http://www.iht.com/articles/2007/06/04/business/carbon.php
Smokestacks spewing exhaust gases into the atmosphere near Bergheim, Germany. (Wolfgang von Brauchitsch/Bloomberg News) EU moving further on climate change Emissions-trading system could have a major impact on polluters By Stephen Castle and James Kanter Published: June 4, 2007 BRUSSELS: Europe is moving toward far reaching changes to its emissions-trading system that could force large-scale polluters to pay for most, or even all, permits to produce climate-changing gases, European officials said Monday. Although the European carbon-trading arrangement is the world's most functional, the countries that administer it acknowledged in a meeting this weekend in Essen, Germany, that the system was shadowed by some major flaws, including a government-credit allocation plan that allows companies to profit by lobbying for additional pollution permits. According to a statement issued by the German presidency, European Union governments plan to ask the European Commission to propose modifying the current framework, known as "cap and trade," by including auction and benchmarking components that would reduce corporate influence over pollution permits after 2012, when a crucial period of the present system expires. "Though it has been a success, we have undergone a steep learning curve and we have seen some windfall profits being made by power companies," said Barbara Helfferich, a spokeswoman for the European Environment Commissioner, Stavros Dimas. "We are considering auctioning up to 100 per cent of credits," she said, and would seek to determine whether there should be a mandatory level of auctioning. The commission would complete its review by the end of the year, she said. The post-2012 reforms might also give the European Commission greater powers to impose overall caps on national governments. At present it must approve the allocations that each member state makes for its biggest polluters. The acknowledgement of a shift in approach comes before a visit by President George W. Bush this week to the Group of 8 summit meeting in the German resort of Heiligendamm, where leaders are expected to engage in a heated debate about the systems that nations and businesses should adopt to prevent climate change. Bush said last week that he would veer away from adopting a European-style system of allotting and trading pollution permits, a setup framed by the Kyoto climate treaty, which aimed to cap the total amount of carbon dioxide spewed by companies into the atmosphere. But several U.S. states have already adopted similar systems, and big American business is lobbying hard for it. A group of chief executives from the largest corporations in the energy sector called Monday for the establishment of a global carbon market. "Emissions reductions must create value from the market player's perspective," Lars Josefsson, the chief executive of the Swedish power company Vattenfall, said. "Abrupt changes that create economic shock waves or belated measures in the form of emergency cutbacks will prove very costly," he warned at a forum in Berlin. Europeans took an early lead in efforts to curb global warming by championing the Kyoto Protocol and then by establishing the largest carbon management system in the world to meet its requirements. The two-year-old EU system involves complicated quotas that cap carbon dioxide emissions from thousands of factories across the trade bloc. Defenders of the European system say that it still is in its infancy, and that a similar system was in place during the 1990s to begin the work of repairing damage to the ozone layer. "What's important is Europe's experimental approach," Tom Wilbanks, a climate scientist Oak Ridge National Laboratory in Tennessee, said. "Aspects of the European system that work will be exported widely," he said, adding that European boldness would "help people avoid repeating the same mistakes. "Somebody has to try to be the first guinea pig," Wilbanks said. Others, including Lawrence Summers, the former president of Harvard University, argue that Europe has embarked on a project that needs a major overhaul to reduce emissions. So far, progress in Europe has been modest when compared with international commitments. In the 15 EU countries that signed up to common Kyoto targets, the overall decline in emissions was about 2 percent by 2005 compared with 1990 levels, according to Andreas Barkman, the project manager for greenhouse gases at the European Environment Agency. The Kyoto target is 8 percent. Emissions under the trading system even went up slightly, by about 0.8 percent, between 2005 and 2006, Barkman said. Last year, the EU was forced to slash the number of credits it handed out after companies successfully lobbied governments, flooding the market. Certain sectors like steel benefited from over-allocations by selling excess credits. Electricity producers like E.ON and RWE in Germany and Vattenfall also benefited from free allowances, by passing on costs to their customers, according to Jos Sijm, a senior economist at the Energy Research Center of the Netherlands who tracks the issue. The result of the overallocation is that the price of a ton of carbon now is about 25 euro cents compared with a high of about €30, or $40.45 in April 2006. A low price means companies can easily afford to overpollute and face little incentive to make their businesses environmentally sound. "The first phase definitely did not deliver reductions in emissions," said Mahi Siderou, the EU climate policy director for Greenpeace in Brussels. "Industry had completely overestimated how much they were emitting so they could get more permits," she said. During the first phase, governments had the option of auctioning as much as 5 percent of credits. Only Denmark announced plans to auction that amount, according to Greenpeace, while Hungary, Lithuania, Ireland said they would auction lesser amounts. During the period starting in 2008, when governments have the option of auctioning as much as 10 percent of credits, Britain plans to auction credits worth 7 percent, Luxembourg 5 percent, the Netherlands 4 percent, Lithuania 2.7 percent, Poland 1 percent, Ireland 0.5 percent, and Belgium 0.3 percent, according to Greenpeace. The EU also has tightened up the system for the period beginning in 2008 by making a better estimate of the amount of credits needed by industry. Even so Greenpeace and many other groups say those fixes fail to tackle the fundamental flaws in the system and that much deeper reforms will be needed to the system after 2012, including moving to a system entirely reliant on auctions. "Not all governments have taken a position, and industry is opposed because it is still keen on getting credits free," Sideridou said. "But it is emerging from the commission, from market analysts and environmentalists that auctioning should be the rule, rather than the exception." In the United States, General Motors, Duke Energy and others already have lined up in favor of these European-style quotas, leading many environmentalists and experts to question whether these companies will be required to do enough to change their business practices in ways that create an effective transition to a cleaner environment. "The concern in the United States is that the caps would be set too low and in that case companies would get off easy," Peter Haas, a professor of political science at the University of Massachusetts at Amherst, said. Diplomats "are spending way too much time getting the trading system right, without being sure they can get real caps," Haas said. Shortcomings in the European system mean it will contribute only about 40 percent of the region's Kyoto goals, forcing Europe to buy the emissions reductions it lacks in the form of credits from countries in the developing world. Those credits probably will come from places like China, where factories are being modified to enable them to qualify for large amounts of credits, then sold to European companies so they can continue to pollute. Another problem for the European system is that countries in the former Soviet bloc, and Russia in particular, have ended up with an abundance of credits since the decline of their industrial sectors after the fall of communism. If Russia releases those credits, the price of carbon could be depressed in years to come, doing little to motivate business to adopt greener business practices, warned Liz Bossley, the chief executive of Consilience Energy Advisory Group, an energy consultancy. James Kanter reported from Paris. [Non-text portions of this message have been removed]
