Can Emissions Trading pull U.S. into Club?

By Floy Lilley, J.D.
December 12, 2004

Norway hosted a panel this afternoon that tackled the question of whether or not the U.S. could be pulled into the Kyoto Club via expanding the Emissions Trading (ET) markets, since the U.S. is notably fond of markets.

The answer was yes, no, and eventually.

Jonathan Pershing of World Resources Institute presented the most information from which one might imagine that, indeed, the U.S. would engage through ET.

Pershing laid out these facts:

• The U.S. policy goal is to lower Greenhouse Gases (GHGs) by 4% in 2005. That accomplishment would still leave the U.S. 31% over their 1990 levels by Department of Energy calculations, but the trend would be in a Kyoto-type direction.

• New fuel economy standards may lend themselves naturally to an ET market.

• Methane is a natural for an ET market.

• 43 Senators have agreed to be part of ET programs.

• Many of the actual individual states are Green, not Bush Red.

• Nine states have created a NorthEast region the size of Germany to trade emissions.

• 20 states have renewable portfolio standards.

• U.S. is committing $70 per carbon ton in technology in 2005.

• U.S. is committing $100 per carbon ton in hydrogen in 2005.

Pershing sees the sub-international levels - regional, local and bilateral - as being the real way the U.S. is linked to Emissions Trading.

Asbjorn Torvanger of Climate and Environmental Research - Oslo - seemed convinced that there were no real reasons for the U.S. to engage at all. The strongest reason he could think of was that the "U.S. needs to prepare for more stringent future government regulations."

William Pizer, economist with the Resources for the Future, cautioned that linking systems might just yield some negative surprises. Some traders will desire a low CER price for competitiveness, but some will desire a high price for its incentive value. Pizer was sure that other countries would not influence the U.S. during the present administration, but that eventually another administration would be in power to return to climate controls.

A Russian spokesman for Environmental Defense, Yuri Safonov, didn't care what the U.S. did or did not do. Russia is currently experiencing rare 7% economic growth, rising oil revenues, stable politics that do not wish to change anything, and a $100 Billion in gold reserves.

Russia, other than taking money for their buckets full of hot air, has no incentive to do anything serious about Kyoto. As Safonov stressed "The environment is NOT on Putin's list of things to care about."

Yuri smiled as he added, "Since Russia has no obligation to reduce emissions they can just sleep. But, they have created a special Russian fund which would allow ALL companies, even U.S. ones, to participate in certain projects."

A German panalist, Michael Dutschke, concluded this side event with the sobering admonition "Voluntary markets do not work because nobody will want to buy any of these credits. Top-down regulations will have to force the issue. It's a process of carrots and sticks. Perhaps a country should lose its funding from internationals like the GEF and others if it doesn't lead."

So, can Emissions trading pull the U.S. into the Club?

Yes, no, and eventually.