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The argument over the existence of global warming seems to
be over. But how do we achieve the drastic cuts in carbon
emissions deemed necessary to pull the planet back from the
brink? Flemmich Webb weighs up the alternatives – tax or trade?
In his first speech on the environment since
becoming UK prime minister, Gordon Brown
recently committed the country to at least a 60%
cut in emissions from 1990 levels by 2050 – the
first country in the world to enshrine this in law. The
scientists and environmentalists allowed themselves a
small smile. This is what they had been after for years.
This is best achieved through a market-based
approach through a cap-and-trade scheme, Brown went
on. "Only hard caps can create the necessary framework
for a global carbon market to flourish." But afterwards
business leaders and policy advisors repeatedly told
him that such a cut might actually require additional
carbon taxes, that cap-and-trade could never achieve
the required reductions fast enough.
The same debate – to tax or not to tax – has been
raging across the Atlantic. The US has a natural affinity
with cap-and-trade systems – in a rare instance of
taking the lead on environmental issues, in 1990 the
US set up a sulphur dioxide cap-and-trade scheme
that is widely credited with helping to reduce acid rain
pollution from power stations. The Climate Security
Act, which is currently working its way through the
senate, calls for the US to adopt a carbon cap-and-trade
scheme. "We must ensure clean air for future
generations, and this is a responsible, market-driven
approach that strengthens our economy,
competitiveness and security," said Republican
senator Elizabeth Dole, one of the co-sponsors of
the bill, at its introduction.
Political momentum for cap-and-trade has been
gathering for some time. In the absence of a lead
from George W Bush on the issue, the Regional
Greenhouse Gas Initiative (RGGI) was set up in 2000 by
nine north-east and mid-Atlantic US states to design a
regional cap-and-trade programme initially covering carbon
dioxide emissions from power plants in the region. The
Western Climate Initiative launched last February by
the governors of the west coast American and Canadian
states, hopes to complete the design of a market-based
mechanism to reduce carbon emissions by August.
But not everyone is convinced.
Typical of the opposition are comments Daphne
Wysham of the Institute for Policy Studies made on
a recent TV debate. "If you look at the EU emissions
trading system [EU ETS], we see that emissions
are actually up for greenhouse gas emissions, as
are profits," she said. "Profits are up for the nuclear
industry, for the coal industry, and the average
consumer is paying more."
There is no doubt that Phase I of the EU ETS, which
covers 11,400 power stations and heavy industrial sites
responsible for about 40% of Europe's carbon dioxide
(CO2) emissions, has had its problems.
Under lobbying from industry and relying on its,
in retrospect, inflated emission projections, member
states set Phase I allowances that weren't challenging
enough. Some companies helped themselves to
large windfall profits, as Wysham says, before the
price of carbon collapsed by 60% as a result of the
173 million tonnes (mt) oversupply of credits swishing
around the market. Power generating companies did
especially well out of it, as not only did they get given
their allowances for free, but were able to pass the
'cost' of them on to consumers as if they had bought
them. The biggest European power producers – Eon,
RWE, Vattenfall and EnBW – are believed to have made
between €6bn and €8bn in profit from the first round.
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