POZNAN STRUGGLE TO MAKE CAP-AND-TRADE WORK

An attack on cap-and-trade from the Right is that it doesn’t work as well as a “carbon tax.” An attack on cap-and-trade from the Left is that it isn’t as fair as a revenue neutral “carbon tax.” An attack on cap-and-trade from the Center is that it is more easily “gamed” by power companies than a clearly delineated carbon tax. Yet there are voices on the Left, the Right, and in the Center calling for the U.S. to kick-off a global cap-and-trade system.

The question remains: Is there a cap-and-trade system that can work?

That’s what the European Union (EU) is trying to determine. And every issue they haggle over has 2 contradictory effects. On the one hand, haggling over the crucial details governing the EU Emissions Trading Scheme (ETS) slows demonstrable reductions in emissions. On the other hand, the haggling answers vital questions about the cap-and-trade concept, making the possibility of a workable system more likely.

Which is why, as the long-stymied opponents of climate change prepare to support the incoming Obama administration’s entry into the world’s fight to control emissions, it is important to study the EU’s successes and failures carefully.

Alexandr Vondra , Deputy Prime Minister, Czech Republic: “The margin between success and failure will be narrow…”

At this year’s climate conclave in Poznan, Poland, the EU aimed at resolving a pair of sticking points.

Sticking point 1: A change in ETS rules imposing the purchase of emissions permits on power plants starting in 2013. Poland is leading a "Group of 9" new EU members from Eastern Europe that want to be temporarily exempted and given longer to prepare.

Sticking point 2: A change in ETS rules imposing the purchase of emissions permits on industry. Italy and Germany are leading a group of Western European nations that want to protect industry by exempting it.

Solution to 1: 10% of ETS revenues are earmarked to subsidize the Group of 9 transition. This is the 7.5 billion euro “solidarity fund.”

Solution 2: Western European industry can be exempted from caps - BUT: Solution 2 reduces the amount available for the "solidarity fund" that makes Solution 1 possible.

It's a rich and varied market -- but does it cut emissions and fight climate change? (click to enlarge)

The current EU President is French President Nicholas Sarkozy. He is scrambling to create a compromise before his term expires in 2009 and is earning the “SarkObama” nickname anonymous Parisians have stuck on him by remaining optimistic in the face of resistance.

The urgency of Sarkozy's position: The EU Presidency next goes to Vaclav Klaus, the President of the Czech Republic, who is weakened by political schisms in his country and who is on record as dubious about the human causes of global climate change. If Sarkozy does not solve these problems, they may not get solved. This would threaten the entire EU trading scheme.

Sarkozy: "Things are moving in a good way ... I am convinced we will arrive at a positive conclusion…"

Others, struck by the conundrum, are not so optimistic.

Czech Deputy Prime Minister Vondra: "I keep my fingers crossed for the French…The deal must be a win-win situation…"

On the 25th anniversary of his winning of the Nobel Peace Prize for leading the Polish pro-democracy Solidarity movement, Lech Walesa addressed the Poznan delegates. The Polish Prime Minister then told them that Solidarity has a meaning in the current world financial crisis.

Donald Tusk, Prime Minister, Poland: "Solidarity also means taking responsibility for the weaker…"

The remark underscored Poland’s position that the proposed EU caps on Eastern European member nations’ emissions are economically unfair.

Prime Minister Tusk: "There is still a lot of work ahead of us…At the very end, maybe at the very last minute, we may decide this is a solution we may accept…"

President-elect Obama – facing demands for a cap-and-trade system that is fair, effective and uncorruptible – could not have described his own situation more precisely.

Richard Sandor says cap-and-trade works – but he runs exchanges and makes a lot of money from emissions trading. From Bloomberg via YouTube.

Europe on collision course over emissions costs
Pete Harrison (w/Ilona Wissenbach, Marcin Grajewski, David Brunnstrom and Karen Foster), December 8, 2008 (Reuters)
and
Sarkozy fails to break EU climate pact deadlock
Gabriela Baczynska, (w/ Yann Le Guernigou, Alister Doyle and Matthew Jones), December 6, 2008 (Reuters)

WHO
European Union (EU) nations; The European Commission (EC) of the EU; Nicholas Sarkozy, French President/EU President; EU leaders

WHAT
EU leaders at the Poznan summit on climate change are confronting some of the conundrums necessary to resolve to make the EU ETS work.

Critique of cap-and-trade. But whose purposes does this critique serve? And are there answers to the criticisms? The Europeans believe they can make the system work. From TheRealNews via YouTube.

WHEN
- Phase 3 of the EU climate change fight begins January 1, 2013.
- Many think the current recession will necessitate postponing final decisions about Phase 3 until 2010 or 2011.
- The proposed EU goal is to cut emissions 20% overall by 2020.
- The Group of 9 wants until 2020 to take on its share of the cuts.

WHERE
- The meeting in Poznan is the last major sit-down for EU before the world summit in Copenhagen next year.
- Poland speaks for a bloc of 9 Eastern European countries (The Gropu of (: Poland, Czech Republic, Slovakia, Bulgaria, Romania, Hungary, Lithuania, Latvia and Estonia ) new to the EU that obtain much of their electricity from coal.
- Poland and the Group of 9 feel the 20% goal puts restrictions to great on them.

WHY
- Poland obtains ~ 95% of its power from dirty coal and want longer to transition to New Energy.
- The Group of 9 claim the 2013 caps on their power plants will drive electricity costs too high.
- Italy and Germany fear the 2013 caps on industry will make their manufacturers noncompetitive.
- EU leaders say cap and trade won’t work w/o such caps and costs.
- Poland is threatening to veto the 20% cap if adequate provisions aren’t made for the Group of 9.
- Western EU countries are fighting reductions on the Group of 9 and vice versa.
- EU President/French President predicts a deal will be reached.
- Poland says it needs more time to install more efficient boilers and carbon-scrubbing equipment and build a New Energy infrastrucutre.
- Sarkozy and the EC have offered a grace period.

click to enlarge

QUOTES
- Franco Frattini, Foreign Minister, Italy: "We want a compromise, but not at any price…We want to protect small and medium enterprises ... We cannot hit the economy at this very moment of economic and financial crisis."
- Mikolaj Dowgielewicz, EU affairs minister, Poland; "We are not really going towards meeting the concerns of the group of nine…We are actually going in the opposite direction."
- Michael Glos, economics minister, Germany: "We do not want an extra rule for Poland and other similar countries…"
- Calin Tariceanu, Prime Minister, Romania: "The effects of the economic crisis have been very strong on our countries which are weaker than the western states…"
- Unnamed British diplomat: "If there is any further need for solidarity, then we believe this should be dealt with through the EU's budget and not through the EU ETS."