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News Analysis

With a nascent emissions market, U.S. companies may not be so grateful they're out of the club.
Fortnightly Magazine - February 15 2002

To Market- But Not the U.S.

Palmisano foresees a good-sized emissions marketplace developing in the next five years, with Kyoto in place. What is not clear is the extent to which some U.S. companies will be able to participate in those markets. When a company participates in a credit-based trade, Palmisano explains, they must identify the parties involved. Under the Kyoto Protocol, parties are countries, not companies. Any greenhouse gas credit would flow from one country's greenhouse gas emissions account to another country's account. Since the United States is not a party to the Kyoto Protocol, a U.S. company may not be able to participate in some emissions markets created by Kyoto. U.S. companies may be able to get around this problem by establishing a joint venture with a company in a Kyoto signatory country-but Palmisano says he would not be surprised if participation by U.S. companies is somewhat hobbled. It wouldn't be out of malevolence, he says, but simply as a question of how a domestic company can participate in such a market if the United States itself is not party to the underlying agreement.

At the moment, there are a lot of relatively inexpensive emissions credits available for trading, courtesy of the collapsed economies of Russia and Eastern Europe in particular. However, since the United States is not a Kyoto signatory, those credits cannot be purchased by U.S. companies as a means to buy their way into compliance cheaply, as was expected when the treaty was being negotiated. Instead, those credits now can be snapped up by Europeans. If and when the United States joins Kyoto or a successor agreement, it is not clear that those "cheap tons" still will be available, and at what price, according to Pam Milmoe, a managing director with E Source.

It appears, then, that U.S. companies will, in many ways, be shut out of a developing emissions-trading market-a rather ironic situation, given that the United States was a prime proponent during the Kyoto negotiations of market-based solutions to reduce emissions.

U.S. companies with international operations still will be able to participate in emissions markets-for their facilities located in Kyoto signatory countries. Absent Kyoto adherence by the United States, those companies that had invested in sequestration or clean development mechanism (CDM) projects in anticipation of garnering credits in emerging global transmissions markets may only be reaping goodwill, at least for now. The Kyoto treaty certainly doesn't preclude participation by U.S. companies in, for example, carbon sink projects in developing countries. While the benefits of such good will might be substantial, especially in places with severe environmental problems, at the moment U.S. utilities are in a holding pattern with such projects. Current tree planting and other biomass projects are not being shut down, says Jayne Brady, media representative for Edison Electric Institute, but they are not being expanded, either. "There is not a lot of pushing forward" on sequestration and CDM projects right now, she says.

Kyoto would have represented a distinct economic motivation for U.S. companies to participate in CDM-type projects. Without United States participation