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Greenhouse Gas Emissions: A New World Order

Pressure for national legislation builds as the Northeastern U.S. goes it alone and carbon trading takes off in the European Union.

Fortnightly Magazine - February 2005

Domestic and international pressures are building rapidly on the United States to enact some form of legislation to curb greenhouse-gas emissions, as a spate of recent developments turns up the heat on the Bush administration. Internal pressure is building on several fronts. First, coalitions of nine Northeast states and three West Coast states are moving forward with their own regional greenhouse-gas cap-and-trade programs, raising the prospect of uneven CO 2 regulation across the nation and electricity market distortions. Second, the bi-partisan National Commission on Energy Policy published a report in December urging the Congress and the White House to implement national legislation establishing a mandatory, economy-wide, tradable-permits program to limit greenhouse gas emissions. The regional greenhouse-gas programs and the recommendations of the National Commission on Energy Policy are likely preludes to the reintroduction in early 2005 of the McCain-Lieberman Climate Stewardship Act. The bill would establish a national greenhouse gas cap-and-trade program to reduce CO 2 to year 2000 emission levels over the period 2010 to 2015.

International pressure on the United States is building as well. In November 2004, Russia defied conventional wisdom by ratifying the Kyoto Protocol, thereby clearing the way for the treaty's long-awaited enforcement. The Protocol will go into effect on Feb. 16, 2005. Also, in November, the Arctic Council published alarming new data showing that global warming is already having a profound impact on the arctic environment, decades earlier than predicted. Then, in December, at the 10th annual meeting of Conference of Parties (COP) of the United Nations Framework on Climate Change, the United States was roundly criticized for blocking efforts to schedule a new round of talks aimed at achieving additional greenhouse gas reductions beyond 2012, and for supporting a Saudi Arabian proposal to compensate oil export nations for the reduction in oil revenue induced by the global effort to reduce CO 2 emissions. Finally, just last month, the EU commenced its Emissions Trading Scheme (ETS), resulting in mandatory CO 2 emissions caps and the trading of CO 2 allowances among 12,000 EU industrial installations.

With Russia's ratification of the Kyoto Protocol and the onset of the EU Emissions Trading Scheme (ETS), overseas trading of emissions allowances has taken off. Analysts predict the market will soon exceed $100 billion, with CO 2 allowances currently trading at around E8.45 ($11.52). However, because the United States has not ratified the Kyoto Protocol, U.S. companies will be left out on emissions trading with the EU unless linkage of emissions programs can occur outside the Kyoto Protocol (or the Bush administration decides to ratify Kyoto). Accordingly, the world's greatest capitalist country could be left out of the world's newest capital market.

Northeastern Regional Greenhouse-Gas Initiative

Perhaps the most far-reaching climate-change development in