U.S. Being Left Out of Global Emissions Trading Markets

The New York Times is wringing its hands over lost opportunities for U.S. companies to trade in phony assets (April 10, 2003). According to the Times, the U.S., which was the major promoter of emissions trading at the Kyoto negotiations, is now being left out of a potentially lucrative market.

The paper also notes that the Europeans, who were very cool to the idea of trading when it was being pushed by the U.S., have now jumped on the market-based bandwagon. “When Bush pulled out in the cavalier way he did, he galvanized everyone around the world to make it work,” said David Doniger, a former Clinton administration Kyoto negotiator, now with the Natural Resources Defense Council. “The system is made in America, and the Americans arent part of it.”

Steve Drummond, managing director of a greenhouse gas brokerage in London called CO2e.com, told the Times that, “Now that the Americans are out, Europe can dominate the emissions trading market. It entitles the Europeans to write the rules for global trading.”

The Times laments the prospect of American-based multinationals being “forced to put in place two ways of accounting for carbon dioxide emissions, one for emissions inside the United States and one for emissions in nations that signed on to Kyoto.” What the Times omits is that the Kyoto Protocol still has not been ratified and gone into effect.

The real dynamic in operation here is the attempt to build a business constituency in favor of ratifying Kyoto and implementing mandatory caps. The Times is playing on the fears (or hopes) of businesses facing uncertainty regarding the future of carbon dioxide regulations, which would increase the cost of energy use and hurt the economy.

Some companies are rightly upset about the prospect of such controls, but are also mindful of the fact that globally imposed regulations might be cheaper than a hodgepodge of conflicting rules. Other companies see an opportunity to game the emissions trading system Enron-style to raise profits. Those companies play at voluntary emissions trading and hope to get credits for emissions reduction activities that they would have carried out anyway. Those companies are behind efforts for federally-mandated early action crediting schemes.

The Times quotes Bruce Braine, vice president for strategic planning and analysis at American Electric Power, who says that his company sees voluntary trading as “an insurance policy. If you ultimately have mandatory requirements, then this gives us first-mover advantages.” But the first-mover advantage isnt insurance so much as a move to become part of a future carbon cartel, in which companies like AEP will rake in massive rents from less-advantaged companies.

What they really fear is not being part of the cartel. “By not putting in place similar legislation for greenhouse gases, critics fear, the United States allows other countries to gain experience and win business in the field,” says the Times. “All were doing now is giving other countries a chance for remedial education,” said Doniger, “and it will cost us in the end.”