How does the EU’s climate and energy package affect developing countries? This is a question worth asking, because the EU is important to global climate change mitigation efforts both politically and economically.

The EU will be one of the key players in this year’s negotiations as the parties to the UNFCCC try to reach an agreement on climate policy post-2013. And its economic clout is already playing a significant part in carbon cuts in the developing world as it is the largest purchaser of carbon credits generated by Clean Development Mechanism (CDM) projects.

1) Funding stream for CDM until 2020. The EU ETS Directive approved by the European Parliament in December allows for up to 50% of the emissions reductions made by 2020 to come from Joint Implementation (JI) or CDM projects (see this press release). This should give confidence to investors in developng-world CDM projects that there will be a market for the emissions reductions certificates they produce at least until the end of the next decade.

2) Incentive to form a deal at Copenhagen. In an attempt to overcome some of the ‘waiting game’ effect where every participant in the global UNFCCC negotiations waits for other countries to set targets, the EU has said that it will extend its emissions reduction target from 20% to 30% by 2020 if a satisfactory international agreement is reached before the end of this year. The EU is signalling its willingness to go further on climate policy by doing this. But it is also giving a more direct incentive to developing countries to sign up to a global agreement, because a proportion of the further 10% reduction would also come from JI/CDM credits and this would mean more funds available for projects in those countries.

3) Expenditure on other mitigation/adaptation initiatives. The new EU ETS Directive contains a provision that member states have to spend at least 50% of the revenue they receive from the EU ETS on projects that will further mitigation of or adaptation to climate change. This could include development of technologies such as CCS, renewable energy and energy efficiency), but the Directive also allows expenditure on the Adaptation Fund launched at Pozna? and the funding of reduced emissions from avoided deforestation, both of which would benefit developing countries. Of the three reasons I’ve listed here, this would seem to be the weakest from developing countries’ perspective because it doesn’t bind individual states to sending any of this money in their direction. Friends of the Earth have claimed that the EU’s failure to commit to binding contributions to adaptation and mitigation in the developing world endangered the negotiations at Pozna?.

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