enel, Johnson & Johnson, Kingfisher, Nestl, Philips, Shell, Skai, Skanska, Telecom Italia, Tesco, Unilever, United Technologies, and Vodafone. Members include: Alstom, Arup, Barclays Bank, Bloomberg, BSkyB, BT, Cathay Pacific, Coca-Cola, Dell, Deutsche Bank, Dr Pepper Snapple Group, Duke Energy, Florida Power and Light Group, Google, JP Morgan Chase, Munich Re, Nestl Waters, News Corporation, Nike, PepsiCo, Philips, PSA Peugeot Citron, ScottishPower, Standard Chartered Bank, Swiss Re, Tesco, Timberland, TNT, Virgin, and Virgin Atlantic.

36

Partners include: Coca-Cola, Hewlett-Packard, IBM, Johnson & Johnson, Lafarge, Nike, Nokia, Nokia Siemens Networks, Novo Nordisk, Polaroid, Sony, and Tetra Pak. Europe's business leaders say no way to 30 per cent carbon cut, EU Observer, 9 December 2009. http://euobserver.com/885/29120
39 38

37

Letter from the Alliance for a Competitive European Industry to the Presidents of the European Council, the European Commission, and the European Parliament, 21 January 2010. The footnote said: CIAA (Confederation of the Food and Drink Industries of the European Union) is not a signatory of this letter.

The statement was supported by Acciona, Alstom, Asda, Atkins, Barilla, BNP Paribas, BSkyB, Capgemini, Centrica, Climate Change Capital, Credit Agricole, DHV Group, Elopak, Eneco, F&C

40

Asset Management, GE Energy, Johnson Controls Inc, Kingfisher, Google, Marks & Spencer, Nike, Philips Lighting, SKAI Group of Companies, Sony Europe, Standard Life, Swiss Re, Tryg, Thames Water, and Vodafone. Increasing Europe's Climate Ambition Will Be Good for the EU Economy and Jobs, The Climate Group, op. cit.
41

Debate on CO2 target exposes rift among EU businesses, EurActiv, 20 October 2010. www.euractiv.com/en/climate-environment/debate-co2-target-exposes-rift-among-eu-businessesnews-498843
42 43

See: http://www.copenhagencommunique.com/the-communique

Business Welcomes Consideration of More Ambitious EU target on Climate Change, The Prince of Wales's EU Corporate Leaders Group on Climate Change, 17 May 2010.
44

The Carbon Disclosure Project seeks transparency on carbon risks, opportunities, and actions of major companies globally, on behalf of 534 institutional investors with $64 trillion in assets under management. See: www.cdproject.net All information is based on each company's Carbon Disclosure Project (CDP) Investor Report for 2010. See: www.cdproject.net Carbon Disclosure Project 2010 FTSE 350 Report, Carbon Disclosure Project, 2010.

45

46 47

N. Stern, The Stern Review on the Economics of Climate Change, Cambridge University Press, 30 November 2006. Clean technology venture investment totalled $5.6 billion in 2009 despite non-binding climate change accord in Copenhagen, finds the Cleantech Group and Deloitte, Clean Tech Group, 6 January 2010. http://cleantech.com/about/pressreleases/20090106.cfm

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49

Tackling Global Warming, European Economy News, op. cit., Fact Sheet: Energy and Climate Policy Action in China, World Resources Institute, 5 November 2009, and CO2 reductions slip down EU priority list, EU Observer, 15 September 2010. http://euobserver.com/880/30802

Tracking progress towards Kyoto and 2020 targets in Europe, European Environment Agency, 2010.
51

50

T. Dimsdale and M. Findlay, 30 Percent and Beyond: Strengthening EU Leadership on Climate Change, E3G, 20 November 2009.

52

This cost is lower than originally estimated in 2008, given that the expectations of continued growth that underpinned the estimate have not materialised. The total cost of 30 per cent (including the cost of going to 20 per cent) is now estimated at 81bn or 0.54 per cent of GDP. Analysis of Options to Move Beyond 20 Per Cent Greenhouse Gas Emission Reductions and Assessing the Risk of Carbon Leakage, European Commission, op. cit. Another analysis suggests the cost of 30 per cent will actually be less than the price originally predicted for 20 per cent in 2008. See: Recession Lowers Cost of EU Emissions Trading Scheme by a Half, New Carbon Finance, March 2009. Assuming an oil price of $88 per barrel in 2020. Analysis of Options to Move Beyond 20 Per Cent Greenhouse Gas Emission Reductions, European Commission, op. cit.

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A. Morales and E. Krukowska, European Union Cap-and-Trade Hasn't Given Price Signal, Investor Poll Says, Bloomberg, 30 September 2010. Analysis of Options to Move Beyond 20 Per Cent Greenhouse Gas Emission Reductions, European Commission, op. cit.
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Oxfams report Suffering the Science, published in July 2009, outlines its evidence of how global warming is affecting people, poverty, and development.