NO WONDER THEY RESENT US:

Europeans impatient with U.S. on Kyoto (Mark Landler, February 16, 2005, The New York Times)

To live with the treaty, the companies must master a bewildering new world. The protocol, negotiated in 1997 in the Japanese city of Kyoto, requires industrialized countries - with varying targets - to reduce their emissions of greenhouse gases to below 1990 levels, in the five-year period from 2008 to 2012.

For the European Union, the target is an 8 percent reduction below 1990 levels. Germany went beyond that and agreed to a more ambitious target of a 21 percent reduction because it expected windfall gains by shutting down polluting, coal-fired power plants in the former East Germany, though it now seems likely to fall somewhat short of that.

BASF led the German chemical industry in vigorously opposing the country's mandatory reductions. It argued that the rules placed an undue burden on companies that must make decisions, like whether to build a new plant, on a much longer timetable than the five-year life of the Kyoto pact.

Having lost that battle, the companies were required to take an inventory of their emissions. They were allocated credits, typically for less than their current levels. These credits can be traded, which means that if a company is unable to meet the targets, it can buy credits to raise its ceiling. Conversely, if a company achieves greater-than-required reductions, it can sell its unused credits at a profit. It can also pick up credits by helping finance the building of "clean" power plants in developing countries, or by taking part in reforestation projects, since trees absorb carbon dioxide.

The carbon market has developed rapidly in Europe, with credits for six million metric tons of carbon trading in January, where each credit represents one metric ton. The price of a credit fell 19 percent last month, to about €7, or $9. Carbon, like other energy markets, is affected by the weather, with emissions rising in colder weather.

Energy companies, which are used to trading electricity, have jumped into this market without hesitation. But for old-line manufacturing companies, the prospect of carbon trading can be daunting.

But the trading system is considered to be one of Kyoto's most innovative features. Recognizing that greenhouse gases are fungible - emissions in China are no different from those in Europe, and they all mix freely in the atmosphere - it is an efficient way to reduce the overall level by allowing less-polluting industrial companies to sell any unused rights to emit.

For Strube, though, trading is a distraction from making and selling chemicals. "If you are interested in exiting your business, then trading all your emissions rights might be an attractive opportunity," he said.

What concerns BASF is the next round of regulations at home. So far, Brussels has limited mandatory cuts to emissions-intensive industries like power generation and cement manufacturing. But it could expand that to include chemicals, which would affect more of BASF's operations.

Strube and others are urging Brussels to focus on luring new countries rather than leaning harder on industry.

Luring them with bewilderment?

Posted by Orrin Judd at February 16, 2005 7:41 AM