{news} Fw: USGP-INT Europe's carbon market holds lessons for the US (Int'lHerald Tribune)

[Justine McCabe]

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From: "Scott McLarty" <scottmclarty at yahoo.com>
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Sent: Friday, June 20, 2008 2:33 PM
Subject: USGP-INT Europe's carbon market holds lessons for the US 
(Int'lHerald Tribune)


> Europe's carbon market holds lessons for the U.S.
>
> By James Kanter
> International Herald Tribune, June 18, 2008
> http://www.iht.com/articles/2008/06/18/business/emit.php
>
>
> BRUSSELS: As the United States moves toward action on global warming, 
> practical experience with carbon markets in the European Union raises a 
> critical question: Will such systems ever work?
>
> Backers of carbon markets, including the presumptive U.S. presidential 
> candidates Barack Obama and John McCain, see them as one of the cheapest 
> and most effective ways to control greenhouse gases in advanced economies.
>
> Yet the experience in Europe, which established the world's largest 
> greenhouse gas market three years ago, tells a cautionary tale - one in 
> which politicians and influential industries may be diverting carbon 
> trading from its original purpose of reducing planet-warming gases.
>
> "We currently are in danger of losing yet another decade in the fight 
> against global warming," said Hugo Robinson of Open Europe, a research 
> group in London.
>
> On Wednesday, the European Environment Agency reported that carbon 
> emissions from industries participating in the carbon trading plan, known 
> as cap and trade, continue to rise.
>
> Emissions from factories and plants that trade pollution permits rose by 
> 0.4 percent between 2005 and 2006 and by 0.7 percent between 2006 and 
> 2007, during the first two years of the system's operations.
>
> Europeans took an early lead in efforts to curb global warming, 
> championing the Kyoto agreement and implementing a market-based system in 
> 2005 to cap emissions from about 12,000 factories producing electricity, 
> glass, steel, cement, and pulp and paper. Companies buy or sell permits 
> based on whether they overshoot or come in beneath their pollution 
> targets.
>
> Although the system also underpins Europe's claim to be leading global 
> environmental policy, EU officials acknowledge that establishing such a 
> vast market has been more complicated than they anticipated, and that its 
> effectiveness so far has been limited.
>
> "Of course it was ambitious to set up a market for something you can't see 
> and to expect to see immediate changes in behavior," said Jacqueline 
> McGlade, the executive director of the European Environment Agency. "It's 
> easy, with hindsight, to say we could have been tougher," she said.
>
> A major stumbling block arose at the outset, when some EU governments 
> participating in the effort allocated too many trading permits to 
> polluters when the market was created. That led to a near-market meltdown 
> after the value of the permits fell by half, and called into question the 
> validity of the entire system.
>
> Since then, EU officials have promised tough reforms to fight against 
> special interests, and the price of carbon permits has largely recovered.
>
> Yet a ferocious lobbying battle is under way as EU regulators seek to 
> overhaul the dysfunctional parts of the market by charging polluting 
> companies more and reducing the oversupply of pollution permits traded 
> within the system.
>
> Brussels is also seeking to consolidate its oversight of the market, 
> rather than leave it partly in the hands of EU governments that, in some 
> cases, enabled companies to profit from the system by allocating them more 
> pollution permits than they needed.
>
> "The politics you're now seeing in Europe now are the real politics of 
> carbon," said David Victor, the director of the Program on Energy and 
> Sustainable Development at Stanford University. "The central lesson from 
> Europe is that governments must find ways of managing the allowances that 
> clearly are going to be one of the most valuable pieces of public property 
> in the 21st century," he said.
>
> Energy-intensive industries like power, steel and aluminum have geared up 
> their lobbying machines to challenge proposals that would force them to 
> buy many more permits than in the past. During the three years in which 
> they participated in the first phase of the new market, carbon emissions 
> from the iron and steel sector in Britain alone rose more than 10 percent 
> while emissions in the cement industry rose more than 50 percent, 
> according to transcript from the British Parliament.
>
> The electricity industry in particular is rejecting proposals that would 
> force it to buy all of its allowances. That could prevent utilities like 
> E.ON and RWE in Germany and Vattenfall, a Swedish energy company, from 
> continuing to earn extra money from the system.
>
> Meanwhile, major multinationals like the Anglo-Dutch oil company Royal 
> Dutch Shell and the steel giant ArcelorMittal have threatened to freeze 
> some investments in Europe unless the plan is reviewed. Airlines like the 
> German carrier Lufthansa say the regulations are unworkable without a 
> global deal on greenhouse gas regulations.
>
> And poorer countries in the EU, led by Hungary, are clamoring to overturn 
> emissions allowances that they say are too stingy and risk undermining 
> their economic growth.
>
> The proposals also are under attack from environmentalists, who want to 
> restrict polluters from using large numbers of permits from an offsetting 
> program, the Clean Development Mechanism.
>
> They are concerned that offsets might undermine tight caps and delay 
> efforts to shift Europe to a low-carbon economy because European 
> industries would be rely too heavily on other parts of the world to make 
> reductions.
>
> "The sheer amount of lobbying creates so much uncertainty about the way 
> these markets operate that nobody really is investing in cleaner 
> technologies in Europe," said Robinson of Open Europe.
>
> Carbon markets, also known as cap and trade systems, have come into vogue 
> because they are more politically palatable than imposing new carbon 
> taxes.
>
> Americans pioneered pollution markets in the 1970s and used them on a 
> broader scale with some success during the 1990s to control emissions from 
> power plants that produced acid rain. American officials also pushed hard 
> for emissions trading to be included in the Kyoto climate protocol on the 
> grounds that markets are the most effective way of encouraging innovative 
> emission-reducing technologies.
>
> But the momentum in the United States to create a nationwide carbon market 
> ground to a halt in 2001, when President George W. Bush withdrew support 
> for the Kyoto protocol. Bush said carbon-controls would put an undue 
> burden on the U.S. economy unless fast-growing countries like China and 
> India also made commitments to cut emissions.
>
> Now the tide is turning again in favor of carbon markets in the United 
> States. Although the Senate earlier this month blocked a bill that would 
> have imposed a cap and trade system to slash greenhouse gases by 2050, 
> both candidates for the presidency have pledged support for market-based 
> systems like the one in Europe.
>
> Obama, the presumptive Democratic nominee, has said he supports the use of 
> a market to reduce carbon emissions by 80 percent below 1990 levels by 
> 2050. His proposal would require pollution credits to be auctioned rather 
> than given away to big industries, including coal and oil companies.
>
> McCain favors giving permits away to big polluters before moving to an 
> "eventual" auctioning of permits to reduce emission levels 60 percent 
> below 1990 levels by 2050.
>
> Victor, the Stanford director, said Americans were likely to undergo many 
> of the same challenges already experienced in Europe.
>
> "Government largess on a vast scale was actually one of the main reasons 
> that the European system actually got off the ground," said Victor. "The 
> challenge for the United States now will be to have enough pork to get 
> people to the meal, but not to give away so much that we end up 
> squandering public resources," said Victor.
>
> A question that hangs over the European system - and that is likely to be 
> of major concern to U.S. policy makers - is whether the rules still can be 
> tightened up sufficiently so that industries eventually emit less and 
> adopt cleaner technologies.
>
> For Heinz Zourek, the director general for Enterprise and Industry at the 
> European Commission, polluters of all sizes, not just energy-intensive 
> industries, should be seen to be participating in efforts to lower carbon, 
> and to reduce pleading by special interests.
>
> "As long as you treat them badly," said Zourek, referring to different 
> sectors of the economy, "it's better to treat them equally badly."
>
>
>
>
>
>
>
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