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Last Updated: Tuesday, 5 June 2007, 17:49 GMT 18:49 UK
Europe pays for China to cut gases
By Michael Bristow
BBC News, Beijing

Women walk past a row of electric pylons in front of a coal-fired power plant on the outskirts of Beijing.
China could soon overtake the US as the world's largest polluter
Europeans are paying to reduce greenhouse gas emissions in China as part of the continent's efforts to tackle global warming.

Power generators and other polluting firms are buying "carbon credits" from countries such as China to offset their own emissions.

But where the Chinese gain by cleaning up their factories and selling the resulting credits, European consumers lose as the costs are often passed on in the form of higher energy bills.

Last year alone, European companies spent around $2.5bn (1.25bn) on carbon credits from China.

Although action to tackle global warming is generally welcomed, consumer groups worry that poor people are finding it increasingly difficult to pay this energy "tax".

The concerns that China had, that [introducing emissions targets] was just a way to shackle its growth, have been largely overcome
Neeraj Prasad, World Bank
"Action is needed to ensure a clean environment does not come at the cost of vulnerable consumers," said Allan Asher, chief executive of UK consumer protection body Energywatch.

Energywatch estimates that carbon trading has added 7% to electricity bills in the UK over the past two years.

During roughly the same timespan, the number of people suffering from fuel poverty - those spending 10% or more of their income on heating and lighting - has risen from one to three million in Britain.

Jonathan Smith, a spokesman for the international power company E.ON, admitted the purchase of carbon credits had contributed to a rise in utility bills in Europe, and warned that the cost of buying carbon credits was likely to rise over the coming years.

Trade in credits

The carbon market - the name given to the trade in greenhouse gases - has developed quickly over the past few years.

Steel plant at Anshan in northeast China's Liaoning province
China stresses that economic progress is paramount
It emerged as the world's developed countries searched for ways to meet obligations to reduce greenhouse gas emissions as part of the Kyoto Protocol - an agreement between 38 industrialised countries to reduce emissions to 5% below 1990 levels by 2012.

European countries are at the forefront of this campaign, setting emission targets that their companies then have to meet.

Firms can do this by cleaning up their own polluting factories, or by buying carbon credits from developing countries that count towards these goals.

Developing nations can provide these credits because under the Kyoto Protocol they are not obliged to reduce greenhouse gas emissions.

Chinese firms have been particularly quick to realise that by minimising pollution they can create carbon credits that can then be sold.

It costs them money to install new technology, but they can often make large profits.

China now dominates the sales side of the trade, with a 61% market share.

Although prices fluctuate, emissions sell in units worth around $10 each. One unit is equal to one ton of CO2 or the equivalent in another greenhouse gas.

Neeraj Prasad, a carbon finance expert at the World Bank, said that buying credits from developing countries was a cheap way for Western firms to meet their emission targets.

And he said the Chinese government has become convinced it was a good way to reduce emissions without limiting its economic growth.

"The concerns that China had, that this is just a way to shackle its growth, have been largely overcome,'' added Mr Prasad, who is based in Washington.

On Monday, Ma Kai, China's minister at the National Development and Reform Commission, seemed to confirm this.

He said China would continue to develop technologies initially introduced to create carbon credits in a bid to cut its own emissions.

Exploiting the system?

But there are concerns - and not just ones related to the cost for European consumers.

wind farms
Companies worldwide are under pressure to reduce emissions
Critics say the system is not monitored properly and often does not lead to any actual emission reductions.

Yang Ailun, a spokeswoman for Greenpeace in China, said there have been cases in China where low-emission factories have been built solely to earn money from carbon credit sales.

"The firms involved were not originally planning to build these factories, they were just exploiting the system," she said.

The result is that the world gets more, not less greenhouse gas emissions.

But despite these problems, even the Greenpeace spokeswoman admitted that carbon trading is a valuable tool in reducing emissions.

"It's using a business model to solve an environmental problem," she said.

"But the fact that people make money from these projects does not undermine the validity of the system."

The Chinese reaction to plans to cut energy use

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