LONDON -- European officials are urging air-pollution
authorities in several U.S. states to avoid the problems that have plagued
Europe's system for trading carbon-emissions credits since it was set up
2˝ years ago.
The U.S. doesn't plan to introduce a nationwide
emissions-trading system, but 10 Northeastern states are trying to set up
their own emissions-trading system, starting in 2009. California also aims
to set up a program, though it hasn't set a date. Officials in those
states are now looking to Europe's experience in carbon trading as they
sketch out how their own plans will work.
But the European Emissions Trading System, or ETS, hasn't
gotten off to a great start. That system's first phase, which began in
January 2005 and will end in April 2008, has proven largely ineffective,
leaving companies with almost no incentive to cut their emissions.
Trading emissions credits is one of the main ways countries
that signed up to the Kyoto Protocol in 1997 provide an economic incentive
to cut carbon emissions, which are believed to be the main factor behind
global warming. Under the "cap-and-trade" system used by the European
Union, regulators cap emissions from companies such as manufacturers and
power producers, which buy and sell credits to meet these commitments. A
company that has overshot its limit can buy a carbon credit from one that
has emitted less than its cap.
The deficiencies of the European system have been part of
increasing trans-Atlantic discussion as U.S. policy makers explore the
idea. In March, a U.S. Senate committee met with EU officials as well as
representatives from Electricité de France SA and Royal Dutch Shell PLC's
Shell Oil. Last year, California Gov. Arnold Schwarzenegger signed an
agreement with the former British prime minister, Tony Blair, to share
information on emissions trading.
On June 1, a group of 15 scientists, policy makers, and
emissions traders from Europe and the U.S. published recommendations for
designing a greenhouse-gas cap and trade system for California's
government. The group, called the Market Advisory Committee, said that
"the bedrock foundation of a successful trading program is a rigorous
system for collecting accurate data." Peter Zapfel, policy coordinator for
Emissions Trading at the European Commission and a member of the MAC, said
in an interview that the "biggest lesson we learned since we launched the
EU ETS is that you need the caps to be based on very solid data. We didn't
have verified emissions data when we started."
Europe learned that lesson in April 2006 when the first
verified emissions data were released. Those figures showed actual
emissions in 2005 were far lower than the caps set by individual
governments and the European Commission. As a result, carbon prices fell
about 70% in three days, and have remained extremely low.
The European ETS suffered a massive dent to its reputation.
Critics, including European Energy Minister Andris Piebalgs, deemed the
trading system, or at least its first phase, a failure, because the price
was too low to drive investment in cleaner technologies.
The collapse was due to a lack of verified historical data
on which to base the caps. The EU had used countries' and companies' own
unverified and often incomplete estimates of how much CO2 they were
producing, because no national systems had been set up to monitor
emissions before trading in the EU program started.
The 10 U.S. states -- Connecticut, Maine, Massachusetts,
New Hampshire, Rhode Island, Vermont, New York, New Jersey, Delaware and
Maryland -- are taking part in the Regional Greenhouse Gas Initiative, a
linked cap and emissions-trading program.
Mr. Schwarzenegger has said he would like an
emissions-trading system to be set up to help his state comply with a 2006
state law. The law says California must cut its emissions back to 1990
levels by 2020 -- about a 25% cut compared with current projected
emissions for 2020. The states involved are accumulating emissions data in
advance to ensure they don't make the same mistake as the EU. Companies
that will have to use the system are happy that they are doing so.
"We believe a credible reporting system of greenhouse-gas
emissions is the first step in developing government policy and corporate
programs that will change behaviors, spark innovation and deliver
reductions of greenhouse-gas emissions," said Bob Malone, chairman and
president of BP PLC's BP America. In the U.S., recording emissions
data is already further forward than it was in the EU in 2005, when carbon
trading started there.
In May, 31 U.S. states launched the Climate Registry, a
nonprofit organization that aims to create a common reporting system for,
eventually, all 50 U.S. states. The aim is to create "an accurate,
complete, consistent, transparent and verified set of data supported by a
robust accounting and verification infrastructure," the Climate Registry
says.
The registry incorporates earlier initiatives to record
emissions. The California Climate Action Registry was set up in 2001,
while most of the U.S. states involved in the Regional Greenhouse Gas
Initiative began recording emissions data in 2003. Under both registries,
companies measure their own emissions, which are then verified by
independent contractors. This is much the same system as the EU uses
today.
But U.S. officials will also be closely watching how Europe
resolves the next set of questions its system will pose. For the second
phase of its system, which will begin next year, the European Commission
is using the verified emissions data it accumulated for 2005 and 2006 to
set much tougher caps for each country.
Those new caps have proved controversial. After complaints
by industry and power producers, countries like Poland, the Czech
Republic, Hungary and Slovakia have launched legal action against the
commission's rulings, complaining that the strict limits will hurt their
economic growth.
Write to Erica Herrero-Martinez at erica.herrero-martinez@dowjones.com1
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