W.K
From a noble abstraction, environmental protection will shortly be translated in Europe to costly, direct obligations of corporations, some of them US corporations operating in the EU. The US itself, of course, has not committed itself to supporting the Kyoto decisions. The Wall Street Journal (10/10, “In Europe, Clues to Kyoto’s Impact” by Jeffery Ball) lays out the facts.
“Paris – Big industry is about to get its clearest sign yet of how global warming will hit its bottom line.
“Over the next several months, governments throughout Europe are expected to release lists showing how much carbon dioxide they will allow thousands of individual factories and power plants within their borders to emit, starting in 2005. Until now, the governments that have ratified the proposed Kyoto Protocol on global warming have agreed only to nationwide caps on the amounts of carbon dioxide and other ‘greenhouse gases’ they emit. Now comes the hard part: slapping limits on the industrial sites that produce nearly half the EU’s output of these gases, typically by burning fossil fuel such as coal.”
As a result, a noble step taken on a national and hence somewhat abstract basis, is moving on to the point where it affects the bottom line of the individual corporation. Predictably, the result will be a surge of lobbying in all its less lovely aspects: arm-twisting and/or seduction of politicians.
“Which companies – and which industries in which countries – will lose won’t be obvious until March 31. That is when the 15 EU countries, all of which have ratified the Kyoto Treaty, are due to propose to the EU how they would allocate their emissions allowances. All additional 10 European nations that have ratified the treaty must submit their lists to Brussels by May 1, when they join the EU.”
“Despite questions about whether Russia will ratify Kyoto – as it must if it is to go into effect – EU officials plan to proceed with their caps. Europe’s system offers an early look at the impact on the industry. Although the Bush administration has rejected the Kyoto treaty, saying the proposed emissions cuts would cripple the world’s largest economy, plenty of US companies have factories in the EU that will be hit with the limits.
“Initially, the European caps will apply only to highly energy-intensive industries such as steel, oil, cement and paper, as well as to fossil-fuel-powered electricity plants with output above 20 megawatts. Together, these industrial sites account for about 45% of the carbon-dioxide emissions in the EU.”
“Under the new EU rules, each country will let each site emit a certain number of tons of carbon dioxide. A company whose sites collectively emit more than they are allocated will face a choice. It could spend lots of money to reduce those emissions – say, by switching from coal to natural gas – or buy extra emissions allowances from companies that stay below their limit. The result is a nascent market in these allowances across the EU. Ultimately, particularly if the Kyoto Protocol takes effect, trading could go global.”
The trouble there, is that surplus polluting rights could be sold by a company in a less vulnerable area – either as far as the ecology or the local population are concerned – into an area that is extremely vulnerable in one or the other or both these respects. Leaving it all to the wisdom of the market that has failed us so many times is less than wise.
“Steve Drummon, managing director of London-based emissions broker CO2e.com, estimates the average one-ton emission allowance will be trading at about US$17.75 by 2005, when the EU caps take effect. The fight is particularly intense within the German electricity industry. For certain German power companies, what their government decides could be ‘a question of 200 million or 300 million euros per year,’ says Per Lekander, a consultant with McKinsey & Co. in Paris. ‘Not an insignificant amount of money.’”
W.K.
— from Economic Reform, November 2003