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Global Warming: The Gathering Storm

Russia resurrects the Kyoto Protocol and the prospect of either mandatory CO2 emissions cuts for U.S. utilities, or the start of a global trade war.
Fortnightly Magazine - August 2004

the writing of this article, 84 parties had ratified the Protocol, including Annex I countries representing 44 percent of carbon dioxide emissions. Thus, Kyoto will not enter into force until one or more Annex I countries representing an additional 11 percent or more of carbon dioxide emissions ratify the treaty.

Even though the Kyoto Protocol is not yet in force and the rules for implementing it have not yet been fully developed, the EU in 2003 decided to move forward with its own mandatory greenhouse gas control program, which will begin in January 2005-three years ahead of Kyoto's schedule. 1 The EU greenhouse gas emissions allowance trading scheme (EU ETS) is patterned on the U.S.'s Acid Rain Program under Title IV of the Clean Air Act, the world's first market-based pollution trading program that substantially reduced sulfur dioxide emissions from coal-burning power plants through a "cap and trade" program. Under the cap and trade approach, sources are allocated allowances (the cap) which they can then buy and sell among themselves (trade) to achieve net reductions in SO2 emissions. The Acid Rain Program surpassed expectations by reducing annual SO2 emissions in Phase I by almost 40 percent at a cost well far below even the most optimistic predictions. 2

The first phase of the EU ETS runs from Jan. 1, 2005, to Dec. 31, 2007. Under the EU ETS, any of the 12,000 covered energy-producing and energy-intensive plants that do not use all of their allowances will be able to sell them to companies that are unable to achieve their allocation. In this way, plants that can reach their target in the cheapest way will over-control their CO 2 emissions and thereby generate emissions allowances that can be sold to other plants unable to achieve their targets because of cost. The EU estimates that attainment of the Kyoto target of an 8 percent reduction in CO 2 emmissions by 2010 will cost about 7 billion euros based on a cost per CO 2 allownace of 33 euros, or $8.5 billion and $40, respectively.

On April 20, 2004, the European Parliament approved the EU's "Linking Directive," which modifies the EU ETS to enable emission allowances to be generated from emission reduction projects undertaken outside the EU. The Kyoto Protocol incorporated three mechanisms to assist Annex I countries in achieving their emission reduction targets: (1) Joint Implementation (JI), whereby two Annex I countries may jointly implement an emissions reduction project; (2) Clean Development Mechanism (CDM), whereby an Annex I country can implement an emissions reduction project in a non-Annex I country (i.e. a developing country); and (3) Emissions Trading, whereby an Annex I country can purchase a CO 2 "allowance" (i.e. generally, the right to emit one ton of CO 2 or its equivalent (e.g. methane, nitrous oxides, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride) from another country to meet its reduction target.

Endnotes

  1. See, EC Directive 2003/87/EC.
  2. See, U.S. EPA, Acid Rain Program: Overview ( http://www.epa.gov/airmarkets/arp/overview).

Kyoto Withdrawal Seen as Irresponsible

EU attitude toward the United State's withdrawal from Kyoto is also relevant in assessing