Global cap and trade decades off, US unveils plan

But far from being dead, national and regional cap and trade schemes are emerging as a possible patchwork successor to the international Kyoto Protocol on global warming, whose present round ends in 2012, in the absence of workable alternatives.

Some policymakers outside Europe have downgraded their ambition for a new global treaty or protocol following a disappointing UN summit in Copenhagen in December.

Cap and trade schemes aim to limit greenhouse gases by issuing to industry a certain quota of tradable emissions permits, following a five year old EU model.

Such schemes are emerging as an imperfect, international system for limiting carbon emissions after Kyoto, said Kjetil Roine, manager of carbon market research at Point Carbon.

US legislation similar to the EU scheme would unite US and EU climate diplomacy, said MIT economist Denny Ellerman. “That changes the game, it starts to look like a global system,” he said.

Delayed
One important factor is timing. Cash-strapped governments are struggling to convince voters, industry and political opponents to implement carbon cuts in the wake of recession.

US democrat and independent senators unveiled a long-awaited climate bill, which included a limited cap and trade scheme and off-shore oil drilling.

Experts say the bill may not pass Congress before 2013, after the next presidential election, at the earliest. “I think there will eventually be a cap and trade scheme in the US,” said Harvard University’s Robert Stavins.

In April, Australia froze its cap and trade plans until 2012, and New Zealand said it would go slow until Australia moves, in a scheme it launches for the transport and power sectors in July.

Japan faces a rocky path to launching an emissions trading system after the government approved legislation in March that was vague on how a scheme would limit emissions.

Another important question is whether such schemes link, or have similar rules and carbon prices: an important factor for powerful industry lobbies worried about competitiveness.

The draft US scheme only applies carbon caps to power plants initially, while the EU also binds factory emissions.

Climate Group policy analyst Mark Kenber thought separate schemes could start to join into a global carbon market by about 2020. Ellerman said that date could be further out, at 2030.

Regional cap and trade schemes could start to converge over a 10-year period, said James Cameron, vice-chairman at Climate Change Capital, which has $1.5bn assets under management, including $1bn in carbon markets.

What else?
Emissions trading is far from commanding consensus support. Controversies in the EU scheme include a recent 5 billion euro ($6.35bn) tax fraud.

“Advocates still believe it’s all we’ve got,” said British environmental campaigner Jonathon Porritt, from the sustainable development group Forum for the Future.

“My view is that you will see countries move to trading schemes in the first instance, but these won’t cut emissions fast enough,” said Porritt, who preferred a global carbon tax, for a more definite penalty over volatile carbon prices.

“In the end we need a common EU policy on this (tax) and that could send a very strong signal to the rest of the world.”

A new British coalition government proposed a carbon price floor, where utilities would pay a tax if prices under the European cap and trade scheme fell below a certain level, combining the two approaches.

Policies to support renewable energy such as wind and solar power have been effective driving investment, but do nothing to drive industrial efficiency.

“You need to develop the carbon market for the long-term, and these short-term (clean energy) incentives for the next five to ten years,” said Mark Fulton, head of research at Deutsche Bank Climate Change Advisers.