Stricter System to Trim Carbon Emissions Is Considered in Europe

NY Times

January 22, 2008

By JAMES KANTER and STEPHEN CASTLE

BRUSSELS — European Union officials this week will propose an overhaul of the bloc’s sometimes dysfunctional carbon emissions trading system, aiming to reduce corporate influence and make polluting more expensive.

The system would force more factories in Europe to pay for pollution and would seek to reduce the oversupply of permits. That, in turn, could push up their costs.

It would also be governed centrally in Brussels, rather than partly by member countries, as is now done, with the aim of reducing the ability of companies to profit by lobbying nations for more pollution permits than they need.

The draft proposal, not yet public but seen by The International Herald Tribune, is to be presented to the European Parliament on Wednesday by the president of the European Commission, José Manuel Barroso.

“This is certainly an example of what many developed countries need to do to stabilize greenhouse gases using stringent national policies and effective market mechanisms,” said John Hay, a spokesman for the United Nations Framework Convention on Climate Change in Bonn, which oversaw the negotiations that led to the Kyoto Protocol.

Lobbying from energy-intensive industries, particularly in Western Europe, means that the legislation could still face obstacles, and a review by Parliament and European governments could take more than a year.

In one concession, the countries would be allowed to keep money raised by selling permits that could amount to 30 billion to 50 billion euros a year, or $44 billion to $73 billion, by the end of the next decade, according to European officials who asked not to be identified because of the delicate nature of the plans.

Governments still could be urged — and may even be required — to put part of the revenue toward programs like research and development for reducing emissions and encouraging renewable sources of power, the officials said.

Henrik Hasselknippe, the director for European emissions trading analysis for Point Carbon, a research and consulting company in Oslo, said one aspect of the announcement this week would be a commitment to make polluters buy many more — and in some cases all — of their permits, starting in 2013.

Industries currently in the system, including steel factories, are allocated most of their permits by national governments and use the trading system to buy more or sell surplus.

Europeans took an early lead in efforts to curb global warming by championing the Kyoto climate treaty and by establishing the largest carbon-management system in the world. The three-year-old system involves complicated quotas that cap emissions from thousands of factories across the trade bloc. Companies buy or sell permits based on whether they overshoot or come in beneath their pollution targets.

Supporters of the system say limiting supply by stopping government handouts of permits would eventually drive up the cost of polluting and force companies to reduce emissions and adopt environmentally sound innovations.

In one of the most significant steps toward reducing corporate influence over pollution permits, the new system would take aim at electric utilities specifically, requiring them to buy all of their permits to offset greenhouse gases, instead of being allocated most at no cost.

Under the proposal, the regulators would limit the number of allowances in Europe — ending the scope for a government to allocate more than necessary — and steadily decrease the amount of allowances available after 2012 for manufacturing industries besides the power sector.

In a concession to sectors like steel, and to ease opposition from industries and political leaders in countries like France, the officials are expected to allow some free distribution of permits until 2020.

But the steel industry failed to obtain another measure it wanted to help its competitive position.

The European Union will delay a decision until at least 2010 on whether to impose a carbon tax or similar mechanisms on imports from countries where industries do not face added costs from climate legislation.