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Climate: Europe Tries Carbon Trading

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by Dan Whipple
Boulder - Apr 05, 2004
The nations of the European Union last week began to submit their plans for carbon trading to try to reach emissions limits set by the Kyoto agreement on global climate change -- even though the future of that agreement is much in doubt.

The EU is adopting a scheme that will allow buying and selling rights to emit carbon from industrial facilities. The idea actually originated in the United States, which used it to control nitrogen and sulfur emissions by electric power plants.

"It worked," John Pershing, director of the World Resource Institute's Climate, Energy and Pollution Program, told United Press International. "We got significant reductions at a relatively low cost."

The new program has emerged out of a directive adopted by all the EU countries. They decided to set up an approach that would meet the Kyoto targets, independent of whether the agreement is ratified internationally. For Kyoto to take effect, either the United States or Russia must agree to its terms, in addition to the nations that already have done so. President George W. Bush has said his administration will not agree to it and the Russian response is pending and uncertain.

Emissions trading, which is included in the treaty as a mechanism to reach the Kyoto targets, is an attempt to internalize the costs of pollution -- to avoid the so-called tragedy of the commons, as coined by philosopher Garrett Hardin in 1968.

With the trading scheme, emitting carbon -- in the form of carbon dioxide, the chief greenhouse gas -- becomes a cost of doing business, instead of a free byproduct. Essentially, each nation sets a cap on its carbon emissions, and each emitter is given a permit to put a specified amount of carbon into the atmosphere.

To initiate a new emitting facility, individual companies either must find a way to reduce existing emissions when they hit their cap -- by closing inefficient plants or installing new technology -- or by buying the right to emit CO2 from another company that has cut its own emissions or otherwise has excess rights.

In essence, the program works the proverbial stick and carrot -- charging companies to emit CO2 and rewarding those who employ successful carbon-reducing technologies and methods.

The Kyoto accord will not have much long-term impact on greenhouse gas emissions without substantial follow-up actions. It also will have no effect without the participation of all the world's industrialized nations.

The deadline for the EU countries to produce their plans was March 31. Of the 15 nations, only Germany, Finland, Ireland, Denmark and Austria actually met the deadline. Drafts have been completed, but not finalized, in the United Kingdom, Holland, Latvia and Portugal.

Nonetheless, Pershing told UPI: "I think the explicit impact this has is small, except as a signal and price indicator. If the world as a whole were to meet the Kyoto targets, they would bend the trend of emissions down slightly. But if this is successful, it puts a price on carbon that, in theory, says that people will start making decisions with carbon as a factor."

In a speech last year at the George C. Marshall Institute in Washington, D.C., economist Margo Thorning of the American Council for Capital Formation said: "One of the things that some people don't realize ... is that the trading system that's being discussed in the European Union is not a benevolent, fuzzy thing where you give me something and I give you something back. The trading system that the European Commission is debating right now is one where you would have to pay to emit carbon."

For example, Thorning continued, a German firm would have to pay 180 euros to buy the right to emit a ton of carbon from another German firm.

"It's not a system of trading," she said. "It's a system of buying the right to emit carbon, so it's a stealth tax."

A major concern with the European plan, Pershing said, is "no one wants to be too far in front of Germany, because of the competition." Germany is the EU's largest economy.

It is ironic that Europe is moving forward on this American idea, because the EU countries originally were not very enthusiastic about it. Although many Americans either ignore the climate change issue or deny its seriousness, the European public has been persuaded the problem is real.

In the past several years, the Rhine River has experienced repeated severe flooding, and last year's hot summer in non-air-conditioned France resulted in the deaths of 20,000 people. These events cannot be positively correlated with long-term climate change, but they are consistent with the phenomenon. Rightly or wrongly, they are driving public opinion and removing resistance to action on CO2.

"This is the first application at this scale for the markets to work on an environmental problem," Pershing said. "The notion of going from no price to a price is a massive change. It monetizes a public good."

Although U.S. activity at the national level is dormant, the governors of New England states are actively discussing CO2 caps, modeled on the earlier programs of trading nitrogen and sulfur.

The last attempt at a climate change bill was defeated in the U.S. Senate last year, but it did manage to gather 43 votes in favor. Five years ago, 97 votes were opposed to similar legislation.

All rights reserved. Copyright 2004 by United Press International. Sections of the information displayed on this page (dispatches, photographs, logos) are protected by intellectual property rights owned by United Press International. As a consequence, you may not copy, reproduce, modify, transmit, publish, display or in any way commercially exploit any of the content of this section without the prior written consent of by United Press International.

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