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Climate Politics Hinge on Free-Market Forces

European trade fair will link those interested in buying and selling permits to discharge CO2. But supply far exceeds demand.

June 06, 2004|Charles J. Hanley | Associated Press Writer

Buyers, sellers, brokers, lawyers, even "specialists in carbon asset creation management," convene Wednesday on the banks of the Rhine to launch a new business for a worried world.

CarbonExpo, in the cavernous congress halls of Cologne, Germany, is a three-day trade fair for those who would deal in carbon dioxide -- buying and selling permits to discharge the waste gas chiefly blamed for global warming.

This carbon trading is a Europe-wide effort to use supply-and-demand to control emissions and protect the climate, in the spirit of the Kyoto Protocol.

But the supply far outstrips demand, and advance prices have plunged by half.

"At this point, one shouldn't portray it as a liquid, vibrant market," said Atle C. Christiansen of PointCarbon, a Norway-based research firm.

More than six years after governments negotiated the historic climate accord in Kyoto, Japan, the world is taking halting steps -- not always forward, never in unison -- to follow through.

In fact, the Kyoto treaty itself is not yet in force since it hasn't been ratified, as required, by industrial countries emitting a total of 55% of "greenhouse gases," such as carbon dioxide, that trap heat in the atmosphere that Earth otherwise would give off.

Russia's expected accession later this year would clear the 55% hurdle. But even a functioning Kyoto agreement would have little impact: Its limited reductions would barely slow the greenhouse buildup, and the biggest emitter, the United States, would remain outside the treaty.

Scientists, meanwhile, grow increasingly concerned.

"If carbon dioxide had a color, if people saw the sky getting darker, people would have no problem recognizing what's going on," said climatologist David Pierce of San Diego's Scripps Institution of Oceanography.

What's going on is that the world's daily output of man-made carbon dioxide, from burning coal, oil and other fossil fuels, is 11% greater today than a decade ago. Under Kyoto, industrial nations were supposed to be cutting back greenhouse gas discharges, to 8% below 1990 levels by the year 2012.

The planet, meanwhile, is warming. Global temperatures rose almost 1 degree Fahrenheit from 1981 to 1998, NASA scientists report.

But as the mercury rose in recent years, so did U.S. political opposition to reducing power-plant and car-exhaust emissions, imposing energy taxes or taking other steps to try to stabilize the atmosphere.

Economic analyses ranged widely, from a projected annual cost of $112 per U.S. family to comply with Kyoto, to $2,700 a family, with heavy U.S. job losses. Environmentalists said dire projections didn't factor in the costs -- to coastal states, agriculture and other sectors -- of doing nothing, or the job growth in new energy industries.

"It is hard to think of a public policy issue that is harder than this one," said American economist Jeffrey D. Sachs, who has studied climate's complexities.

But he and others say any plan must include "cap-and-trade," whereby emissions caps are imposed, and companies that emit less gas than allowed can sell unused allotments to those that overshoot the target. The profit motive is expected to drive efforts and technology to rein in emissions.

Europe's "cap-and-trade" is by far the biggest and most ambitious.

"We want to demonstrate that this works using market-based tools," said Margot Wallstrom, the European Union's environment commissioner.

The EU's 25 nations, whose leaders claim a "special responsibility" to lead on climate with Washington on the sidelines, ratified the Kyoto Protocol in 2002 and put its provisions into European law. Now, whether the treaty takes effect elsewhere or not, Europe must reduce greenhouse emissions overall to 8% below 1990 levels by 2012, via formulas distributing the burden to individual countries. It has made progress, but slowly: Emissions are 2% less than in 1990, thanks largely to big reductions in Germany and Britain.

To kick off trading, governments are allocating carbon dioxide quotas to 12,000 plants across the continent -- from power plants and oil refineries to paper and cement factories.

Those permits and the ability to trade them, as of Jan. 1, 2005, are what will draw company reps and technology salesmen, legal experts and would-be dealers to Cologne for CarbonExpo.

As national allocation plans were announced, however, the "hot air" market lost some of its bounce.

Germany's pacesetting plan, in particular, deflated expectations: In its first round, Berlin shaved just 2 million tons off current annual output of 505 million tons of carbon dioxide gas. Following the German lead, other EU governments also drafted lax emissions plans.

With hundreds of millions of tons of quotas issued, but relatively little need for anyone to buy them, speculative prices on the carbon market slid by nearly half, from about $16 per ton of CO2 in January.

Berlin's Social Democrat government "surrendered to the coal lobby," complained a leading European environmentalist, Stephan Singer.

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