EU carbon trading fails to cut emissions

DISARRAY: Some states in the US want their own ``cap and trade'' scheme but the evidence is proving that permits in Europe are so generous they fail to curb industry


Wed, Apr 04, 2007 - Page 7

Brussels lambasted the US and Australia on Monday for their inaction in cutting carbon dioxide emissions and stressed Europe's leading role in the battle against global warming.

"Only EU leadership can break this impasse on a global agreement [post-Kyoto] to overcome climate change," Stavros Dimas, the EU's environment commissioner, told scientists from the UN's intergovernmental panel on climate change. The body is due to publish a report this week in Brussels on the impact of global warming.

What Dimas knew -- but did not tell the scientists, apparently -- is that the EU's program for cutting carbon, its emissions trading scheme (ETS), remains in disarray.

The Democrats, now the majority party in the US Congress, and California's Republican governor, Arnold Schwarzenegger, are drafting plans for a US version of the carbon "cap-and-trade" scheme.

However, preliminary data on the scheme's performance last year showed that 93 per cent, or about 9,000 of the 10,000 heavy industrial plants covered by the EU's trading scheme, emitted less carbon than their quota of free permits. The resulting 1 percent-1.5 percent rise in emissions was not as great as in 2005 but the spot price of a tonne of carbon fell by about a quarter to one euro, at one point collapsing to just 92 cents.

Only a handful of countries shored up the market by issuing fewer emissions quotas than industry wanted. These included: Britain Denmark, Ireland, Italy and Spain. The trading mechanism is designed to create scarcity, forcing up the price of carbon and prompting industries such as steel and power generation to invest in cleaner, greener technologies, such as renewable, carbon-free energy and, eventually, carbon capture and storage. So far, it is manifestly not working as planned.

Dimas and his officials deliberately released the raw data early -- without analysis or interpretation -- to avoid last year's debacle, when premature release of national statistics brought a disorderly collapse of the market. This year the full, sifted figures will be released on May 15.

The 2005 data showed that industry emitted 66 million tonnes less carbon than allowed, prompting allegations that, in Germany alone, the four big power producers had enjoyed windfall profits of up to 8 billion euros (US$ 10.7 billion) by cashing in their excess free carbon permits.

Last year, industry emitted about 30 million tonnes less than permitted. Overall EU emissions went up by 1 percent-1.5 percent because of resumed growth in the eurozone.

Dimas's officials readily admit that the first phase of the scheme has been a botched experiment because of the generous over-allocation of permits. But they insist that the second phase will be more successful because of tighter controls on quotas.