THIRD IN A SERIES

Europe tries trade in 'hot air' to stem greenhouse gases

CarbonExpo relies on fickle principle of supply and demand

By CHARLES J. HANLEY Associated Press

Sunday, June 6, 2004

Buyers, sellers, brokers and lawyers, even "specialists in carbon asset creation management," convene Wednesday on the banks of the Rhine to launch a business for a worried world.

CarbonExpo, in the cavernous congress halls of Cologne, Germany, is a three-day trade fair for those who would deal in carbon dioxide -- buying and selling permits to discharge the waste gas chiefly blamed for global warming.

This carbon trading is a Europewide effort to use supply-and- demand to control emissions and protect the climate, in the spirit of the Kyoto Protocol.

But the supply far outstrips demand, Europeans are finding. The climate of this marketplace itself is decidedly cloudy. Advance prices have plunged by half. "At this point, one shouldn't portray it as a liquid, vibrant market," said Atle C. Christiansen of PointCarbon, a research firm in Norway.

More than six years after governments negotiated the historic climate accord in Kyoto, Japan, the world is taking only halting steps -- not always forward, never in unison -- to follow through.

In fact, the Kyoto treaty itself is not yet in force because it hasn't been ratified, as required, by industrial countries emitting a total of 55% of "greenhouse gases," such as carbon dioxide, that trap heat in the atmosphere that Earth otherwise would give off.

Russia's accession, expected this year, would clear the 55% hurdle. But even a functioning Kyoto agreement would have little impact: Its limited reductions would barely slow the greenhouse buildup, and the biggest emitter, the United States, would remain outside the treaty.

Scientists, meanwhile, grow increasingly concerned.

"If carbon dioxide had a color, if people saw the sky getting darker, people would have no problem recognizing what's going on," said climatologist David Pierce of San Diego's Scripps Institution of Oceanography.

What's going on is that the world's daily output of man-made carbon dioxide, from burning coal, oil and other fossil fuels, is 11% greater today than a decade ago.

Under Kyoto, industrial nations were actually supposed to be cutting back greenhouse gas discharges, to 8% below 1990 levels by 2012. The planet, meanwhile, is warming. Global temperatures rose almost 1 degree Fahrenheit from 1981 to 1998, NASA scientists report.

If greenhouse emissions aren't cut back soon, temperatures could rise many degrees more, expanding oceans, causing drought, intensifying storms and altering climate in other ways, say scientists of the U.N.-organized Intergovernmental Panel on Climate Change.

As the mercury rose in recent years, so did U.S. political opposition to reducing power-plant and car-exhaust emissions, imposing energy taxes or taking other steps to try to stabilize the atmosphere.

Higher energy and other costs would damage the economy, it was said.

Costs of action, and inaction

Economic analyses ranged widely, from a projected annual cost of $112 per U.S. family to comply with Kyoto, to $2,700 a family, with heavy U.S. job losses. Environmentalists said dire projections didn't factor in the costs -- to coastal states, agriculture and other sectors -- of doing nothing, or the job growth in new energy industries.

"It is hard to think of a public policy issue that is harder than this one," said American economist Jeffrey D. Sachs, who has studied climate's complexities.

But he and others say any ultimate plan must include "cap-and- trade" -- schemes whereby emissions caps are imposed, and companies that emit less gas than allowed can sell unused allotments to others who overshoot the target. The profit motive is expected to drive efforts and technology to rein in emissions.

"Market incentives on this can be enormously powerful," Sachs told an April symposium at New York's Columbia University, where he heads the Earth Institute.

Europe's "cap-and-trade" is by far the biggest and most ambitious.

"We want to demonstrate that this works, using market-based tools," said the European Union's environment commissioner, Margot Wallstrom.

Europe progressing, if slowly

The EU's 25 nations, whose leaders claim a "special responsibility" to lead on climate with Washington on the sidelines, ratified the Kyoto Protocol in 2002 and put its provisions into European law.

Now, whether the treaty takes effect elsewhere or not, Europe must reduce greenhouse emissions overall to 8% below 1990 levels by 2012, via formulas distributing the burden to individual countries. It has made progress, but slowly: Emissions are 2% less than in 1990, thanks largely to big reductions in Germany and Britain.

To kick off trading, national governments are allocating carbon dioxide quotas to some 12,000 plants across the continent, from power plants and oil refineries to paper and cement factories.

Those permits and the ability to trade them, as of next Jan. 1, are what will draw company reps and technology salesmen, legal experts and would-be dealers to Cologne for CarbonExpo.

As national allocation plans were announced, however, the "hot air" market lost some of its bounce.

Germany's pace-setting plan, in particular, deflated expectations: In its first round, Berlin shaved just 2 million tons off current annual output of 505 million tons of carbon dioxide gas. Following the German lead, other EU governments drafted lax emissions plans.

With hundreds of millions of tons of quotas issued, but relatively little need for anyone to buy them, speculative prices on the carbon market slid by nearly half, from about $16 a ton of CO-2 in January.

Quietly, with the support of both Democratic and Republican governors, 10 states in the U.S. Northeast are developing their own regional "cap-and-trade" plan for power plants and carbon dioxide, to be unveiled in April.

Some see it as a potential "backdoor Kyoto," a seed for U.S. national action -- even for carbon trading between Europe and American states -- in defiance of the Bush administration.

In Washington, meanwhile, a front-door Kyoto has been offered on the floor of the Senate, where Sens. Joseph Lieberman (D-Conn.) and John McCain (R-Ariz.) have proposed legislation to cap U.S. greenhouse emissions at 2000 levels by 2010 and create an emissions trading system.

The same bill was defeated in the Senate last year by a 55-43 vote, but its supporters sense some momentum: A bipartisan House group now backs the bill, and it was supported last year by Sen. John Kerry, the Democratic presidential candidate.

The Kyoto formulas would have required the United States -- home to 5% of the world's population but more than one-quarter of its carbon dioxide emissions -- to reduce greenhouse emissions to 7% below 1990 levels by 2012.

President Bush rejected the climate accord as based on "incomplete" science and as a threat to the U.S. economy. His administration instead called for voluntary emissions reductions by industry, and continued government-funded research into climate and clean-energy and other technologies.

Bush also complained that Kyoto's controls didn't apply to China and some other fast-growing economies, poor nations that didn't create the "greenhouse" problem and were deemed unready to bear the burden now of fixing it.

The China question

China looms larger year by year as a big coal burner. Some suggest it be held to improved energy-efficiency standards, if not outright emissions caps. To help wean the Chinese off coal, some suggest the West give their nuclear-power industry more advanced technology.

Some at Sachs' Columbia University symposium viewed Kyoto as a distraction and "an unattractive deal," in economist Geoffrey Heal's words. Sachs envisions a truly global new deal encompassing all. "China needs to be at the table right now," he said.

Some scientists and engineers said so much time has been lost that only carbon "sequestration" -- technology to capture and store emissions -- can save the climate.

One calculated, however, that a Lake Michigan in liquid CO-2 would have to be hoarded away in the next 100 years. If nothing else, concerned citizens should act individually, said former U.S. climate negotiator Eileen Claussen.

"The choices you make are very important -- the car you buy, the transport you use, the washing machine you buy."

MAKING A DIFFERENCE

Some ways to reduce carbon dioxide and other man-made gases that enter the atmosphere:

TECHNOLOGY

Energy sources: To reduce burning of coal, oil and other fossil fuels, make greater use of wind, solar, nuclear power and hydropower, and electricity generated by burning biomass (plant material or animal waste); substituting natural gas for coal at power plants.

Buildings: Improved energy efficiency of windows, lighting, insulation, air conditioning.

Transportation: Better fuel efficiency in vehicles; wider use of hybrid cars combining electric and gasoline engines; development of hydrogen-based fuel-cell vehicles.

Manufacturing: Improved energy efficiency in factories; reduced emissions of other warming gases, such as perfluorocarbons, byproduct of aluminum production.

Carbon sequestration: Technology to capture carbon dioxide emissions -- from power plants, for example -- and to liquefy and store them underground.

GOVERNMENT POLICY

Taxes: Higher fuel taxes or taxes on emissions to discourage use. "Cap and trade": Capping emissions at industrial plants, and issuing permits for those amounts that can be traded, allowing more efficient operators to sell permits to less efficient ones.

Subsidies: Both subsidizing the cost of conversion to lower- emission technology in industry and removing subsidies that encourage fossil-fuel burning.

Energy "mix": Mandating, for example, lower proportions of coal- burning in power plants compared with use of natural gas or other fuels.

NATURAL

Forests: Protection or replanting of forests, which absorb carbon dioxide from atmosphere. Tropical forests are particularly important carbon "sinks."

Agriculture: Methods to reduce or capture methane emissions, a byproduct of cattle and other livestock waste; better controls on nitrous oxide emissions from nitrogen fertilizers.

Source: Associated Press

CLIMATE CHALLENGE

Global temperatures are climbing, glaciers retreating, oceans expanding. "It's getting dangerous," says a 75-year-old man watching his Pacific island beach disappear. This three-part series looks at the impact, science and politics of climate change.

Last Monday: The "greenhouse effect," climate change, has languished on the world's agenda since the 1970s, a seemingly distant threat. But year by year, inch by inch, it is rising to the top.

Last Tuesday: More scientific groups have joined the chorus: Rising temperatures probably stem from man's "greenhouse" emissions. But cutting through the unknowns remains a challenge.

TODAY: More than six years after governments negotiated a climate accord in Kyoto, Japan, the world is taking only halting steps -- not always forward, never in unison -- to follow through. But even a functioning Kyoto might have little impact.