Europe leads the way in Climate Change Strategy. Can the US follow Europe’s lead?

By John Greene, GA Intern Extaordinaire

As the push for the US to adopt Climate Change legislation continues to increase so do questions regarding what a Cap and Trade program for carbon would look like. In short cap and trade is a policy mechanism that creates a market to buy and trade pollution credits, in this case for carbon. Polluters are allocated credits, if they produce more pollution then their credits permit they must buy additional credits to cover the difference. On the other hand if the polluter emits fewer emissions than their credits allow they can sell the extra at market price. Much like the Green Alliance tries to build a “green” consumer demand for our business and thus provide incentive for other business’s to go “green”, a Cap and Trade program tries to make a market that provides incentive for companies to produce less pollution and perhaps even profit from doing so.

For decades the US government has been dragging its feet when it comes to adopting Climate Change policy and legislation. However, during his campaign for President Barak Obama took a strong stance on climate change saying he would support implementation of a “Carbon Cap and Trade” scheme here in the US. Although, such an idea may be new to Americans, the European Union set up the world’s largest cap and trade scheme back in 2005 and oddly enough thanks to the US. If we look back to the Kyoto discussions it was the US that pushed for a “cap and trade” scheme for carbon and Europe which was hesitant, but as history played out, the opposite ended up being true.

When the U.S. Congress failed to ratify the Kyoto protocol, the EU was left high and dry. With the world’s largest per-capita carbon emitters out of the picture, the EU had to pick up the slack. Although our neighbors over the Atlantic originally favored a direct carbon tax, there was no political weight behind the idea. Thus, the European Trading Scheme, or the ETS, (they love their acronyms), was born. Given that the ETS’s adoption can be partially attributed to the US’s lack of backbone when it comes to climate change, it is worthwhile to note the significant role the US played in its origins. Besides, leaving the EU between a rock and a hard place at Kyoto, the US actually served as the model for the ETS. The Europeans looked to the US’s Sulfur-Dioxide Trading Scheme, when designing the first phase of the ETS.

Why am I giving you this history lesson on climate change policy? Well this summer I had the opportunity to travel to Brussels Belgium to conduct a policy assessment of the ETS, with the goal of trying to draw out some recommendations for a US carbon management strategy. As the UN Climate Negotiations approach in December the EU movers and shakers of environmental policy are working feverishly to do whatever it takes to ensure that a global agreement is reached on Climate Change. In The US, the House passed a climate change bill, H.R. 2454, but this bill has yet to pass the Senate. H.R. 2454 proposes a “Carbon Cap and Trade” program among its measures to clean up our energy use and encourage conservation and cleaner technologies in American manufacturing.

So far the idea of Cap and Trade is not gaining the support it needs in the US; politicians argue that it is not cost effective. The current state of the economy especially concerns those who are against a Cap and Trade program; they claim that it will ultimately create even more economic problems. Others still, argue that Cap and Trade would decrease the competitiveness of our industries in the global market. But the debate against a Cap and Trade is not limited to its economic merits alone. On the other end of the spectrum, environmentalists say that H.R. 2454’s Cap and Trade scheme is not ambitious enough. By the amount of offsets the bill proposes, some argue, no real emissions reductions will be achieved.

To be clear, offsets are a concept first introduced in the context of climate change in the Kyoto Protocol. The Kyoto definitions and rules are universally applied to offsets through the Clean Development Mechanism (CDM). CDM’s define what constitutes an offset and what standards an offset must meet in order to be acceptable. Thus, all offsets for Climate Change mitigation go through the CDM process of evaluation and approval. CDM’s cannot account for all the offsets that the US Climate Bill provides. In fact the bill allows for seven times as many offsets as the CDM is predicted to generate between 2008 and 2012. Those who believe the bill is to weak also suggest that the 20% Carbon reduction that the Intergovernmental Panel on Climate Change stated we need to achieve by 2020, would not be reached until 2036 if all the allowed offsets in the bill are utilized. Nothing is set in stone yet, the bill is still in draft form and its merits continue to be debated in the Senate.

The good news here is that the US doesn’t need to reinvent the wheel. The European Union argued and analyzed many of the same points that the US is now concerned with during the inception of the European carbon trading scheme. One of the best ways to prevent the US legislation from failing to achieve real reductions is the use of an initial pilot phase and even a multiple phases thereafter to provide further adjustments to be made. In some respects the US is at a real advantage in coming late to the “Cap and Trade” game; they can learn from the European process and even improve upon it. Indeed the Europeans have often revisited and revised their system to make it better; these revisions are a large part of ETS’s success. Thus, one of the recommendations for the US that came out of my research this summer was the idea of phase-by-phase reevaluation of the trading scheme. This is not to say that we have a free pass to make the same mistakes the Europeans made during their initial pilot period, but rather that we can learn from them.

Thankfully, we are already ahead of where the Europeans started, because we have been taking a careful inventory of our carbon emissions. The Europeans overestimated their carbon emissions because of poor inventory techniques, thus they over-allocated credits at the onset of the ETS. The US has been working on a detailed carbon inventory for years and thus there is little worry of over-allocation here. When over-allocation occurs and the government then gives away these credits to industry for free, polluting manufacturers experience windfall profits because they are able to sell the extra pollution credits they were mistakenly given.

The European experience gives us another vital lesson; that there must be at least some auctioning of credits in a US Carbon Market – in order to prevent industries making windfall profits from essentially polluting! Such a system, that allows windfall profits, actually reduces the incentive to cut emissions. Furthermore any US legislation should have a timeline that moves towards 100% auctioning of credits in the future. That being said, it would not be economical to begin with 100% auctioning – the political cost and cost to industry is too great, too quickly. We cannot afford as a country, or as a global steward to ignore what the Europeans have learned over the last four to five years.

We are fortunate to have the ETS, not only as the pioneer from whose mistakes we can learn, but also as a model for the successful emissions reductions that a Cap and Trade Scheme can achieve. It should be noted that a Cap and Trade Program is about long-term success, the EU may not be reducing carbon emissions as much as they would like to be but they are on the right track towards ensuring the necessary reductions are made in the future. In the US emissions continue to increase as we debate what to do about Climate Change. Meanwhile, the Green Alliance already has the right idea; if we take care of our environment our communities stand to benefit. The Green Alliance community in particular is poised to benefit from the establishment of a Carbon market, with companies that provide clean energy alternatives and carbon reducing practices GA members are one step ahead while the US Senate is two months behind on the Climate Bill.