Business assesses climate gas trading options

Current, future, prospects for emissions trading under Kyoto protocol in the spotlight

Industrialists gathered in London today at one of the first international conferences to discuss carbon dioxide trading schemes following agreement of the Kyoto climate change protocol last December. Delegates were upbeat about the role trading could play in delivering reductions in greenhouse gas emissions. However, there were warnings that trading also faces substantial political and practical obstacles.

The emergence of trading has "captured the spotlight," Carlos Fortin, deputy secretary-general of the UN Centre for Trade and Development (UNCTAD) told the conference. This represented "a remarkable change from a few years ago," he said, when UNCTAD "was almost alone in arguing for emissions trading".

Adair Turner, head of the UK's main business organisation, the Confederation of British Industry (CBI), also welcomed the prospect of emissions trading under the Kyoto protocol. "The CBI is positively favourable to market instruments...[and] emissions trading in principle fits very well," he said.

Unlike a successful existing scheme in the USA run to control sulphur dioxide emissions from power stations, carbon dioxide trading could be far more complex, Mr Turner stressed. However, he maintained that "a lot could be achieved". For example, he said, "14% of UK industry's carbon dioxide emissions are made by the chemical industry, and 40 sites are responsible for 80% of these emissions".

Trading should start nationally and be expanded internationally when national schemes had proved themselves, Mr Turner went on. He predicted that the EU could be an early adopter of an international trading scheme because of its existing "supranational authority," the fact that all member countries are committed to targets and the fact that the EU energy market is being liberalised.

US energy firms with practical experience in bilateral carbon dioxide emissions trades as well as the US sulphur trading regime also encouraged further development of the trading concept but warned of the complexity of creating an international scheme.

"I think we will see more and more trading transactions going away from public relations to sound commercial deals," said Terence Thorn of energy multinational Enron. However, he continued, "we have no experience of emissions trading across countries."

Both Mr Thorn and Michael Grubb, an expert on emissions trading at the London-based Royal Institute for International Affairs, gave strong warnings of the risk posed to any eventual international trading system by the issues of "hot air trading" and liability. Allowing Russia to trade the huge cushion of allowances it obtained at Kyoto would "devalue the whole thing," said Mr Grubb.

Follow Up:
Institute of Petroleum, tel: +44 171 467 7100. (The IoP web site includes a programme of the conference. Note that several speakers listed, including Michael Zammit Cutajar, executive secretary of the UN climate change convention and UK deputy prime minister John Prescott, did not speak at the meeting).

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