Trans-Atlantic Climate Pact Can Arnold Terminate Emissions?

In a move many Europeans have hailed as a snub of Bush’s environmental policy, British Prime Minister Tony Blair last week signed a deal with California Governor Arnold Schwarzenegger to move towards a transatlantic emissions trading market. But would such a market be feasible?
Von Christa Case und Ranty R. Islam

At first, it sounds like something only The Terminator could pull off: make blue-chip California companies pay big bucks for … a lot of hot air.

But in fact, the agreement reached by California Governor Arnold Schwarzenegger and British Prime Minister Tony Blair last week to explore the possibility of a trans-Atlantic emissions market has encouraging precedents at home and abroad.

Europe already has its own emissions market, in which companies buy and sell the "right" to emit greenhouse gases. The idea is to use economic incentives to speed the transformation of corporate practices and help EU countries meet their commitments under the Kyoto Protocol, the 164-nation agreement to cut greenhouse gas emissions and slow a destructive pattern of climate change. Though Washington is not a signatory to Kyoto, a number of states and communities within the US have moved ahead on their own to make committments to reduce their carbon emissions.

Though the leaders took pains not to alienate the Bush administration, European commentators in Britain and Germany saw the move as a clear snub on the part of Blair and Schwarzenegger against the climate change policies of President George W. Bush. His administration has refused to push for Senate ratification of Kyoto and has been unwilling to establish binding committments on reducing greenhouse gas emissions.

The California governor said he was running out of patience. California is the world's 12th-biggest producer of greenhouse gases and Schwarzennegger fears that the climate change caused by emissions could imperil the state's agriculture and economy, including its famous vineyards. A year ago, the state became one of the first to commit to major reductions in emissions, pledging to reduce output to 1990 levels by 2020.

"California will not wait for our federal government to take strong action on global warming," Schwarzenegger said in a statement. "International partnerships are needed in the fight against global warming, and California has a responsibility and a profound role to play to protect not only our environment, but to be a world leader on this issue as well."

A boon for the European trading market?

Though the possibility of California linking up with the European market would likely take years to implement, experts are excited about the potential impact of US participation.

“It would certainly dynamize the (European) market,” says Delia Villagrasa, an emissions trading expert with the World Wildlife Fund's European Policy Office in Brussels. But she and other experts caution that numerous challenges would need to be overcome in order to make the international market viable and legally binding, particularly since the US is not a Kyoto signatory.

Set up in January 2005, the EU's Emission Trading Scheme (ETS)  was hailed by supporters as an economically efficient way for EU countries to meet their Kyoto commitments.

Though critics say the implementation of ETS has left much to be desired, experience has shown such trading schemes can be successful in reducing emission levels. ETS is modeled after a US trading program introduced in the early 1990s that has significantly cut sulfur dioxide emissions, which cause acid rain.

Set up under the 1990s Clean Air Act Amendments, the program brought emissions down to half of 1980 levels. In one year alone (1994-1995), it reduced emissions from 7.4 million tons to 4.5 million tons.

America's private initiatives

So far, no countries outside Europe have successfully tapped into the ETS system. But there are several private and local initiatives in the US  that could be linked in the future.

The Chicago Climate Exchange (CCX), a voluntary emissions trading market, has signed up more than 175 members since being established in 2003. These include Blue Chip companies such as American Electric Power, Ford and IBM, as well as the state of New Mexico and six US cities. Earlier this year, one of its members completed the first-ever gas emissions trade between Europe and the CCX in the US, transferring allowances for 100 metric tons of carbon dioxide.

Still, a legally binding trans-Atlantic deal signed between governments remains a vision of the future.

“For us, this seems to be much more part of the post-2012 scenario when Kyoto expires,” says Martina Priebe, the EU ETS manager at the International Emissions Trading Association (IETA) in Geneva, Switzerland. “Negotiations (between the EU and California) would take years and years, but could start now.”

Having uniform penalties -- and laws to back them up -- would be a key pillar to any future international emissions trading market, says Ms. Villagrasa. For example, if California companies were fined only $1 per excess ton, it would put European companies - which currently pay €40 per ton - at a competitive disadvantage. In addition, governments must be equally tough in holding companies to the limits.

“For the market to really work, you need to have an enforcement system that’s really strong,” she says.