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Last Updated: Friday, 30 April, 2004, 16:51 GMT 17:51 UK
EU climate targets in trouble?
By Tim Hirsch
BBC News Online environment correspondent

Factory, AP
Most countries are still well adrift of emission targets
The European Union has been warned its efforts to curb the emissions linked to global warming are being put in jeopardy by its own governments.

Experts in the emerging market for climate-friendly investment fear a key scheme to cut the amount of carbon dioxide (CO2) reaching the atmosphere could fail, because heavy industry is being offered little incentive to become cleaner.

The controversy centres on the EU Emissions Trading Scheme which comes into force next year, and forms a central plank of the policy to meet the targets set by the Kyoto climate change agreement.

Most countries are still well adrift of those targets which require EU emissions to be 8% below 1990 levels over the period 2008-12.

Under the scheme, power stations and large factories will have to match their CO2 emissions with permits issued by governments.

Any companies exceeding these allowances will need to buy spare ones from firms which find ways of keeping greenhouse gases out of the atmosphere.

Cleaner technology

The idea is that by putting a price on emissions, this trading system will make it financially attractive to invest in cleaner technology.

But the scheme will only work if the supply of permits is kept fairly tight so that they have some value - and that is where the concerns come in.

Over the past month EU governments have been telling the European Commission how they intend to share out emission allowances to their industry for the first stage of the scheme in 2005-7

Far from putting a squeeze on greenhouse gases, at best they allow for "business as usual" and in several cases leave room for big increases.

In Italy for instance, the EU's third largest emitter, the government is proposing to hand out permits covering CO2 emissions 11% higher than in 2000.

The effect of this can be seen in the "carbon price" agreed in trades already taking place in anticipation of the scheme.

The value of permits has crashed from 13 euros per tonne of CO2 to around six euros since the beginning of the year, reflecting the market's feeling that governments will be generous in their allocations to industry.

Commentators warn that if this price continues to fall, there will be no incentive for businesses to cut their emissions and the scheme could fail - making it far more difficult to take effective action to curb global warming.

Pollution-pricing

James Cameron runs a group called Climate Change Capital which advises the private sector on investment decisions in the new world of pollution-pricing.

He says failure of the EU scheme would have consequences far beyond Europe, as it is the first test of the claim that global warming can be fought cost-effectively without damaging industry.

Mr Cameron told BBC News Online: "If we don't pull it off, if we fail, and the arguments for failure are that it is all too costly and business didn't like it and the European Union in the end was all talk and no action, then you can see how that will play with the lobby in Washington that doesn't want to do anything about climate change."

He has written to Tony Blair urging the UK government to ignore lobbying from business groups such as the CBI, which claim British firms would face unfair competition if the cap on emissions is tighter than in other EU countries.

It comes in the week Mr Blair spoke to a new group of corporations, states and cities keen to speed up action against climate change.

The prime minister told the gathering: "The cost of not acting is so overwhelmingly greater than any short-term cost of action. We have to act, and we have to act now."

When the British plans for allocating emission permits are published next week, it will be an important test of whether this rhetoric is being backed up by government policies.


WATCH AND LISTEN
The BBC's Tim Hirsch
"In the last couple of years emissions have been rising"



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