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EU Looks to Find Unified Way To Cut Greenhouse-Gas Emissions

Geoff Winestock / Wall Street Journal 13jul01

As the European Union wages an international battle against the U.S. to save the Kyoto Protocol on global warming, it faces an equally tough internal struggle over how to meet its own commitments to cut greenhouse-gas emissions.

Different countries within the 15-member bloc are proceeding in radically different directions, and the tension recently forced the European Commission, the EU's executive arm, to delay indefinitely a proposal for EU emissions caps and a union-wide emissions trading system.

The commission and environmentalists want the EU to set mandatory emissions limits even before Kyoto Protocol details are ironed out. The commission argues that without limits, it will be technically impossible to start emissions trading, which is potentially the most efficient and simplest way of reducing the discharge of greenhouse gases. "We must lead by example," said Margot Walstrom, the EU's environment commissioner.

Fear of Penalties

Hot Air

Greenhouse gas emissions for several EU countries

First column shows country change in gas emissions from 1990 to 1999, in percent second column shows targets for gas emissions by 2008-2012 under Kyoto Protocol and E.U. burden sharing

Austria 2.6 -13
Belgium 2.8 -7.5
Denmark 4 -21
Finland 1.1 0
Germany -18.7 -21
Greece 16.9 25
Ireland 22.1 13
Italy 4.4 -6.5
Netherlands 6.1 -6
Spain 23.2 15
Sweden 1.5 4
Britain -14 -12.5
E.U. Total -4 -8

Source: European Commission

On the other side are energy-intensive companies, which fear high penalties under a program of emissions restrictions. The companies want more time to work out the cheapest solution to their pollution problems, and none want the answer to hurt their ability to compete with companies in countries where emissions restrictions don't apply.

"What we are against is the exaggerated ecological leadership which Germany and the European Union want to administer," said Joachim Hein, environmental adviser for the Federation of German Industries. Germany has slapped on some of Europe's highest energy taxes as part of its climate policy.

That internal debate is likely to intensify after a climate-change meeting next week in Bonn, whatever the results. In Bonn, world leaders are to discuss implementation of the 1997 Kyoto Protocol, which commits ratifying countries to reduce their net greenhouse gas emissions to well under 1990 levels by 2012.

At that meeting, the EU will try to persuade Japan and other rich countries to proceed with Kyoto, despite the Bush administration's opposition to it. Japan has said it won't support the treaty without U.S. participation. The accord needs approval from 55 countries representing 55% of total emissions to enter force.

Flexible Approach

Christian Egenhofer, senior researcher for the Center for European Policy Studies, said that failure at Bonn will strengthen the case for a more flexible approach in the EU's own climate policy. "We can still have a climate policy, but it will be more gradual and based on learning by doing," he said. He noted that when the U.S. first tried to fight acid rain in the 1970s and 1980s, it started with flexible, voluntary limits on sulfur emissions before finally imposing hard caps.

Despite claims by some U.S. officials that the EU is all talk and no action on global warming, most countries in the bloc have already raised energy taxes and slapped on tougher emissions regulations in many sectors. That's partly why the EU as a whole registered a 4% drop in greenhouse-gas emissions between 1990 and 1999, compared with increases of 16% in the U.S. and 7% in Japan.

The EU has been helped over the past decade by a massive switch away from coal to cheaper, cleaner natural gas, which is readily available in Europe, and by the collapse of smokestack industries in eastern Germany.

But the EU must further reduce emissions to comply with Kyoto, and Brussels believes the way is to set rigid caps on the amounts of greenhouse gases specific industries can produce. Britain and Denmark have already started moving in that direction, but Germany resents the approach and Spain and Italy have also expressed doubts.

'Impossible to Compete'

Denmark, for instance, this year launched the world's first greenhouse gas capping-and-trading program: Power companies are hit with a penalty tax for each ton of carbon dioxide emitted above a certain low limit that will decline in years to come. But they can discharge above the limit and avoid the penalty by buying emissions "credits" from other companies whose emissions are below the maximum. The problem, Danish power companies say, is that rivals in neighboring countries that supply the same grid aren't playing by the same rules -- and there aren't enough players in Denmark itself for the trading system to really work.

"It's not fair to have emissions caps in only one country. It's almost impossible to compete," says Frank Rasmussen, trading manager at Energy E2, one of Denmark's biggest power companies.

The European Commission wants to level the playing field by capping emissions for all major industries across the 15-nation bloc, and then creating an EU-wide trading system. But there was so much opposition to the idea that the commission decided to table a bill it had planned to submit this month to member governments and the European Parliament.

Before the bill was even finalized, the EU employers' lobby and groups representing automobile makers, chemicals manufacturers and other industries objected, fearing competition from other places -- such as the U.S. -- where there are no caps and taxes. The commission now says it will make further consultations before submitting a bill.

Efficiency Targets

What many industries would prefer is a system of caps based on pollution-efficiency targets, rather than absolute emission levels. Britain offered that option this year when it introduced its system of emissions limits and trading. For instance, Blue Circle Group PLC, a cement maker that is one of Britain's biggest industrial producers of carbon dioxide, the most important greenhouse gas, opted to cap the tons of gas it emits per ton of cement, giving it room to increase production as long as it meets its efficiency targets. Neil Jenkins, environment manager for Blue Circle, admits that the risk in this flexible approach is that emissions may not actually fall -- but he says that's unlikely. "It would be very embarrassing to us and the government," he says.

Both the British scheme and a similar system in Germany are described as "voluntary." But in both cases, companies face high pollution taxes. The voluntary element is that companies are offered an incentive -- in the form of big tax cuts -- to reach a deal with the government. For instance, Blue Circle won an immediate 80% reduction on Britain's "climate change levy" for agreeing to cut its emissions.

The British plan is innovative because it creates the opportunity for pollution trading without setting absolute limits on emissions. At regular two-year checks, companies that are worried about missing their promised reductions can buy credits from companies that exceeded their performance targets. The fact that the program covers hundreds of very different industries means that the chances for trading are much better than in tiny Denmark.

And for some companies, which have voluntarily undertaken reduction programs, European incentive programs offer the first chance to turn that goodwill into hard cash. Dupont Canada Inc., for example, developed a means of sharply reducing emissions of nitrous oxide, a greenhouse gas emitted during the production of nylon. Now it's hoping to benefit from its innovation under the British program, which channels revenue from the climate-change levy to fund 215 million pounds ($302.8 million) in subsidies to companies with emission-reduction programs. "Finally, we can get something for what we have done," says Robert Routleff, Dupont's manager of emissions trading.

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