Europe isn't the climate-change champion that its leaders, and their American apologists, would have you believe.

Opinion: Europe's Carbon Con Job

The Wall Street Journal, 21 August 2007


With all the supposed truths out there about global warming, here's one that doesn't get reported very often. Europe isn't the climate-change champion that its leaders, and their American apologists, would have you believe.

It's true that emissions -- both in absolute terms and on a per capita basis -- remain higher in America than in the EU-15 (the countries that belonged to the European Union before its 2004 expansion, and which are widely used as a comparison for the U.S. when the subject is global warming). And when it comes to decrying the planet's impending doom and making grand gestures about preventing this, Europe is second to none.

Let's assume, though, for argument's sake, that most Americans believe global warming is a real danger, that carbon dioxide is public enemy No. 1, and that the only question is what to do about it. Before following Europe's lead in adopting a cap-and-trade system or mandatory renewable energy targets, wouldn't you want to know that those actions will lead to something better than the status quo?

So would I. And the numbers show that if America is the Great Carbon Satan, Europe is certainly no angel.

Since 2000, emissions of CO2 have been growing more rapidly in Europe, with all its capping and yapping, than in the U.S., where there has been minimal government intervention so far. As of 2005, we're talking about a 3.8% rise in the EU-15 versus a 2.5% increase in the U.S., according to statistics from the United Nations.

What's more, preliminary data indicate that America's CO2 output fell by 1.3% from 2005 to 2006. If these numbers hold up, it would mean U.S. emissions growth is nearly flat so far this decade. Europe hasn't yet released figures for last year, but it did report in June that emissions from the participants in its carbon-trading scheme, which account for almost half of Europe's CO2 production, rose slightly in 2006.

The news gets worse for Europe when you consider that during this decade, the U.S. population has grown at roughly double the rate of the EU-15 while the American economy has been expanding about 40% faster. It seems Europe is becoming less efficient in its carbon production while U.S. efficiency is improving.

Now, few people -- this writer included -- would look at these statistics and conclude that Europe should necessarily adopt America's more passive approach. When you talk about CO2 emissions during this decade, or even go back to the globally accepted "base year" of 1990, you're working with a small sample size. And there really isn't much difference between a change of 3.8% and one of 2.5%. So why would the U.S. instead want to adopt Europe's policies?

As a measure of the gap between Europe's rhetoric and its reality, nothing beats its emissions trading scheme. The idea is that CO2-intensive companies -- chiefly those that produce power or use a great deal of it -- receive a certain number of permits to emit the gas. If they reduce their emissions and end up with a surplus, they can sell the extra permits to firms needing more allowances. In this way, market mechanisms are supposed to punish or reward companies for their carbon output, encouraging them to reduce it in the long run.

In Europe, however, the "market" consists of demand that government has created artificially and -- more important -- supply that the state distributes arbitrarily. Not surprisingly, companies lobbied hard to ensure favorable allocations when trading began in 2005. The number of permits exceeded actual emissions and prices plummeted. Today, allowances for 1,000 tons of CO2 are priced at about 11 euro cents, hardly high enough to prod a company to cut its carbon instead of just buying more permits. If you think the U.S. Congress -- whether led by Democrats or Republicans -- would be more likely to shun special interests in the name of environmentalism, then I've got some tariff-free Brazilian ethanol to sell you.

Brussels claims it's correcting the system for the next trading period, which runs from 2008 to 2012, but a number of holes will remain. For instance, it's expected that companies will be able to buy permits outside the EU from other countries and then import them to cover their needs. A large influx of permits could depress prices in the same way that the EU's own overallocation did the first time around. That's particularly true if third countries are lax in their issuance of permits.

"These [non-EU] credits have already been exposed as highly flawed, and often fraudulent," Max Andersson, a Green member of the Swedish Parliament, wrote this month in a study for the think tank Open Europe. "They don't always reflect absolute reductions in emissions, whilst many of these credits are generated from projects in developing countries that would have happened anyway." The result, he concludes, is that emissions might not fall but rise.

Another potential problem: An energy-industry source says that, in many EU member states, the allocation will likely be done in a way that gives sufficient permits to most of the firms that use a lot of energy, leaving a shortage for electricity producers. There might be some logic in that -- instead of relying on manufacturers to reduce their energy consumption, power companies would have more of an incentive to produce electricity in a way that doesn't create as much carbon in the first place.

It would only work, though, as long as the power companies didn't buy additional permits and pass the cost along to customers instead of investing in real carbon-cutting measures. It would require competition to keep them from that temptation, though, and there's the rub: The main players in large markets like France and Germany are still effectively insulated from rivals and can set prices as they wish. Brussels has been trying for years to create a pan-European energy market, but it may be the better part of a decade before it's finished.

European policy makers have plenty of motivation to goad Washington into going along with their approach before too many people realize it isn't working. At a summit in March, EU national leaders dramatically raised the stakes by pledging a 20% cut in CO2 emissions by 2020. That's a real laugher considering their scant chances of meeting their Kyoto commitment of 8% by 2012. Their move is best seen as a bluff intended to pressure the U.S. into the game. Here in Europe, the grand gesture is always the most appealing play.

Mr. Wingfield is an editorial-page writer for The Wall Street Journal Europe.

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