Correction to This Article
An April 9 article on Page One incorrectly said that FedEx is among the growing number of companies that have backed a variation of a cap-and-trade system for limiting greenhouse gas emissions. It is not.
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Europe's Problems Color U.S. Plans to Curb Carbon Gases

As U.S. lawmakers plot a course for managing global warming, they need look no further than Europe, which is way ahead in the battle to control emissions of greenhouse gases. While Europe's goals may be noble, achieving them has come at a cost.
As U.S. lawmakers plot a course for managing global warming, they need look no further than Europe, which is way ahead in the battle to control emissions of greenhouse gases. While Europe's goals may be noble, achieving them has come at a cost.

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The chief executive of one utility, Vattenfall, which owns a coal plant that is one of the continent's biggest carbon emitters, defended the decision. Lars G. Josefsson, who is also an adviser to German Chancellor Angela Merkel, said higher electricity prices are "the intent of the whole exercise. . . . If there were no effects, why should you have a cap-and-trade system?"

But consumers ask why four big utilities that dominate the German market got to keep the money.

U.S. Pioneered System

The cap-and-trade system, modeled on a U.S. program that reduced sulfur dioxide emissions, sets a gradually shrinking target for Europe's carbon dioxide emissions and divides it by country.

Each country then rations shares to power plants and factories. The allocations are designed to fall short of past use, forcing companies to cut emissions, get credit for reducing greenhouse gases in developing countries or buy spare allowances from other firms to make up the shortfall. That creates a market, and a market price, for allowances.

However, because of lobbying by well-connected companies, the E.U.'s limits on emissions ended up being higher than the actual emissions. As a result, fewer companies than expected had to buy emissions this year, and the price of carbon allowances, which had topped $30 per ton of carbon about a year ago, crashed to about $1 a ton. That eased some of the pressure on electricity rates, but prices for next year, after tighter E.U. limits take effect, are still about $20 a ton.

The E.U. is drawing up new rules for a second phase of its program, due to run from 2008 to 2012, but those, too, have sparked controversy.

Fights have erupted as countries seek to guard their interests. Eastern European nations have lobbied for more generous allocations because of their communist legacies and lower living standards. Germany, the continent's largest wind-energy producer, wants an E.U. mandate that each country get 20 percent of its energy from renewable resources by 2020; Poland, which uses no renewable resources, is resisting.

Germany boasts that it has cut emissions to 18.4 percent below 1990 levels, the benchmark used in the Kyoto Protocol and in Europe. But nearly half the reduction was because of sagging industrial output in the former East Germany after reunification. For the 2008-2012 period, E.U. officials sliced 5 percent off Germany's emissions proposal.

Individual companies have also haggled over whether their historical records were representative emission benchmarks.

"A paper mill in Italy would get different credits from a paper mill in Germany, even if they are completely the same," said Marco Mensink, energy and environment director of the Confederation of European Paper Industries.

Perversely, Europe's cap-and-trade system has done little to reduce output at such places as the Janschwalde coal plant, Europe's third-biggest carbon dioxide emitter. Each year, it spews more than 25 million tons of carbon dioxide. The dirty gray plant still has turbines and generators that date from Soviet times. It has nine cooling towers, and just half of its output can power all of Berlin.

But the cap-and-trade system does provide an extra reward for efficiency. And the owner of the plant, the Swedish energy firm Vattenfall, installed new blades in the old Russian turbine, boosting the plant's efficiency to 36 percent, from 33 percent. Vattenfall has also retrofitted a 1,600-megawatt plant nearby at Schwarze Pumpe, which has a much higher efficiency rate.


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