The Kyoto protocol, now finally in force, is designed to cut
greenhouse gas emissions by making the polluter start paying for
The pollutants in question are carbon dioxide (CO2), methane, nitrous
oxide from vehicle exhausts, and other man-made gases. The polluters
are the countries which emit them into the atmosphere.
Each signatory has an emissions target it is legally obliged to meet
Any country struggling to fulfil its obligations may have to buy
credits from a country that is on track to meet its target with room
But the Kyoto trading system will only get under way in 2008 - so the
EU's Emissions Trading Scheme, which officially came into existence on
1 January 2005, is a vision of the future.
It is not so far a particularly encouraging vision - but it is, at
least, a start.
Four of the 25 EU
states - the Czech Republic, Greece, Italy and Poland - have not yet
joined the system at all, and the UK is squabbling with the European
Commission over its emission allowance under the scheme. No country wants to
put its businesses at a disadvantage, so all have played safe, erring
on the side of generosity when setting emission quotas for
The result, a number of experts argue, is that too many allowances
have been issued for the scheme to drive a major clean-up of European
"We need to accept that the first phase of emissions trading
(2005-2007) is not going to deliver emissions reduction," says
Russell Marsh, head of policy at the Green Alliance, a UK
environmental think tank.
"It's clear that at the moment, the way it has been set up, the
carbon price is not going to be high enough to make a real difference,
now or for the next three years."
Caution or ambition?
The carbon price is
the price of an allowance to emit one metric ton of carbon dioxide -
the only greenhouse gas covered by the European scheme at this
These allowances have been traded for months on the forward market
(for a delivery at a future date) and currently cost in the region of
It is only now that allowances are actually beginning to land in
company accounts, enabling "spot" trading to take place.
The first such deal took place last week, in Denmark.
If too many allowances have been issued, the carbon price will fall.
In theory, it could even reach zero.
To see how cautious EU states are being, consider the UK's latest
allocation plan, produced in October.
This increased by 3% the projected CO2 emissions of the 1,000
generating plants and other installations big enough to be included in
the scheme, partly on the basis of new, increased forecasts of
The allowances the plan proposes to allocate, however, come to only
5.2% less than this new projected emissions figure, so the overall cut
in emissions required, compared to 2004, is not great.
The Commission has rejected the new plan, but not because it is too
In fact, the UK government says its plan is "well beyond the
requirements of the EU ETS directive and one of the most ambitious
At least the UK, unlike a number of the wealthier EU states, has
already met its Kyoto target.
Role of the weather
Grubb of the UK's Carbon Trust is another who says that the
"weak" emission allocations made by member states raise the
question of "whether we have the guts to let the system work
But Andreas Arvanitakis of consultants Point Carbon UK is more upbeat,
describing a carbon price of up to 20 euros as "perfectly
It depends, he says, on such factors as the rate of economic growth,
the relative cost of coal and gas, and even the weather.
"A cold and dry winter in Scandinavia would mean that there was
little hydropower available, and more coal would be used, which would
push the price of carbon up," he says.
"In fact, the winter has been mild and wet, which is one reason
why the price has fallen by more than a euro since the start of the
The larger the difference in price between coal and gas, the more the
carbon price is likely to rise, because coal produces about a third
more CO2 per unit of energy generated.
If it did reach 20 euros, this is the point at which generators in
Germany, the EU's biggest emitter, would be likely to make a major
switch from coal to gas, according to the German trading company,
Even if the European
trading system fails to lead to significant cuts in emissions in the
first three years, it will not necessarily have been a waste of time,
says Russell Marsh.
"We can look at
this as a learning phase," he says.
"It's a new system and there are a whole load of issues that will
need to be resolved to make it work effectively."
But he argues that the next phase of the trading system will have to
be "a lot more stringent" if the EU is to meet its
collective Kyoto target of getting greenhouse gas emissions 8% below
1990 levels, by 2012.
Many would also like to see it broadened.
The 12,000 plants included in the EU scheme so far account for less
than half of its overall CO2 emissions (46% in the UK).
And CO2 is only one of the six greenhouse gases covered by the Kyoto
treaty, albeit the most significant one.
In the larger scheme of things, Kyoto itself is only a modest start to
the problem of tackling climate change.
Globally, the protocol aims to achieve a 5.2% reduction in the 1990
level of greenhouse gas emissions by 2012.
By contrast, EU environment ministers agreed in December that keeping
greenhouse gases at "manageable" levels would require a cut
in emissions of 25% to 50% by 2050.
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