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. Last Updated: 07/27/2016

Europe Fails Kyoto Pollution Standards

LONDON -- When European Union officials created a market for trading pollution credits, they boasted it was a cost-conscious way to save the planet from global warming.

Five years later, the 25-nation EU is failing to meet the Kyoto Protocol's carbon-dioxide emission standards. Rather than help protect the environment, the trading system has led to increases in electricity prices of more than 50 percent and record profits for utilities.

"I don't suppose the environment has noticed the European emissions trading scheme," said William Blyth, director of Oxford Energy Associates in Oxford, England, and a former International Energy Agency official who advises businesses on energy and climate change policy. The electricity companies and emissions traders "have done very well."

The plan, unveiled by EU Environment Commissioner Margot Wallstroem in October, 2001, was to grant permits to 12,000 power plants, factories, oil rigs and refineries. Each permit represented the right to produce a metric ton of carbon dioxide, and could be traded like any commodity. The system was supposed to motivate companies to reduce carbon dioxide and sell their extra permits for profit.

The $44 billion-per-year market is "an environmental and economic failure," according to Open Europe, a policy group that assesses EU laws.

At least 12 of the 25 EU nations are at risk of missing their Kyoto pledge, according to EU estimates. Among the 15 original EU members, 11 are unlikely to meet the pollution standards, including Germany, Italy and Spain, three of Europe's five largest economies.

The mistake came when the European Commission allowed the bloc's 25 governments to provide too many permits and seek fewer restrictions on pollution. The group fell behind schedule to meet the Kyoto target of an 8 percent reduction in carbon dioxide emissions by 2012. As of 2004, the most recent data available, the EU had cut back by 0.9 percent compared with the benchmark year of 1990.

A record rise in natural gas prices encouraged power producers to burn dirtier coal. After that switch, carbon dioxide permit prices quintupled from 6.05 euros ($7.66) in January 2005 to 30.70 euros in April of this year.

Sensing opportunity, banks including Morgan Stanley and Barclays started trading the permits. Speculators such as the $12 billion Citadel Investment Group hedge fund followed.

Because of the failure in Europe, member-states will have to invest in developing countries if they are to meet the Kyoto goal, said Abyd Karmali, managing director in London for ICF Consulting. Under a United Nations program, companies can help developing nations reduce pollution, and count those savings against their goals in Europe.

Karmali estimates that at least half of Europe's reductions will have to occur outside its borders to attain the 2012 Kyoto target. "It will be very difficult for the EU to do it any other way," he said.

The program has had little effect on global warming.

Temperatures may climb as much as 5.8 degrees Celsius in the next 100 years, according to the web site of the British Department for Environment, Food and Rural Affairs.