Dealing in Hot Air: The Pitfalls of Europe's New Emissions Trading System

By Alexander Jung

The next stage in the world's CO2 emissions-trading scheme will begin in two years. Everyone agrees that the rulebook is complicated and that the costs for industry will be enormous. But nobody knows if the system will really help the environment -- or merely create a burdensome bureaucracy.

Photo Gallery: A Complicated and Expensive System Photos

Peter Scur used to spend a lot of time outdoors, converting old quarries into fertile habitats and making sure that bats remained undisturbed while making their nests in limestone caverns. It was the sort of effort one might expect from the environmental officer at a cement company.

Overburdened by paperwork these days, Scur doesn't have much time left for such activities.

Scur, a tall man with strong hands, is sitting in his office at a plant belonging to the German unit of Mexican cement-maker Cemex in Rüdersdorf, 30 kilometers (19 miles) east of Berlin, poring over files marked "CO2," or carbon dioxide.

"We are being literally inundated with laws," he says. Scur has no choice but to address the new regulations.

Now that he is the company's so-called carbon manager, Scur has to be prepared for a new era that is about to begin, not only for Cemex and the cement sector, but also for the rest of German industry.

CO2 a Cost Factor for First Time

When the third stage of the European emissions trading program starts in 2013, it will actually cost companies real money when their plants emit large amounts of carbon dioxide. The invisible greenhouse gas, which flows out of chimneys by the ton, will become a cost factor for the first time. Businesses are beginning to prepare for the new reality, and it's high time that they did, following the establishment of key parameters shortly before Christmas by the EU executive, the European Commission.

It set upper limits of how much CO2 a company will be permitted to emit at no charge in connection with the production of a product. In addition, the entire range of industrial goods was concentrated into 53 products, like roof tiles, steel beams and aluminum sheets, and an emissions limit was defined for each product. The limits are based on the average emissions levels for the most efficient 10 percent of industrial plants in Europe.

In the case of cement, for example, a plant can emit precisely 766 grams of CO2 for each kilogram produced. Companies that exceed the CO2 emissions limits will be required to buy pollution certificates in the future. Other emissions limits are 1,328 grams for steel production, 1,514 grams for aluminum and 144 grams for roof tiles. It's a relatively straightforward system, at first glance, but the devil is in the details:

  • German brickworks, for example, complain that they will never be able to remain within the limits for roof tiles. The benchmark was set by the Spaniards, not because of their superior technology but thanks to the mild climate in southern Europe. Because roof tiles are not exposed to hard frosts in Spain, they can be fired at lower temperatures, resulting in lower emissions.

  • German steelmakers like Saarstahl or Salzgitter have built special power plants in recent years, in which they generate electricity from so-called furnace gas, a waste product in steel production. They are currently not required to purchase additional CO2 rights for the resulting emissions, because the investment is considered to be environmentally commendable, given that at least some of the furnace gas was simply burned off in the past. Now this exemption has been eliminated, thereby removing the incentive to utilize the gas instead of burning it off.

  • The paper industry produces about 3,000 products, from soft tissues to hard cardboard. The European Commission's list of 53 products to which emissions limits apply contains only seven categories, which makes it assigning products to categories extremely difficult. Producers whose products cannot be assigned to a category must resort to so-called fallback options. In that case, the heat or fuel requirements are used as the basis, which often means that a company will end up having to purchase significantly more CO2 rights.

  • The European Union decision includes only one limit value that can be applied to all the products made by tile manufacturers, and it only applies to a special manufacturing process. This single limit value must be applied across the board, both to manufacturers of mass-produced tiles and to producers of special tiles for pool edges, for example, the production of which consumes an especially large amount of energy.

The lobbyists spent months making the rounds in Brussels and Berlin, proposing changes, additions and exceptions to the 76-page draft document, wrestling over every single value. It was a fierce competition that led to one overriding outcome: It made emissions trading even more complicated and contradictory, and ultimately more unfair.

The blame can be assigned to neither government officials nor industry associations. The problem lies in the system. The closer we come to the next stage, a few fundamental questions are being posed more seriously: Is emissions trading, the way it is being structured today, even feasible? Can it truly be an instrument that achieves its goal in an efficient way, namely to effectively reduce CO2 emissions and slow down climate change? Or is a bureaucratic monster being created here?

Discuss this issue with other readers!
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wildberry 12/31/2010
Why don't we simply cut to the chase and address the real issue viz., why do so many folk who ought to know better continue to pretend that man-made Global Warming is a threat to our future on earth, instead of an enormous hoax, perpetrated by politicians and corrupt scientists-manqués? This fact, difficult to grasp by the lazy, the gullible, and the shrinking ranks of the easily intimidated, has in fact been accepted by those intelligent common-sense citizens whose default position has become (rightly) that of healthy scepticism. Why do our media types continue desperately to parrot the obsessions of billionaire alarm-mongers like Al Gore, James Hansen, and the assorted over-paid worthies of the IPCC? Is it simply that their standard fare is alarmism, exaggeration, and panic? After all, debunking what the public already knows (check the opinion polls) is not what sells papers. What sells papers is the prospect of oceans swamping cities, polar bears (it's always polar bears) being wiped out, and everyone dying from heatstroke. So let's forget about carbon trading, ugly windmills that are almost totally useless, and destroying our economies by sending vast amounts of our money to corrupt third-world dictators. Let's wake up and vote these useless hypocritical charlatans out of office and do what we have usually managed to do without advice from Al Gore and his private aeroplane owning chums. Sensible, environmentally-friendly approaches that need no bullying bureaucrats from Brussels or anywhere else will keep us all healthy, wealthy, and wise. N'est-ce pas?
2. Sharing the carbon rent with the citizens
briandavey 12/31/2010
You write that an upstream carbon system - which could control all combustion based CO2 emissions - was not implemented because "Europe's politicians feared the consequences of confonting citizens and companies with the true costs of climate protection." So the "complex version" was a way of only appearing to do something - an exercise in collective avoidance in fact. In fact, Europe's politicians always had a choice that they did not take - they could rebate some or all of the money raised if and when upstream coal, gas and oil suppliers are forced to buy a capped number of permits, to the public on a per capita basis. Such a scheme was introduced into the US Senate by Senator Cantwell as the Cap and Dividend Bill - though failed to get enough support. Another scheme, called Cap and Share, would issue a capped number of permits to sell carbon fuels, on a per capita basis, to the public first. Then the energy suppliers would first have to buy the right to sell carbon containing fuels from the public, who would get the carbon rent. In fact, the EU ETS was designed by British Petroleum who were and are very influential with the British government and then adopted in Europe. Energy giants like BP aren't going to design a scheme in which they have to buy permits to sell climate toxic fuels from the public. But they should of course. It never occurred to the Eurocrats and politicians that the earth's atmosphere belongs to us all, including future generations, so, if there is to be a rent earned by setting up an artificial scarcity in the right to use the earth's atmosphere, that rent belongs to all of us - not to the state and not to the energy companies. The assumption that the earth's atmosphere belongs to the polluting companies themselves - pay the polluter - or to the state - is and has always been a political scandal. It doesn't the earth's atmosphere is a global commons that belongs to us all. Brian Davey (Cap and Share Campaign UK)
3. Some Thoughts on Carbon Trading
lakechamplainer 12/31/2010
1. Are emissions going to be accurately measured? They can be, but at an enormous cost. Who will verify that emissions are not being under-reported.? About 25 years ago in the US, I had to some work on calculating/estimating chemical emissions. We did it honestly (of course even then we may have over or under estimated them) - but it would have been very easy to underestimate emissions. Systems such as this can lead to unintended consequences, such as good actors being punished, because if everyone will have to reduce emissions a certain percentage, then it will be easy for the bad actors. 2. What will prevent speculators trying to corner the market like in the California electricity trading scandal? Nothing. 3. Will all the emphasis on "carbon" lead to a neglect of mercury emissions, dioxin emissions, Coal particulate emissions, etc.? Almost certainly 4. Is there an element of people wanting to tell other people how to live in all this? For sure
BTraven 01/04/2011
In the original article is, when I remember correctly, the last paragraph the most important one – it says basically the best way to protect the environment is to add the damage the burning of every tonne of fossils causes to the environment in form of money to every tonne. The prices for fuel would skyrocket but, at least, that method would measure the harm exactly because there is no way prefer branches regarded as too important to let them pay the full price for an emission certificate. It can only introduce step by step, of course. It’s a pity that our politician are not interested in resorting to such a strict, but fair way to handle the emission.
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Graphic: Energy-related CO2 emissions Zoom

Graphic: Energy-related CO2 emissions

Graphic: An Invisible Burden Zoom

Graphic: An Invisible Burden

Graphic: Companies in a Tight Spot Zoom

Graphic: Companies in a Tight Spot