C
Captain Compassion
Guest
Europe's Problems Color U.S. Plans to Curb Carbon Gases
By Steven Mufson
Washington Post Staff Writer
Monday, April 9, 2007; A01
Wout Kusters, director of a manufacturing plant in the Dutch lowlands,
knows something the U.S. Congress needs to know. So does Gervais
Pruvost, a laborer in a small cement plant in northern France. So does
just about every German homeowner.
When you're trying to slow down global warming, beware of unintended
consequences.
As U.S. lawmakers work on the details of their greenhouse-gas
legislation, they are looking carefully at Europe's experience. Five
Senate proposals all use the same basic approach, known as "cap and
trade," that Europe has used for the past two years. But what the
snappy name "cap and trade" means is that the market will put a price
on something that's always been free: the right of a factory to emit
carbon gases. That could affect the cost of everything from
windowpanes to airline tickets to electricity.
Europe has already hit a few bumps with its program. There's the Dutch
silicon carbide maker that calls itself the greenest such plant in the
world, but now can't afford to run full-time; the French cement
workers who fear they're going to lose jobs to Morocco, which doesn't
have to meet the European guidelines; and the German homeowners who
pay 25 percent more for electricity than they did before -- even as
their utility companies earn record profits.
In some ways, Europe's program has been a success. It covers 45
percent of the continent's emissions, 10,000 companies and 27 European
Union countries. It has built registries that list carbon dioxide
emissions for every major plant.
In other ways, the approach has been a bureaucratic morass with a host
of unexpected and costly side effects and a much smaller effect on
carbon emissions than planned. And many companies complain that it is
unfair.
Consider the plight of Kollo Holding's factory in the Netherlands,
which makes silicon carbide, a material used as an industrial abrasive
and lining for high-temperature furnaces and kilns. Its managers like
to think of their plant as an ecological standout: They use waste
gases to generate energy and have installed the latest
pollution-control equipment.
But Europe's program has driven electricity prices so high that the
facility routinely shuts down for part of the day to save money on
power. Although demand for its products is strong, the plant has laid
off 40 of its 130 employees and trimmed production. Two customers have
turned to cheaper imports from China, which is not covered by Europe's
costly regulations.
"It's crazy," said Kusters, the plant director, as he stood among
steaming black mounds of petroleum coke and sand in northern Holland.
"We not only have the most energy-efficient plant in the world but
also the most environmentally friendly."
A few hundred miles away, in northern France, Pruvost took to the
streets with 400 other cement workers from the region last December to
protest a license for a rival company that plans to take advantage of
Europe's system for controlling greenhouse gases by circumventing it.
The rival wants to import material from Morocco, where factories don't
have to pay to emit carbon gas.
Pruvost, 54, has worked for 30 years at a cement plant in the tiny
town of Dannes in the gentle bluffs near the English Channel, as his
father did before him. Looking for another job, Pruvost mused as he
stood above a noisy giant mixing machine, would be "unimaginable."
Though the potential rival factory has a permit, it has not started
building the grinding facility it will need for the cheap imports.
Of all the effects of the new rules, the rise in the price of power
has aroused the most outrage. Much of the anger of consumers and
industries has been aimed at the continent's utility companies. Like
other firms, the utilities were given slightly fewer allowances than
they needed. But instead of charging customers for the cost of buying
allowances to cover the shortfall, utilities in much of Europe charged
customers for 100 percent of the tradable allowances they were given
-- even though the government handed them out free. Electricity rates
soared.
The chief executive of one utility, Vattenfall, which owns a coal
plant that is one of the continent's biggest carbon emitters, defended
the decision. Lars G. Josefsson, who is also an adviser to German
Chancellor Angela Merkel, said higher electricity prices are "the
intent of the whole exercise. . . . If there were no effects, why
should you have a cap-and-trade system?"
But consumers ask why four big utilities that dominate the German
market got to keep the money.
U.S. Pioneered System
The cap-and-trade system, modeled on a U.S. program that reduced
sulfur dioxide emissions, sets a gradually shrinking target for
Europe's carbon dioxide emissions and divides it by country.
Each country then rations shares to power plants and factories. The
allocations are designed to fall short of past use, forcing companies
to cut emissions, get credit for reducing greenhouse gases in
developing countries or buy spare allowances from other firms to make
up the shortfall. That creates a market, and a market price, for
allowances.
However, because of lobbying by well-connected companies, the E.U.'s
limits on emissions ended up being higher than the actual emissions.
As a result, fewer companies than expected had to buy emissions this
year, and the price of carbon allowances, which had topped $30 per ton
of carbon about a year ago, crashed to about $1 a ton. That eased some
of the pressure on electricity rates, but prices for next year, after
tighter E.U. limits take effect, are still about $20 a ton.
The E.U. is drawing up new rules for a second phase of its program,
due to run from 2008 to 2012, but those, too, have sparked
controversy.
Fights have erupted as countries seek to guard their interests.
Eastern European nations have lobbied for more generous allocations
because of their communist legacies and lower living standards.
Germany, the continent's largest wind-energy producer, wants an E.U.
mandate that each country get 20 percent of its energy from renewable
resources by 2020; Poland, which uses no renewable resources, is
resisting.
Germany boasts that it has cut emissions to 18.4 percent below 1990
levels, the benchmark used in the Kyoto Protocol and in Europe. But
nearly half the reduction was because of sagging industrial output in
the former East Germany after reunification. For the 2008-2012 period,
E.U. officials sliced 5 percent off Germany's emissions proposal.
Individual companies have also haggled over whether their historical
records were representative emission benchmarks.
"A paper mill in Italy would get different credits from a paper mill
in Germany, even if they are completely the same," said Marco Mensink,
energy and environment director of the Confederation of European Paper
Industries.
Perversely, Europe's cap-and-trade system has done little to reduce
output at such places as the Janschwalde coal plant, Europe's
third-biggest carbon dioxide emitter. Each year, it spews more than 25
million tons of carbon dioxide. The dirty gray plant still has
turbines and generators that date from Soviet times. It has nine
cooling towers, and just half of its output can power all of Berlin.
But the cap-and-trade system does provide an extra reward for
efficiency. And the owner of the plant, the Swedish energy firm
Vattenfall, installed new blades in the old Russian turbine, boosting
the plant's efficiency to 36 percent, from 33 percent. Vattenfall has
also retrofitted a 1,600-megawatt plant nearby at Schwarze Pumpe,
which has a much higher efficiency rate.
At the other end of the transmission line, companies like Kollo live
with the new rules as best they can. Each day, the silicon carbide
plant's managers decide what they can afford to pay for electricity,
and the utility tells them how many hours are available at that price.
One day last month, the firm was told it could buy only 21 hours at
the price it bid, so Kollo turned off the plant for three hours. That
lengthens the 10-day manufacturing cycle and, contrary to
environmental goals, reduces energy efficiency.
Starting in 2008, the E.U. will probably hand out allowances based on
industries' best practices. The new standards, designed to eliminate
disputed historical benchmarks, should favor efficient plants rather
than grandfathering emission levels from inefficient ones.
Joost Demmink, Kollo's process manager, fears that the allocations
will cover only half of what Kollo needs. If that happens, Kollo could
spend about $1.3 million to cover the shortfall -- more than its
profit in 2006.
Similar fears grip the French cement factory in Dannes, which is owned
by Holcim. Vincent Bichet, the regional director general, said the
company has cut energy costs -- and carbon emissions -- by using slag
from steel plants or waste dumps and by reducing the amount of an
energy-intensive material called clinker in its product.
But the new competitor may still undercut Holcim, Bichet said, because
it doesn't have to pay carbon-emissions costs. The E.U. cap-and-trade
system has led to a "distortion of competition" he said. "I've been
yelling about this. What do you want me to do? Put a plant in
Mauritania or Morocco and close this one?"
There's one more irony: The Moroccan clinker may have produced more
carbon dioxide than clinker made in Dannes. "This is going the wrong
way from an environmental point of view," Bichet said.
Lessons From Experience
Last week, a delegation of California state officials finished an
eight-day tour of European capitals to figure out how they can learn
from Europe's mistakes. And a week earlier, the Senate Energy and
Natural Resources Committee held a roundtable discussion with half a
dozen European executives, officials and consultants to figure out how
to adapt Europe's system while avoiding some problems in the
translation.
An increasing number of U.S. industry leaders -- including top
executives of auto companies, FedEx, General Electric and major
utilities -- have joined environmentalists in backing variation of a
cap-and-trade system, and the Senate bills have bipartisan support.
One key issue is how to deal with imports from countries that don't
price carbon. A U.S. system that raised costs for U.S. firms would
make imported goods, especially from India and China, even more
competitive, adding to the trade deficit and possibly driving U.S.
companies out of business. But, for now, demanding that China act on
greenhouse gases is a non-starter, and waiting for Beijing could be an
excuse for inaction, proponents of U.S. legislation say.
Other questions include whether emission permits should be given away
or auctioned off. Should the system cover airlines and automobiles as
well as factories? Should quotas be imposed when fuels are burned or
when they are extracted from the ground?
"People in Washington have begun to focus on the cost of climate
change," said Paul Bledsoe, strategy director at the National
Commission on Energy Policy. "But it's important to recognize that
legislation to mitigate climate change is going to have significant
economic costs, as well."
--
There may come a time when the CO2 police will wander the earth telling
the poor and the dispossed how many dung chips they can put on their
cook fires. -- Captain Compassion.
Wherever I go it will be well with me, for it was well with me here, not
on account of the place, but of my judgments which I shall carry away
with me, for no one can deprive me of these; on the contrary, they alone
are my property, and cannot be taken away, and to possess them suffices
me wherever I am or whatever I do. -- EPICTETUS
"Civilization is the interval between Ice Ages." -- Will Durant.
"Progress is the increasing control of the environment by life.
--Will Durant
Joseph R. Darancette
daranc@NOSPAMcharter.net
By Steven Mufson
Washington Post Staff Writer
Monday, April 9, 2007; A01
Wout Kusters, director of a manufacturing plant in the Dutch lowlands,
knows something the U.S. Congress needs to know. So does Gervais
Pruvost, a laborer in a small cement plant in northern France. So does
just about every German homeowner.
When you're trying to slow down global warming, beware of unintended
consequences.
As U.S. lawmakers work on the details of their greenhouse-gas
legislation, they are looking carefully at Europe's experience. Five
Senate proposals all use the same basic approach, known as "cap and
trade," that Europe has used for the past two years. But what the
snappy name "cap and trade" means is that the market will put a price
on something that's always been free: the right of a factory to emit
carbon gases. That could affect the cost of everything from
windowpanes to airline tickets to electricity.
Europe has already hit a few bumps with its program. There's the Dutch
silicon carbide maker that calls itself the greenest such plant in the
world, but now can't afford to run full-time; the French cement
workers who fear they're going to lose jobs to Morocco, which doesn't
have to meet the European guidelines; and the German homeowners who
pay 25 percent more for electricity than they did before -- even as
their utility companies earn record profits.
In some ways, Europe's program has been a success. It covers 45
percent of the continent's emissions, 10,000 companies and 27 European
Union countries. It has built registries that list carbon dioxide
emissions for every major plant.
In other ways, the approach has been a bureaucratic morass with a host
of unexpected and costly side effects and a much smaller effect on
carbon emissions than planned. And many companies complain that it is
unfair.
Consider the plight of Kollo Holding's factory in the Netherlands,
which makes silicon carbide, a material used as an industrial abrasive
and lining for high-temperature furnaces and kilns. Its managers like
to think of their plant as an ecological standout: They use waste
gases to generate energy and have installed the latest
pollution-control equipment.
But Europe's program has driven electricity prices so high that the
facility routinely shuts down for part of the day to save money on
power. Although demand for its products is strong, the plant has laid
off 40 of its 130 employees and trimmed production. Two customers have
turned to cheaper imports from China, which is not covered by Europe's
costly regulations.
"It's crazy," said Kusters, the plant director, as he stood among
steaming black mounds of petroleum coke and sand in northern Holland.
"We not only have the most energy-efficient plant in the world but
also the most environmentally friendly."
A few hundred miles away, in northern France, Pruvost took to the
streets with 400 other cement workers from the region last December to
protest a license for a rival company that plans to take advantage of
Europe's system for controlling greenhouse gases by circumventing it.
The rival wants to import material from Morocco, where factories don't
have to pay to emit carbon gas.
Pruvost, 54, has worked for 30 years at a cement plant in the tiny
town of Dannes in the gentle bluffs near the English Channel, as his
father did before him. Looking for another job, Pruvost mused as he
stood above a noisy giant mixing machine, would be "unimaginable."
Though the potential rival factory has a permit, it has not started
building the grinding facility it will need for the cheap imports.
Of all the effects of the new rules, the rise in the price of power
has aroused the most outrage. Much of the anger of consumers and
industries has been aimed at the continent's utility companies. Like
other firms, the utilities were given slightly fewer allowances than
they needed. But instead of charging customers for the cost of buying
allowances to cover the shortfall, utilities in much of Europe charged
customers for 100 percent of the tradable allowances they were given
-- even though the government handed them out free. Electricity rates
soared.
The chief executive of one utility, Vattenfall, which owns a coal
plant that is one of the continent's biggest carbon emitters, defended
the decision. Lars G. Josefsson, who is also an adviser to German
Chancellor Angela Merkel, said higher electricity prices are "the
intent of the whole exercise. . . . If there were no effects, why
should you have a cap-and-trade system?"
But consumers ask why four big utilities that dominate the German
market got to keep the money.
U.S. Pioneered System
The cap-and-trade system, modeled on a U.S. program that reduced
sulfur dioxide emissions, sets a gradually shrinking target for
Europe's carbon dioxide emissions and divides it by country.
Each country then rations shares to power plants and factories. The
allocations are designed to fall short of past use, forcing companies
to cut emissions, get credit for reducing greenhouse gases in
developing countries or buy spare allowances from other firms to make
up the shortfall. That creates a market, and a market price, for
allowances.
However, because of lobbying by well-connected companies, the E.U.'s
limits on emissions ended up being higher than the actual emissions.
As a result, fewer companies than expected had to buy emissions this
year, and the price of carbon allowances, which had topped $30 per ton
of carbon about a year ago, crashed to about $1 a ton. That eased some
of the pressure on electricity rates, but prices for next year, after
tighter E.U. limits take effect, are still about $20 a ton.
The E.U. is drawing up new rules for a second phase of its program,
due to run from 2008 to 2012, but those, too, have sparked
controversy.
Fights have erupted as countries seek to guard their interests.
Eastern European nations have lobbied for more generous allocations
because of their communist legacies and lower living standards.
Germany, the continent's largest wind-energy producer, wants an E.U.
mandate that each country get 20 percent of its energy from renewable
resources by 2020; Poland, which uses no renewable resources, is
resisting.
Germany boasts that it has cut emissions to 18.4 percent below 1990
levels, the benchmark used in the Kyoto Protocol and in Europe. But
nearly half the reduction was because of sagging industrial output in
the former East Germany after reunification. For the 2008-2012 period,
E.U. officials sliced 5 percent off Germany's emissions proposal.
Individual companies have also haggled over whether their historical
records were representative emission benchmarks.
"A paper mill in Italy would get different credits from a paper mill
in Germany, even if they are completely the same," said Marco Mensink,
energy and environment director of the Confederation of European Paper
Industries.
Perversely, Europe's cap-and-trade system has done little to reduce
output at such places as the Janschwalde coal plant, Europe's
third-biggest carbon dioxide emitter. Each year, it spews more than 25
million tons of carbon dioxide. The dirty gray plant still has
turbines and generators that date from Soviet times. It has nine
cooling towers, and just half of its output can power all of Berlin.
But the cap-and-trade system does provide an extra reward for
efficiency. And the owner of the plant, the Swedish energy firm
Vattenfall, installed new blades in the old Russian turbine, boosting
the plant's efficiency to 36 percent, from 33 percent. Vattenfall has
also retrofitted a 1,600-megawatt plant nearby at Schwarze Pumpe,
which has a much higher efficiency rate.
At the other end of the transmission line, companies like Kollo live
with the new rules as best they can. Each day, the silicon carbide
plant's managers decide what they can afford to pay for electricity,
and the utility tells them how many hours are available at that price.
One day last month, the firm was told it could buy only 21 hours at
the price it bid, so Kollo turned off the plant for three hours. That
lengthens the 10-day manufacturing cycle and, contrary to
environmental goals, reduces energy efficiency.
Starting in 2008, the E.U. will probably hand out allowances based on
industries' best practices. The new standards, designed to eliminate
disputed historical benchmarks, should favor efficient plants rather
than grandfathering emission levels from inefficient ones.
Joost Demmink, Kollo's process manager, fears that the allocations
will cover only half of what Kollo needs. If that happens, Kollo could
spend about $1.3 million to cover the shortfall -- more than its
profit in 2006.
Similar fears grip the French cement factory in Dannes, which is owned
by Holcim. Vincent Bichet, the regional director general, said the
company has cut energy costs -- and carbon emissions -- by using slag
from steel plants or waste dumps and by reducing the amount of an
energy-intensive material called clinker in its product.
But the new competitor may still undercut Holcim, Bichet said, because
it doesn't have to pay carbon-emissions costs. The E.U. cap-and-trade
system has led to a "distortion of competition" he said. "I've been
yelling about this. What do you want me to do? Put a plant in
Mauritania or Morocco and close this one?"
There's one more irony: The Moroccan clinker may have produced more
carbon dioxide than clinker made in Dannes. "This is going the wrong
way from an environmental point of view," Bichet said.
Lessons From Experience
Last week, a delegation of California state officials finished an
eight-day tour of European capitals to figure out how they can learn
from Europe's mistakes. And a week earlier, the Senate Energy and
Natural Resources Committee held a roundtable discussion with half a
dozen European executives, officials and consultants to figure out how
to adapt Europe's system while avoiding some problems in the
translation.
An increasing number of U.S. industry leaders -- including top
executives of auto companies, FedEx, General Electric and major
utilities -- have joined environmentalists in backing variation of a
cap-and-trade system, and the Senate bills have bipartisan support.
One key issue is how to deal with imports from countries that don't
price carbon. A U.S. system that raised costs for U.S. firms would
make imported goods, especially from India and China, even more
competitive, adding to the trade deficit and possibly driving U.S.
companies out of business. But, for now, demanding that China act on
greenhouse gases is a non-starter, and waiting for Beijing could be an
excuse for inaction, proponents of U.S. legislation say.
Other questions include whether emission permits should be given away
or auctioned off. Should the system cover airlines and automobiles as
well as factories? Should quotas be imposed when fuels are burned or
when they are extracted from the ground?
"People in Washington have begun to focus on the cost of climate
change," said Paul Bledsoe, strategy director at the National
Commission on Energy Policy. "But it's important to recognize that
legislation to mitigate climate change is going to have significant
economic costs, as well."
--
There may come a time when the CO2 police will wander the earth telling
the poor and the dispossed how many dung chips they can put on their
cook fires. -- Captain Compassion.
Wherever I go it will be well with me, for it was well with me here, not
on account of the place, but of my judgments which I shall carry away
with me, for no one can deprive me of these; on the contrary, they alone
are my property, and cannot be taken away, and to possess them suffices
me wherever I am or whatever I do. -- EPICTETUS
"Civilization is the interval between Ice Ages." -- Will Durant.
"Progress is the increasing control of the environment by life.
--Will Durant
Joseph R. Darancette
daranc@NOSPAMcharter.net
