Profits of doom

"Each American emits three times more greenhouse gases than a Frenchman." So emits Jacques Chirac. The Kyoto Protocol failed, not because of "vulgar macho" posturing, but because it attempted to carve up global emissions reductions with razor sharp, legally binding, punishable contracts, with the economic interests of 180 countries at stake. And so, Matt MacAllan argues, once again the regulators must look to the market.

It may remain, in some quarters at least (say, a Bush administration) a moot point, but a new study by the Paris-based International Energy Agency has found that carbon dioxide emissions are set to increase by some 60 per cent by 2020 - a vision indeed.

"The evidence is mounting. The greenhouse gases we produce are having a visible impact on the environment." These are the words with which Dutch Environment Minister, Jan Pronk, opened the recent Sixth Conference of Parties (COP6) to the 1992 United Nations Framework Convention on Climate Change in the Hague. I'll try not to bore you with the peaks and troughs along the way, only this: The European Union wanted - née wants - at least 50 per cent of countries' emissions reductions to be met via domestic action. Should countries fail in this, the argument goes, they should face tough penalties, including exclusion from flexible mechanisms such as emissions trading. This view is opposed by Japan, Australia, Canada and the United States, the latter of which accounts for four per cent of the world's population, but 25 per cent of its greenhouse gas. Whilst differing ever so slightly on specific conditions, this group of countries also wanted to see carbon sinks included in the Clean Development Mechanism - one of the flexible mechanisms - to include the now infamous "existing forests". The EU rejected this, even after the US compromised its position from one of "sinking" 310 million tonnes of carbon into its existing forests, to just 125 million tonnes. To put it in perspective, should this US proposal have been accepted, adopted and applied universally in the developed West, Sweden and Finland, as Europe's most forested countries, would have been in a position to increase their greenhouse gas emissions by somewhere between 30 and 40 per cent. The forest for the trees, so to speak.

Why insist on a 50 per cent domestic target? As much as reports of business dismay at the uncertainty of future regulations abound, as Friends of the Earth tout environmental disaster, like it or not the greenhouse gas-constrained world is coming; it is inevitable. US Under Secretary of State for Global Affairs, Frank Loy, who led the US delegation at the Hague, testified earlier this year before the US Senate that one of the Clinton administration's main goals was to make sure that the final agreement was cost-effective. That is why the US has always insisted on the inclusion of market-based mechanisms. In attempting to persuade a developed, industrialised, capitalist world to reduce its CO2 emissions, it makes sense to allow the market to identify the solutions - the cost-effective solutions that employ limited resources most efficiently - wherever they may be. It may be trite at this point to suggest that emissions know no boundaries, but there it is.

Currency markets
The Kyoto Protocol failed, not because of "vulgar macho" posturing, but because it attempted to carve up global emissions reductions; to carve them up with razor sharp, legally binding, punishable contracts, with the economic interests of 180 countries at stake.

"We are judging the Kyoto Protocol as if it were an olympic gym floor exercise where every movement has to be perfect, when we are really still learning to walk." Carlton Bartels, chief executive officer of newly Hague-launched greenhouse gas emissions trading and information website CO2e.com, part of the Cantor Fitzgerald global financial services firm, speaking, I should point out, at the outset of the negotiations, told me: "Everyone here thinks that following Kyoto finalisation, this universal marketplace will simply pop up into existence. I think a much better analogy is to think of currency markets, where you have a host of national implementations, some strong, some weak. The strong ones will be the ones that others rely on and want to participate and share in, and the weak ones will eventually have to conform. I see the market developing organically, even within specific sectors. A UK group covering one group of emitters, a Danish scheme covering the electric sector..."

The costs, you see, must be rational. And so, once again, we watch as commercial interests outpace the regulators.



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